European Affairs

DESPITE GLOOM, RENEWABLES ARE NOT DOOMED IN U.S.     Print

Somber headlines abound these days about the lack of global progress in combating climate change. Certainly, the renewable energy business in the U.S. has entered a rough patch.

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In Congress, national legislation to fight climate change passed the House of Representatives in 2009 but stalled in the Senate – and there is no prospect at present for reviving it. Canada, with its prospective bonanza in oil-rich tar sands, decided last year to withdraw from the Kyoto protocol. The EU continues with its Kyoto-mandated cap-and-trade system as a market approach to reducing emissions, but it is still experiencing teething troubles.

On both sides of the Atlantic, the key battle is to achieve “grid parity” for renewable energy, meaning that they – sun and wind for electricity in energy and biofuels in transportation – can be produced and brought to the market as cheaply as dirty fossil fuels, notably coal. In this regard, there is a fundamental asymmetry between the EU and the U.S.: the vast fossil energy reserves in America (such as cheap coal and particularly ever-cheaper natural gas from the new reserves of shale gas and other unconventional gas-and coal resources) create strong resistance to renewable energy compared to the situation in a more ecologically-minded Europe. So, on both sides of the Atlantic, the practical way forward with renewables has retreated from top-down treaties to reliance on technological innovations to bring down costs and ramping up initially-small deployments of solar and wind to get economies of scale. Financially, there is still scope for renewables, even in the U.S., for companies that can take advantage of regional anti-carbon rules and for those with self-imposed corporate goals to promote renewables.

It is a troubling outlook for once-optimistic climate warriors, but that impression is only a partial glimpse at a changing picture that actually includes some promising developments.

A major one of these developments is growing American reliance on biofuels. They are controversial, partly because of the amount of carbon-based energy required to make them and even more so because of the initial situation in which corn-based ethanol displaced food crops from farmers’ fields. But new technologies promise the benefits of lower emissions from new sorts of biomass in place of corn, which has been the prevailing material in the U.S. so far. Oil drives transportation now, but someday it will run on sugar derived from biomass. In fact, it already does: ethanol, now refined primarily from corn sugars, has already captured upwards of 10 percent of the U.S. fuel market. New technologies that use enzymes and bacteria to extract vast untapped sugar sources in the cell walls of plants and trees are in the testing stage.

A key recent development was the U.S. Congress' refusal – surprisingly, to observers -- to extend the 54-cents-per-gallon tariff levied against imported ethanol. The change has opened the U.S. market to imports, notably from Brazil. The tariff elimination enacted by Brazil in 2010, followed by the U.S. move, meant that suddenly there is a hemispheric free market in ethanol.

An important aspect of the change is that the fact that Brazil’s biofuels industry is built on sugarcane, a fast growing crop. (The amount of energy used as input is very small compared to the output in fuel: in fact, the “energy-return-on-energy-invested” about nine-to-one in Brazil compared with only 1.3-to-one for corn-based ethanol in the U.S. and two-to-one for sugar beet ethanol in Europe.) Brazilian sugarcane-based ethanol has thus always had a huge energy advantage. Until now, Brazil was frustrated in its export efforts by the heavy U.S. subsidization of its own ethanol producers.

As explained by Globalist Research Center's John Mathews, "a hemispheric free market in ethanol has been created, just like the free market that exists for oil, Brazil’s powerful national competitive advantages will kick in. The first to feel the benefits will be U.S. motorists who will be able to buy [ethanol-blended] gasoline at a lower price. (Of course, that is only true once oil companies start blending Brazilian ethanol, so don't hold your breath!)”

Now, as Mathews points out, Europe stands isolated as a region that imposes a stiff tariff on ethanol imports and also subsidizes its sugar-beet producers. So the world's largest ethanol exporters, Brazil and the U.S., have a strong interest in seeing the European Union dismantle its tariff and subsidy structures as a market-based step toward cost-efficient decarbonization of road transportation in Europe.

These market-driven developments tell a different story from the political hoopla attached to the spectacular failure of such U.S. government-backed renewable fuel companies as Solyndra and Range Fuels. But given the promise of breakthroughs in these technologies, the controversy in Washington about government support for renewable energy has come at a singularly bad time. Republicans in Congress have pounced on the Obama administration’s $400 million in guarantees for the failed solar company Solyndra as an example of big government run amuck. They say Solyndra suggests the folly of government bureaucrats trying to pick winners among companies working on questionably useful technologies. Republicans were a factor in Congress in abandoning generous tax credits for production of ethanol, and they have slashed other federal subsidies as well.

