The agreement between President Obama and China President Xi Jinping to reduce greenhouse gas emissions has been hailed as an important advance in the long history of international climate negotiations.
Laura E. Stern is president of Nautilus Solar Energy
Under the agreement, the United States has committed to achieving an economy-wide target of reducing emissions by 26 to 28% below 2005 levels by 2025. China has agreed to a peak emissions level in 2030, with levels then remaining steady or beginning to decline.
As a clean, renewable source of power, solar can be expected to play a big part in helping the United States achieve this goal. However, while solar has entered the mainstream — it accounted for more than half of new electric generating capacity added in the first half of 2014, according to SEIA (the Solar Energy Industries Association) — it still makes up only a miniscule portion of the U.S. energy supply — 0.23% in 2013.
Which raises the question: what can policymakers do to speed the adoption of solar and thus help the nation meet its commitment under the agreement?
While the costs of solar have declined dramatically in recent years, in order for solar to truly compete with electricity produced from fossil fuels, we need to level the playing field. Critics of clean energy claim that it is only economically viable due to government subsidies, however, fossil fuels are supported by an array of valuable subsidies that dwarf those received by renewables.
According to the 2014 World Energy Outlook from the International Energy Agency, worldwide fossil-fuel consumption subsidies were $548 billion in 2013 — more than four times the value of subsidies for renewable energy. “Fossil fuel subsidies rig the game against renewables and act as a drag on the transition to a more sustainable energy system,” the IEA said. In the United States, the average annual subsidy is $4.8 billion for oil and gas, compared to only $370 million for renewables — or about 13 times more.
These numbers don’t account for the externalities of the health and environmental burden of burning coal and other fossil fuels, which costs an additional $500 billion, according to Harvard Medical School.
In a truly free market there would be no subsidies, but as long as fossil fuels benefit from direct and indirect incentives — including tax incentives for exploration, drilling and leasing equipment, as well as retail price support through strategic oil reserves and below-market costs for drilling and mining rights — the solar industry will also need incentives if we are ever to make the transition to a low-carbon economy.
The most effective way to level the playing field would be through a national cap and trade program under which large emitters would be penalized for releasing greenhouse gas emissions. But the 111th Congress, dominated by the Democrats, failed to adopt such legislation in 2009 and it’s highly unlikely that a new Congress dominated by Republicans will succeed in this political environment.
Which brings us to the Environmental Protection Agency’s Carbon Pollution Standards for Existing Power Plants, proposed on June 2, 2014. The Clean Power Plan is projected to achieve an overall 30% cut by 2030 from 2005 emission levels through the establishment of target emission rates for each of the states based on regional variations in generation mix and electricity consumption.
Since renewable energy is one of the options included for cutting carbon emissions, the plan should help level the playing field between fossil fuels and solar. But there is more that can be done, specifically an extension of the federal Investment Tax Credit (ITC), a solar incentive that offers a tax credit for 30% of the upfront cost of installing solar. The ITC is currently slated to be reduced from 30% to 10% at the end of 2016.
Though solar saves money on electricity costs over the long run, a major barrier to increased adoption is its high upfront cost. The ITC has helped overcome that barrier by incentivizing tax equity investors to fund solar projects. SEIA, the leading solar trade organization, has called the ITC one of the most important federal policy mechanisms to support the deployment of solar.
Since the ITC went into effect in 2006, investment in solar has exploded. Solar installations in 2014 will be 70 times higher than they were in 2006 and by the end of this year there will be nearly 30 times more installed solar capacity, according to SEIA, which is pushing hard for an extension of the ITC past 2016. In addition, more than 143,000 Americans are currently employed by the industry.
Critics of the agreement with China are charging that the U.S. has been hoodwinked — that the U.S. economy will be hamstrung by the new emissions goals, giving China an unfair advantage in the global economy. Nothing could be further from the truth.
Solar is now a big business in the United States, creating new high wage jobs, spurring economic growth, lowering energy bills and reducing harmful greenhouse gas emissions.
But it could be a lot bigger. Indeed, the new agreement can serve as the stimulus for the United States to take the lead in the transition to a low-carbon future, with all that implies in terms of a competitive advantage in the global economy.
In other words, rather than hamstringing us, the agreement serves our national interest by allowing us to draw on our technological prowess and can-do spirit to usher in a new energy age. But in order to support the development of clean, renewable energy we need to protect the incentives we have, such as the ITC and the Clean Power Plan, and develop new ones to give solar a fighting chance against fossil fuel technologies.
By Laura E. Stern, president of Nautilus Solar Energy, LLC
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