Tuesday, December 15, 2015

It’s Not (All) About the Money

By Melissa Powers, Director

            For the first time in several years, negotiators, delegates, and observers are leaving the international climate negotiations with a sense of optimism. Nearly every country in the world has promised to take actions to reduce greenhouse gas emissions. This is a significant improvement from past treaties, where only a subset of nations had agreed to reduce emissions. Although the treaty negotiations came down to the wire, as they always do, and although the Paris Agreement could no doubt have included stronger commitments and a more ambitious target, the agreement at least places the world on a better path to reduce greenhouse gases and help avoid unmanageable temperature increases.

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Bill and Melinda Gates
            Even before the Paris negotiations were officially underway, it had become clear that the Paris outcome had a better chance of success when Bill Gates announced his intention to contribute to Mission Innovation, a private-public partnership that aims to spend $20 billion annually to support clean energy research. This money could help fill critical funding gaps and support the development of technologies necessary to reduce the costs of renewables, energy storage, and other essential components of a renewable energy transition. Bill Gates and other billionaire investors earned a great deal of well-deserved praise for their funding pledges, and I hope they produce major improvements in technology and substantial reductions in costs.

            But it is important to remember that, when it comes to the renewable energy transition, it’s not all about the money. Although access to capital is a critical component of renewable energy development, money alone cannot ensure an effective and quick renewable transition. Rather, we need strategic planning to ensure that renewables come online in the best places, that they can get affordable access to the grid, that the transition to renewables occurs without unnecessary contention, and that ratepayers—particularly lower-income ratepayers—can afford the renewable energy transition. Without much better planning and regulation, it is unlikely that money alone will facilitate widespread development, integration, and use of renewable power.

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Wind and solar growth associated with tax credits.
          In fact, we can look at the amount the United States has already spent on renewable power development to understand the importance of effective planning and strategy, rather that just the availability of funds. In 2013, the United States spent about $15 billion in tax credits to support renewable energy deployment, primarily from wind and solar (it spends much less, approximately $1.5 billion annually, on energy efficiency and renewable energy research and development). These funds have enabled renewable energy technologies to become more efficient and less expensive, and they have also helped spur an unprecedented expansion of wind and solar power in the United States. But despite this expansion, uncertainty plagues U.S. renewable energy policy. This uncertainty affects all aspects of the renewable energy industry, from technological development and manufacturing, to renewable energy siting and development, to access to the transmission system, to the ability to sell renewable electricity at viable rates to willing buyers. The money that policymakers have dedicated to renewable power helps offset the unnecessary costs associated with policy uncertainty, but the money does not diminish the need for improved regulation. In fact, if we actually had a long-term strategic plan to transition the power system to renewables, the renewable industry would be much less dependent upon short-term financial incentives, and all players in the electricity sector would have a clearer framework for the future.

            Of course, this does not diminish the importance or generosity of private investors’ donations. It just means that money alone will not adequately facilitate the renewable energy transition.

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