But in the market place, green energy in fact continues to advance, albeit slowly. One reason is that public support and interest in green energy is strong and growing, according to polls. At the same time, private investors have been stepping in with capital, and many State governments have been moving to create a favorable regulatory environment regardless of the poisonous political climate in the nation’s capital.

Total, the French company that is Europe's third largest oil refiner, has doubled its bet on solar power with a $1.3 billion investment in the U.S. company Sun Power. Several American companies are lining up to issue stock to the public this year, and Waste Management, Inc., and the Texas-based oil company Valero, are putting money behind biofuel start-ups.

With federal support lagging, a widening web of State and regional incentives are seen as key to the future of the green economy. One example is the Regional Greenhouse Gas Initiative, Inc. (RGGI), a non-profit corporation set up by nine northeastern States to reduce carbon emissions by 10 percent by 2018. It is the first market-based regulatory program in the U.S. on carbon.  The aim is to mandate a 10 percent reduction of greenhouse gas emissions by 2018.The system involves emissions permits, nearly all sold through auctions by the States, which invest proceeds in consumer benefits: programs to improve energy efficiency, renewable energy, and other clean-energy technologies – all spurring innovation in the clean-energy economy and creating green jobs in each participating State. Given its multi-State scale, RGGI is a promising laboratory for the whole U.S., and even Europe, as a demonstration that electricity producers and consumers can both win from a carbon cap-and-trade system.

California has long been the poster child for what individual States in America (comparable to Germany’s lander and France’s regions) can do to promote renewable energy, especially energy from the sun. Its total solar capacity in 2011 exceeded 1,000 megawatts, up from less than 10 megawatts in 2000. Los Angeles has tripled its capacity since 2009. Governor Jerry Brown wants to encourage the development of 12 gigawatts of small-scale decentralized solar generation plants by 2020, a build-out big enough to cover about one-third of the State’s overall electricity needs. A key to achieving that will be complex “feed-in tariff” laws (similar but not identical to the market-share and rates mandated for utilities to buy renewables in Germany, France and some smaller EU countries).

Of course, opposition groups’ intimidation tactics do have an impact against White House efforts to make changes designed to cut carbon emissions.  Federal cash grants that boosted solar investments in California over the last three years expired in January and are not likely to be restored. The U.S. Environmental Protection Agency has delayed plans – backed by the White House -- to issue regulations to limit greenhouse gas emissions by coal-fired power plants and petroleum refineries, which are responsible for 40 percent of greenhouse gas emissions. President Obama’s recent state of the union address was the first that did not mention ethanol, biofuels or biotechnology. Instead, Obama made a strong pitch for continued investments in shale gas, a development that has stirred controversy because of the risks of chemical contamination to underground water supplies – and even earthquakes. He said his administration would “take every possible action to safely develop this energy.”

There is also concern in the American solar, wind and biofuels sectors about Obama’s all-out support for electric cars, given that they will rely heavily on electricity generated by natural gas and highly polluting coal-fired power plants. (In the U.S., as in Europe, appetite seems to have died for carbon sequestration as a large-scale way to “clean up” coal.) Even electric cars – which are extolled by Obama administration officials as “emission-free” – still rely in practice largely on power generated by carbon-heavy fuel.

Supporters of renewable energy say Washington’s current wariness is terribly short-sighted. Solar and biofuels technologies are only now reaching the stage where a more rapid scaling up seems possible. Now, says Robert Kozak, president of Atlantic Biomass Conversions, Inc., in Frederick, Maryland, the country is “at the phase where you are going to have a lot of failures,” so it was a mistake for the Obama administration to place a few very large bets on companies such as Solyndra and Range Fuels. Instead, they could have used the funding to make dozens of smaller bets on start-up companies exploring a range of solutions to the current high cost of renewable products.

Now the pro-renewable community in the U.S. is largely resigned to the current policy until after the November election. Until then, the country’s renewable fuels companies will just have to look to the private sector and the individual States and regions for the help needed to keep their promise alive. Of course, there is evidence of similar recalibrating in Europe – for instance, in France’s decision to cut solar subsidies in step with the price drops in the cost of solar panels.

In this shifting context, what remains true on both sides of the Atlantic is the fact that investors in renewable energy apparently remain convinced, along with environmentalists, that the potential for their technologies is immense, and that the game-changing rewards are delayed -- and not in demise.

 

Dan Morgan, former Washington Post reporter and editor, is an independent journalist specializing in agriculture and energy issues.