The Vector: Gates Feeds-in on Tariffs
Bill Gates gave the concept of Feed-in tariffs a bit of a battering during his recent publicity drive to promote energy R&D funding.
Feed-in tariffs have given renewable energy companies a major boost in countries such as Germany and Spain. But Gates believes the money could have been better spent: “The world has spent a massive amount of money which, in terms of creating both jobs and knowledge, would have been far better spent on energy research,” he claims.
Gates firmly believes that R&D is the only viable solution and R&D will not be properly funded without government action. He sees a need for what he calls ‘miracles’ to reduce our CO2 emissions. Reductions of 20 per cent in CO2 output won’t cut it.
“There is absolutely no hope if you just say the world should use less energy. The only hope is less CO2 per unit of energy.” There is no existing technology that at anywhere near economic levels gives us electricity with zero CO2.”
Scaling up proven renewable sources that draw their energy from wind, water or solar require a storage miracle, he says. Storage is necessary because these sources are intermittent while energy needs are constant. At present, we can deliver constant and reliable power from what Gates terms fossil fuel ‘energy factories’ that can be located close to need and protected against vagaries in climate. Wind, water and solar solutions are forms of ‘energy farming,’ he says. Energy farming, presumably, faces many of the same uncertainties, seasonality and logistical difficulties faced by food farming.
Systematic underfunding
Capitalism leads to a systematic underfunding of innovation, says Gates, because innovators don’t reap the full benefits from their breakthroughs. At the same time, there is actually a net benefit to society being more R&D-oriented. Governments have got that message in the health field and that is why they fund health R&D. They have not got that message in energy.
The American Energy Innovation Council wants to see an increase in government energy research investment from $5 billion to $16 billion. Gates says he was stunned when he saw how small the R&D investment in energy was.
“Unfortunately, when the U.S. doesn’t step up on basic research, the world at large doesn’t tend to step up and fill the gap. I wish they would, but they don’t.” This R&D expansion could be fully funded, he says, through a 1 per cent energy tax. That is an order of magnitude less than the taxation that would be needed to change behaviours through strong price signals (feed-in tariffs).
Feed-in tariffs were criticized on more patriotic grounds by Geoffrey Styles, Managing Director of GSW Strategy Group, LLC, writing on theenergycollective.com. Styles believes feed-in tariffs would provide low cost Asian manufacturers of solar and other renewable energy systems the ability to undercut American manufacturers. Investment tax credits, on the other hand, support local industry and because they do not need the long-term guarantees that feed-in tariffs depend on, they can be adjusted as market prices change. Styles also provides some figures that back up Gates’ anti-Feed-in tariff arguments. He says that Spanish feed-in tariffs cost €3 billion in 2009 but collectively only replaced the need for one medium sized fossil fuel burning power station.
Cap-and-trade too woolly
Feed-in tariffs were not the only funding mechanism that Gates took a pop at. He does not have much time for cap-and-trade systems either. Cap-and-trade is supposed to encourage gradual reductions in CO2 at the cheapest possible price by creating a market in carbon emission permits. If a big CO2 emitter (perhaps a coal burning power station) is finding it expensive to reduce his CO2 output, he can purchase the unneeded CO2 emission permits from someone who has been able to reduce his CO2 at a cheaper price. Year by year, the number of emission permits is reduced, so the squeeze gets gradually tighter and – so the theory goes – the overall CO2 output decreases.
Cap-and-trade has been in existence in Europe for some time. But it has had a patchy history so far. Governments tended to be very generous in handing out emission permits, delaying and limiting the action that big CO2 emitters had to take. With emission permits valued at near-zero it was difficult for traders to create a viable market. The promise of course is that as the number of permits steadily reduce, the value of those remaining will come good and markets have real meaning.
As Gates sees it, a market where the price of CO2 permits bounce around according to demand is all too fuzzy. Bouncing prices and government involvement create too many loop holes for the politically advantaged, he says. Gates believes that you will not change the behaviour of power plant sponsors if you do not deliver long term certainty. That can only be achieved, he told Technology Review through clear regulation that sets dates when CO2 emission targets must be met.
Whether Gates arguments against feed-in tariffs and cap-and-trade make sense, his message that action needs to be taken on renewable energy development must be welcomed.
Gates is not hiding the fact that sacrifices need to be made if we are to achieve our energy goals. In fact, he is disappointed by those who have suggested that transition to renewables can happen easily.
“It’s not easy, and it’s bad for society if we think it is easy, because then funding for R&D doesn’t happen. If it was going to be easy, then that money really wouldn’t be necessary. But in my view it’s very necessary, and that’s despite the fact that if you take the innovation economy in the U.S., broadly defined, now versus 10 years ago, there’s a lot more energy activity.”
