After Paris, Learning from Germany's Renewable Revolution

After Paris, Learning from Germany's Renewable Revolution
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As delegates to the UN climate conference departed for Paris last month in search of ideas and action to decarbonize the global economy, one of the world's most famous emissions-cutting case studies came under renewed scrutiny. POLITICO Europe and others pounced on a new finding by the renowned Fraunhofer Institutes that the costs of Germany's green energy transition or energiewende could top € 1.1 trillion over time.

Skeptics often point to such figures, claiming that cutting emissions is simply too expensive. Even advocates of climate action, in the pages of the New York Times, The Economist, and Der Spiegel, have distanced themselves from Germany's radical renewable energy overhaul, citing its high costs. As climate change climbs to the top of American progressives' priorities, calls to emulate European energy policy have been notably less frequent than those to import other European policies, like single-payer healthcare and strong consumer protections.

But the media treatment of Germany's energy transition misses a crucial point: The bulk of the costs were incurred at a time when renewable technologies like wind and solar were orders of magnitude more expensive. By embarking on a renewable revolution two decades ago, Germany and other European countries have provided the demand necessary to scale up solar and wind, making green technologies affordable for their own consumers and for the rest of us.

As we look to start implementing the new Paris agreement, it's time to start owning the German energy transition as a successful model and necessary step toward freeing the US and the rest of the world from fossil fuels.

To understand why Germany's Energiewende is an important blueprint for accomplishing the global climate goals, it's important to understand why Germany is, at face value, a terrible candidate to lead a renewable energy revolution: The country has a large energy-intensive industrial economy, significant coal reserves, a serious post-Chernobyl aversion to carbon-free nuclear power, limited available land for building wind turbines, and levels of sunlight similar to Alaska's.

Yet the country accomplished a nearly ten-fold increase in renewables because of the presence of another often-scarce resource--political will. In addition to support from a uniquely prominent Green Party, the movement for alternative energy in Germany gained momentum due to support from southern conservative farmers who, as owners of major hydroelectric resources, stood to benefit from a "feed-in-tariff" (a guaranteed price for renewable energy producers selling energy back to the grid) more than two decades ago. The initial feed-in-tariff law was adopted in 1991 under Chancellor Helmut Kohl's coalition of the conservative Christian Democrats and the Libertarian Free Democratic Party, with strong support from the Greens.

Like only Nixon could go to China, only a coalition including rural conservatives and fiscal hardliners could remake a diverse industrial society's energy portfolio around solar and wind.

The law has evolved over time, but the core features are now much the same: Germany requires utilities to accept power from independent producers at rates that are set by regulators according to the technology used to generate the power. The guaranteed rates paid to producers are set for twenty years starting when projects are installed, but these rates decline for newly installed systems each year in order to put pressure on manufacturers to reduce prices. The goal is to create predictability in order to reduce the cost of financing and help capital-intensive projects get completed.

By almost any measure, it's worked: While German utilities warned in 1993 that renewables could never make up more than four percent of power supply, the country is on track for a 33 percent renewable share of electricity production this year. That's up from from 27.4 percent last year. On sunny or windy days, renewables are through the roof: a combined 78 percent of consumption came from renewable sources on July 25 of this year. The emissions goals are also slowly starting to be realized. Even though German leaders decided to set the country on a path to eliminate nuclear energy after the Fukushima disaster, greenhouse gas emissions have dropped to their lowest levels since 1990, owing to the drastic growth of wind and solar. The government is focused on using a range of tools including increases in energy efficiency in order to meet energiewende targets of 80 to 95% emissions reductions relative to 1990 by 2050.

The critics have a point: the energiewende has been expensive. Because producers are guaranteed a fixed price over twenty years and costly installations from years past are subject to hefty subsidies, the legacy costs add up quickly. For example, a homeowner who signed up for a solar contract in 2009 will get paid 43 euro cents per kilowatt hour until 2029. While a homeowner getting solar this year will get only 13.7 cents, Germany still has to pay for those older producers. The costs of these subsidies are collected from energy consumers through a surcharge (just over 6 euro cents per kilowatt hour in 2014).

But this was the whole point of the energy transition. The country expanded renewables at a time when they were expensive on purpose. The objective was to make them less expensive over time by encouraging their widespread use--at home and abroad. The country's investments in renewables appear to have peaked in 2010 and are now expected to be at least a third lower annually than they were at the peak over the next few decades.

