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I thank, without implicating, Andreas Biermann (International Energy Agency), Marion Ottmüller, Martin Schöpke, and Thomas Weber (German Ministry of Environment), Anselm Görres (Green Budget Germany), and Johannes Lackmann and Rainer Hinrichs-Rahlwes (German Renewable Energy Federation), and, in particular, Ben Jones (FAD, IMF) for information and help in preparing this paper; and Michael Keen (FAD, IMF), Hajime Takizawa (EUR, IMF), and participants at the 8th Global Conference on Environmental Taxation, Munich, October 18–20, 2007, for clarifying comments.
The paper will thus not address the wider issue of efficient energy policy, including choice and strength of policy instruments apart from renewables production and support.
We are ignoring the issue that some renewable energies, in their production, require the use of fossil fuels, as is the case for biofuels.
Note, however, that there may be other environmental externalities associated with fossil fuel use, such as local air pollution and water contamination, that may be avoided when using renewables, thus giving reason for higher taxes to fossil fuels and/or greater subsidies to renewables, than those justified by the difference in carbon emissions alone.
An illustration of the related public benefits of additional energy security is represented by the Strategic Petroleum Reserve in the United States, which is maintained at public expense, and is designed to maintain a reserve of at least 30 days of average petroleum consumption. Reducing the daily consumption of petroleum would permit a reduction of this reserve, and thus reduce the public costs of maintaining it.
The resource rent is, essentially, the difference between the market price and the cost of extraction. It is generally assumed that the average extraction cost of oil today is in the range US$15-20 per barrel (and generally lower in exporting countries), which leaves an overall gross rent in excess of US$60 per barrel (with a current market price exceeding US$80 per barrel).
For a useful general reference on renewables policies and production, see the International Energy Agency website, at http://www.iea.org/textbase/pamsdb/grindex.aspx.
The information on country-specific measures has been provided to us by Andreas Biermann of the International Energy Agency.
See German Ministry for the Environment, Nature Conservation, and Nuclear Safety (2006). The share of renewables in electricity generation is 10.2 percent, in heat generation 5.4 percent, and in fuels 3.6 percent.
Feed-in tariffs, in Germany and elsewhere, are schemes whereby electricity producers are guaranteed certain minimum prices for their delivered electricity (and with security of delivery), for a minimum future period, which can run up to 20 years. Electric utilities are then required to purchase the delivered power at the preset prices, and are, in turn, usually allowed to charge any price increases to utility customers.
See Metcalf (2006) for a more careful analysis of the energy policy act.
Among similar, and even more extreme, cases is Norway where electricity supply is 100 percent hydro (representing about 120 tWh).
These figures are based on primary energy consumption, and would have been somewhat higher if instead based on final energy consumption (for example, 5.5 percent for Germany). The difference between the two measures originates in the electric power sector, where power generation from hydro and wind power is compared to the basic energy content of other fuels used for power generation under the “primary energy consumption” measure; while compared to the power generating capacity of these other fuels under the “final energy consumption” measure. Arguably, the latter measure is the more meaningful of the two, as it describes more directly the final energy consumption implications of the different fuel supplies.
There are two main reasons for this high cost figure in abating carbon through biofuels support: first, biofuels are less efficiency than gasoline, so it takes more than a gallon of biofuels to replace one gallon of gasoline; secondly, net carbon displacement is far less than gross displacement due to biofuels on the average being relatively carbon intensive in their production.
Anderson (2006), Table 2.1 and Figure 2.1. These figures are, however, highly uncertain; Anderson’s net cost range for 2050 is from €-75 Euros to +300 Euros per ton or carbon (-20 to +80 Euros per ton of CO2). The possibility of negative costs is due to the possibility that renewables will be more cost efficient than fossil fuels at that time, for at least some applications.
From the table, the implicit subsidy rate for Germany is higher for bioethanol than for biodiesel, despite bioethanol production being low. This is explained by production conditions for bioethanol being relatively unfavorable in Germany (compared, e.g., to Spain and the United States).
These numbers are considerably higher than those for the United States in Table 7. The reason is a considerable scaling-up of biofuels production in the United States in 2006 relative to 2005, in particular, for biodiesel; see Koplow (2006).
The subsidy rate is higher per gallon petrol equivalent for bioethanol, since this fuel has about one-third lower energy content per gallon than petroleum-based petrol.
One reason for the high subsidy rates per ton of CO2 displaced is that biofuels only displace a fraction of the carbon in fossil-fuel based motor fuels: about 40 percent for bioethanol, and about 48 percent for biodiesel. These displacement rates are expected to be much higher, close to 96 percent, for cellulosic ethanol.
For further discussion of these issues, and questioning the rationale for this motivation, see Kojima and Johnson (2005).
The same argument applies to the current, largely rapeseed based, support schemes to biodiesel in Germany. Also here the potential for substantial future technical progress is small; see Kojima and Johnson (2005).
The Bush plan implies scaling up biofuels supply in the US to 35 billion gallons by 2017. This seems impossible without large-scale expansion of fuels production from general biomass, for which there is not general support yet.
The latter policy may appear to be “overkill”: there is then no longer hardly any reward to the environmental advantages of biodiesel relative to petroleum-based diesel. Presumably, other taxes on the carbon content of petroleum may correct for this.
The BMU projects somewhat lower figures: 82 TWh of electricity and payments of €8.1 billion, equivalent to just under €0.01 per kWh.
Additional refers to costs over and above those of procuring electricity without a feed-in tariff. This assessment is dependent on the price of electricity generated from conventional energy sources to be paid by industry and private customers.
Including coincineration of biomass in conventional power plants and biomass-fired CHP power plants exceeding a production capacity of 20 Mwe.
The Phase I German NAP limited average annual emissions under the scheme to 499MtC02 between 2005-07 of which an estimated 79 percent went to electricity generators. German Emission Allowance Trading Authority DEHST (2004).
Note however that Stern (2007) estimated the expected climate damage costs at US$30/tC02, or €22/tC02, under a strong mitigation scenario; and higher in other alternatives.
BMU-Pressedienst No. 108/07 Berlin, 19.04.2007 Environment Minister Gabriel: Strengthening leading position on the global market through cutting edge research.
In February 2007, the government reached an agreement to phase out all subsidies, resulting in the shutdown of the remaining eight plants in North Rhine-Westphalia and Saarland by 2018.
Subsidies to energy consumption with special focus on energy intensive industries in Germany Contribution to Ad Hoc Group on “Environmentally-harmful subsidies” Bettina Meyer Federal Ministry for the Environment, Nature Conservation and Nuclear Safety’[49/30/28550–3664 email@example.com] BMU, December 2006.
Note again that the production of biofuels may involve substantial carbon emissions, in particular, when produced from agricultural crops, as discussed above.