Block’s Indicator of Sustainable Growth

By Ray Block

There is a strong relationship between government incentives, including mandating renewable energy targets, and ultimate success in renewable energy developments. The more farsighted governments are in terms of incentives, the greater a country’s achievements, not only in reducing greenhouse gas, but in developing large scale new industries.

Having taken advantage of its neighbour Denmark’s success with wind energy, Germany became the trendsetter in renewable energy, and effectively carried the European Union along with it. Energy policies such as the 1990 Electricity Feed Law and 2000 Renewable Energy Law played major roles in advancing the deployment of renewable energy technologies. These laws mandated the purchase of renewable generated electricity by electric utilities, and also offered large subsidies and government loans to renewable power producers.

At the European Union level, the 1997 Directive on Renewable Energy Sources aimed to boost the renewable energy share of total energy has been a catalyst for major change. Signing of the Kyoto Protocol in 2001 was another step forward in directing attention to the direct cutting of greenhouse gas emissions.

In a similar way, Japan has been the trendsetter in solar energy. In 1994, Japan introduced incentives for solar energy. Over the years, this has resulted in a 72 per cent reduction in the average cost of solar energy systems, and in return Japan has become global leader in solar photovoltaics. As solar becomes competitive in Japan, the government is reducing the size of the incentives.

Now it is Germany, which is following the lead of Japan in introducing incentives to encourage the use and popularity of solar. The only disadvantage of being too successful in product leadership is that the current rate of accelerated deployment in renewable energy technologies can lead too quickly to a point of countries reducing their commitment to new research and development.

While this won’t interfere with the current momentum for renewable energy, it may come at the expense of future generations of energy technologies.

In the US, the hot and cold attitude of the Bush Administration and Congress in inconsistent and half hearted support for renewal energies, has seen the year by year renewal of the production tax credit (PTC) on wind technology frequently in peril of not being renewed. This has led to peaks and troughs in the rate of new investment. For example, between 1999 and 2004, the PTC was allowed to expire.

Until last week, it looked as if the PTC wouldn’t be renewed. But that has finally been remedied. As the Wall Street Journal’s blog Environmental Capital pointed out on October 6 2008, last Friday was a good day in Washington for renewable energies.

The passage by Congress of the US$700 million Wall Street Bailout allowed the Senate not only to sneak into the omnibus bill, the annual production tax credits for wind power, but an eight year extension to the solar investment credits, including tax incentives for home owners to install solar panels. Because, the House of Representatives had initially failed to pass the bailout, the second time around they had to swallow their pride and pass the bill, with the clean energy tax credits intact.  

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