Because internationally competitive businesses--factories and firms that can pick up and move overseas--have been exempted from the surcharge, fears of negative impacts on foreign trade have not been realized. Instead, the energiewende has resulted in the creation of an estimated 370,000 jobs in subsectors from parts manufacturing to home equipment maintenance and installation. Most of these jobs cannot be shipped overseas. The transition has even created new industrial clusters: Hamburg, for instance, has parlayed its expertise in jet engine manufacturing into a new role as a hub for building wind turbines.

Electricity costs have risen more slowly than fuel and heating oil over the past decade, in part because of the falling costs of renewables, and the overall cost of the surcharge remains less than one percent of the average household budget. As Green Budget Germany and others have noted, renewable subsidies are paid upfront in the form of a transparent surcharge, whereas subsidies for coal and nuclear come as indirect budget items that fall, indiscernibly, on taxpayers.

Of course, it's not just the cost of government subsidies for fossil fuels that are hidden. To consider the costs of the energy transition, it's crucial to consider true costs of greenhouse gas emissions. While the cost in the market of emitting a ton of carbon now stands at less than $10 under Europe's Emissions Trading Scheme, academics at Stanford estimated this year that the real economic costs to society of emitting a ton of carbon is $220. This takes into account factors like required rebuilding from climate impacts, health consequences associated with air quality, and lower agricultural output from water shortages.

But even this figure doesn't fully account for some of the bigger geopolitical consequences of climate change, which are becoming increasingly evident to Germany and the rest of Europe amidst the wave of refugees this year. A study by Norman Myers of Oxford University found that climate change on the order of what's now expected could result in 200 million refugees fleeing weather-related dislocation, famine, or conflict over increasingly scarce resources like water. By comparison, 965,000 asylum-seekers entered Germany this year. As Pope Francis pointed out in his Encyclical this summer, there has already been "a tragic rise in the number of migrants seeking to flee from the growing poverty caused by environmental degradation."

The difficult truth is that Germany's energy transition--even if it meets its extremely ambitious long-term emissions goals--is only a drop in the bucket with regard to global climate goals. The country only accounts for about three percent of global emissions. Even if the Kyoto Treaty signatories with the most significant commitments to cut emissions follow through, we would only be in the ballpark of one-fifth of what's needed to prevent a two-degree Celsius rise in temperature and the accompanying crises like mass migration.

But there's reason for hope. The rapid decline in renewable prices, driven in large part by Europe's early upfront investment, is creating a pathway for low-carbon power production around the world. In the first few months of this year alone, China installed 5 gigawatts of solar power--enough energy to power at least 5 million Chinese households.

Right now, even as the US government appears deadlocked on climate policy, there's reason to believe that America is poised for its own energiewende. Given the new price competitiveness of renewables, there's no need for the United States to embark on a top-down, government-led, subsidies-oriented program in order to replicate Germany's green success. The US solar industry is now raising and deploying upwards of $20 billion a year and has created one out of 80 jobs since the financial crisis. Wind is poised to reach 5% of the US energy mix next year. All this has happened with a tiny fraction of the financial support German renewables have received.

This is good news for reaching the new Paris targets. But there are serious obstacles: In recent years, utilities and fossil fuel companies have sought to stop the growth of renewables by influencing state regulators to reduce renewables targets, by imposing expensive "connection fees" on solar providers, and by blocking states' "net metering" laws that enable homeowners to sell energy to the grid.

In response, something similar to what happened in Germany decades ago is happening in the United States now: an unlikely alliance of greens and conservatives is forming to challenge the incumbent utilities and their allies. In Georgia, a Tea Party activist named Debbie Dooley joined up with the Sierra Club to force the state to allow rooftop solar leasing. The alliance, now known as the Green Tea Coalition, is fighting to do the same in Florida. On the other side of the country, a group of conservative Arizona Republicans formed an organization called "Tell Utilities Solar Won't Be Killed" or TUSK (in honor of the GOP mascot) to take on anti-solar interests on the state regulatory board.

With regard to the federal incentives that do exist--namely the Production Tax Credits and Investment Tax Credits--some of the biggest beneficiaries and political champions are in deep red states like Texas. With a debate raging this month over whether to protect renewable tax credits as part of a part of Congress's "tax extenders" package, some of the biggest advocates are hardline conservatives like Iowa senator Chuck Grassley.

With new factors like improved US fuel standards in cars, emissions standards in power plants, as well as innovations like Tesla's integrated home and auto power storage, it's plausible that the center of gravity in renewable power could move across the Atlantic. But to meet the new goals set in Paris, we'll have to rely on a political and economic precedent we've often willfully ignored: Germany's ambitious green transition.

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