CleanTech: It’s All About Scale

Implement Subsidies and Taxes: A tried and true method to close the economic gap between two competing products is for governments to implement subsidies or taxes. When a government wants to protect local farmers from foreign competition with lower wages, it levies import taxes or subsidizes domestic crop production. With supporting cleantech, the same rule applies: tax carbon, subsidize renewables. Subsidies can come in several forms: research grants that foot the R&D costs, purchase agreements that guarantee a major customer or sale price, tax credits for consumers or businesses, and government-backed loans with reduced interest rates to lower costs of capital. The Biden Administration has proposed several of these methods in the first few months of his presidency. The President is seeking to extend electric vehicle (EV) tax credits for consumers of up to $7,500 per vehicle, and has ordered federal agencies to replace their vehicle fleets with EVs – a move akin to a 650,000 car purchase agreement.6 Alternatively, implementing a carbon tax on polluters like oil & gas or coal power plants can also help close the economic gap and encourage faster adoption of renewables.

Introduce Regulation: Regulations differ from subsidies and taxes because they force a company or consumer to act in a particular manner, rather than directly trying to re-balance the economic equation. In 1999, then-Texas Governor George W. Bush signed the Renewables

Portfolio Standard which mandated that Texas utilities generate 2,000 MW of renewable energy by 2009.7 Over 20 years after the bill was signed, Texas has emerged as a global leader in wind energy, and wind is now the lowest cost form of energy production in several parts of Texas. Similarly, in 2020, California introduced a solar mandate that requires new homes to be built with solar panels generating electricity equivalent to the homes’ expected energy usage. Both mandates help accelerate adoption of renewable energy, while free markets may not be as supportive.

Prioritize the Best Opportunities: Levelized cost of energy figures often oversimplify the economics of different sources of electricity. In reality, the cost/benefit analysis for a given cleantech project can vary greatly depending on location. Japan, for example, must import virtually all of its fossil fuels from overseas, making it a particularly expensive country to run coal and gas power plants. Yet at the same time, limited land ability makes large scale solar and wind projects among the most expensive in the world. Therefore, the keys to reaching Japan’s 2050 carbon neutrality target may be offshore wind or even tidal power. Yet of course for a place like Nevada, which has cheap land and ample sunshine, solar is a much more obvious choice. The hack here is simply to prioritize the most economically appealing projects first. A project that may be economically doomed in one location could be feasible in another. Strategically prioritizing the best projects first helps build initial scale, leading to lower costs down the road.

View single page >> |
How did you like this article? Let us know so we can better customize your reading experience.
Comments have been disabled on this post.