Voices from Germany

Below is the summary of "Economic impacts from the promotion of renewable energies:
The German experience".

Isn't it time we learned from others' experiences? Others' mistakes? Surely, that is the common-sense thing to do.

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3Summary and Conclusion

Although renewable energies have a potentially beneficial role to play as part of
Germany’s energy portfolio, the commonly advanced argument that renewables
confer a double dividend or “win-win solution” in the form of environmental stewardship and economic prosperity is disingenuous. In this article, we argue that
Germany’s principal mechanism of supporting renewable technologies through
feed-in tariffs, in fact, imposes high costs without any of the alleged positive impacts on emissions reductions, employment, energy security, or technological innovation.

First, as a consequence of the prevailing coexistence of the Renewable Energy
Sources Act (EEG) and the EU Emissions Trading Scheme (ETS), the increased use of
renewable energy technologies triggered by the EEG does not imply any additional
emission reductions beyond those already achieved by ETS alone. This is in line with
Morthorst (2003), who analyzes the promotion of renewable energy usage by alternative
instruments using a three-country model. This study’s results suggest that
renewable support schemes are questionable climate policy instruments in the
presence of the ETS.

Second, numerous empirical studies have consistently shown the net employment
balance to be zero or even negative in the long run, a consequence of the high
opportunity cost of supporting renewable energy technologies. Indeed, it is most
likely that whatever jobs are created by renewable energy promotion would vanish
as soon as government support is terminated, leaving only Germany’s export sector
to benefit from the possible continuation of renewables support in other countries
such as the US. Third, rather than promoting energy security, the need for backup
power from fossil fuels means that renewables increase Germany’s dependence on
gas imports, most of which come from Russia. And finally, the system of feed-in
tariffs stifles competition among renewable energy producers and creates perverse
incentives to lock into existing technologies.

Economic impacts from the promotion of renewable energies

Hence, although Germany’s promotion of renewable energies is commonly portrayed
in the media as setting a “shining example in providing a harvest for the
world” (The Guardian 2007), we would instead regard the country’s experience as a
cautionary tale of massively expensive environmental and energy policy that is
devoid of economic and environmental benefits. As other European governments
emulate Germany by ramping up their promotion of renewables, policy makers
should scrutinize the logic of supporting energy sources that cannot compete on the
market in the absence of government assistance. Such scrutiny is also warranted in
the US, where there are currently nearly 400 federal and state programs in place
that provide financial incentives for renewable energy (DSIRE 2009).
History clearly shows that governments have an abysmal record of selecting economically productive projects through such programs (Kahn 2009).

Nevertheless, government intervention can serve to support renewable energy technologies through other mechanisms that harness market incentives or correct for market failures. The European Trading Scheme, under which emissions certificates are
traded, is one obvious example. Another is funding for research and development
(R&D), which may compensate for underinvestment from the private sector owing to
positive externalities. In the early stages of development of non-competitive technologies, for example, it appears to be more cost-effective to invest in R&D to
achieve competitiveness, rather than to promote their large-scale production.
In its country report on Germany’s energy policy, the International Energy Agency
recommends considering ‘‘policies other than the very high feed-in tariffs to promote
solar photovoltaics’’ (IEA, 2007:77). This recommendation is based on the
grounds that ‘‘the government should always keep cost-effectiveness as a critical
component when deciding between policies and measures’’ (IEA, 2007:76). Consequently,
the IEA proposes policy instruments favouring research and development.

Lesser and Su (2008:986) concur with this viewpoint: ‘‘Technologies that are theoretically promising, but unlikely to be competitive for many years, may be best
addressed under other policies, such as publicly funded R&D’’. This reasoning is
particularly relevant for solar cells, whose technological efficiency is widely known
to be modest and, hence, should be first increased substantially via R&D.
Instead of a policy instrument that aims at pushing technological improvements,
however, Germany’s support scheme of renewable energy technologies resembles
traditional active labour market programs, which have been demonstrated in the
literature to be counterproductive (Kluve, 2006:13). It bears particular noting that
the long shadows of this economic support will last for another two decades even if
the EEG were to be abolished immediately.