Renewable Energy Standards: Savvy or Silly?

Opponents also argue that the free market should be allowed to pick the most cost-effective energy sources. If one does not believe that any of the three aforementioned goals are critically needed, then such a pure free market approach would make sense. But the free market can fall short when there are externalities that have significant negative impacts on individuals or on the nation as a whole. If such externalities are not reflected in the economic incentives that drive company decisions, the free market will generally ignore the negative consequences. (For a related discussion, see my post “Cleantech Economics 101”.) Numerous historic examples exist such as acid rain, asbestos and lead paint. And our electrical infrastructure is more than just another industry; it is infrastructure as critical to our economic commerce as roads, airports and railroads – infrastructure that is used by every business and every consumer every single minute of every day. Thus, for those of us who do believe that the goals are very important, the basis for renewable energy standards is sound.

However, the restrictive and prescriptive nature of the established renewable energy standards serve to bolster opponents because they eliminate the ability of the utility company to utilize the most cost-effective alternatives. Going back to the goals of these standards, it must be asked why any specific technology should be named. If the goal is to reduce carbon emissions, reduce fossil fuel consumption and/or diversify our sources of electricity production, then shouldn’t any technology that achieves this goal be acceptable? Why should waste heat regeneration into electricity, gasification, and many other technologies that may ultimately be better solutions be excluded in so many states? Why would demand management (energy efficiency) not be an acceptable means in most states for achieving at least the first two goals?

And even in the light of the earthquake disaster in Japan, why shouldn’t nuclear as an option? It clearly achieves those three goals and, unlike most of the other options, can be used as base load. It would be easy to run from nuclear in light of the Japanese nuclear crisis that was caused by a record setting earthquake. But we should not forget that there is rarely a free lunch. Nuclear still has proven to be much less deadly than our most common form of electrical generation (i.e., coal plants), which releases more radiation than nuclear plants. In the end, I suspect that far fewer people will die as a result of radiation exposure in Japan than from the direct effect of the earthquake and tsunami themselves.

Beyond outright cost, one of the biggest challenges with most renewable energy is that it is intermittent and cannot provide base load. The world needs options for base load to bridge from where we are today to the (hopefully) disruptive break through in energy technologies of the future. Part of the reason we don’t have even safer nuclear power is the lack of significant demand for new nuclear power. This is as much an inhibitor of innovation of newer and potentially much safer designs (such as Thorium reactors and liquid metal cooled reactors which have the potential of fail safe designs, much lower half life of waste materials and low proliferation risks) as would be the lack of demand for solar or wind on those industries. All current renewable energy sources have negative environmental impacts and risk – none is perfect (more on this in a future post). Given that a perfect solution is likely out of our reach for the foreseeable future, our goal should be to strive for overall improvement in our energy base. To that end, utilities should have the flexibility to implement various energy production methods that achieve the goals as well as technologies that reduce energy consumption.

Allowing greater flexibility would decrease the near-term costs to businesses and consumers by allowing utility companies to choose the most cost effective solutions that meet the goals. In addition, it would further broaden the net of political support for such standards. One way this flexibility could be achieved would be by allowing utilities and businesses a clear path to obtain approval from their public utilities commission for new technologies under renewable energy standards. Any technology that achieves the goals of carbon emissions reduction, fossil fuel consumption reduction, and energy source diversification should be allowed. Renewable energy standards shouldn’t be about supporting a specific technology or industry. They should be about reducing the risk of global warming and increasing the robustness of our electric infrastructure in the most economical way possible.

David Gold heads up cleantech investments for Access Venture Partners. He is also the author of the GreenGoldBlog.