A Comparative Analysis of Legislation and Policy for a Successful Clean Energy Transition in the United States
By: Josh Horman
I. Introduction
The earth’s climate is drastically changing due to the release of Greenhouse Gas (“GHG”) emissions, which contributes to an enhanced greenhouse effect. Globally, electricity generation is the largest emitter of GHGs by economic sector. Similarly, the top economic sector for GHGs in the United States has historically been electricity generation, although the transportation sector recently assumed the top position. However, the transportation sector will likely merge with the electricity sector as the auto industry shifts from oil-fueled vehicles to electric vehicles. In turn, the demand for electricity will increase, which raises the question of whether governments and energy utilities can increase electricity generation while reducing carbon emissions to mitigate the effects of climate change. An increased demand for electricity creates an optimistic opportunity for investment in renewable energy, which can rapidly decrease the global amount of GHG emissions. In response, many national and sub-national governments are creating renewable energy targets to reduce GHG emissions as a primary mechanism to combat climate change.
II. Analyzing Germany, Sweden, and California for Successful Strategies to reach 100% Carbon Free Electricity Generation
a. Germany and Energiewende
Germany’s lack of natural resources and historic dependency on foreign imports led to a reliance on fossil fuels for electricity generation. The dependence on coal and oil sparked “Energiewende,” or “Energy Transition,” and fueled aggressive policies to promote renewable energy generation based on sustainability, decentralized supply, and resource conservation. Additionally, Energiewende strongly advocated against nuclear energy generation due to anti-nuclear sentiment during the German Environmental Movement in the 1980s. “Energiewende” is frequently used as the standard for successful policy to reduce GHG emissions through renewable energy, and former U.S. President Obama often cited Germany when identifying countries that are leaders in renewable energy. This section analyzes the two primary objectives of Energiewiende, (i) the promotion of renewable energy through Feed-in-Tariffs (“FIT”), and (ii) the phase out of nuclear energy.
i. Feed in Tariffs
In 1990, Germany introduced its first renewable energy legislation titled Stromeinspeisungsgertz, (Electricity Feed in Law), a one-page bill that offered FITs for new renewable projects. A FIT is a government sponsored program that seeks to incentivize electricity consumers to purchase renewable power sources through long term contracts at a specific price for a guaranteed number of years. In turn, the FIT promotes renewable energy production while allowing market access and price certainty, which reduces financial risk. The FIT in Stromeinspeisungsgertz provided financial incentives to encourage wind and small hydropower projects because operators could sell electricity at 90% of what utilities charge their customers. FIT implementation, combined with the unbundling of vertically integrated utilities allowed small-scale energy production to compete with large utility generators.
In 2000, Germany passed Erneuebare-Energien-Gesetz (“EEG”), which tweaked the calculation of a FIT to only make renewable energy generation profitable if the production came from specific geographical locations and used efficient technology. This specifically emphasized wind power in the northern part of Germany, and resulted in a wind power boom. A 2004 amendment to EEG created additional subsidies for private rooftop solar and guaranteed private homeowners access to sell their electricity to the market. By 2011, private citizens produced and owned 40% of the renewable electricity generating capacity while farmers owned an additional 11%.
The success of wind and solar production changed how Germany implemented FITs. In 2016, Germany transitioned away from FITs to competitive auctions for large renewable energy projects in attempt to further drive down cost to enable competitive pricing with less government support. Flexibility in EEG created a competitive decentralized energy market with numerous energy producers and fostered a rapid increase of wind and solar. The implementation of FITs along with incentives that allow private individuals to produce energy helped Germany meet their renewable energy goals well ahead of schedule. Germany reached its goal of 12.5% of renewable energy by 2010 in 2007, and reached its goal of 20% by 2020 in 2011. In 2018, Germany’s renewable energy sources provided just over 40% of electricity production and for the first time overtook coal as the leading source of electricity. Germany now aims to produce 80% of its electricity from renewables by 2050.
ii. Nuclear Phase Out
Although Energiewende’s legislative policies enabled a tremendous increase in wind and solar generation, a significant outcome of Energiewende is the stagnation of carbon emission reduction. Energiewende’s failure to further reduce carbon emissions is attributable to its focus on the phase out of nuclear. Despite nuclear power’s controversial history regarding its connection to warfare, potential radiation exposure, waste problem, and highly publicized accidents–Three Mile Island and Chernobyl–it is important to remember that nuclear power emits zero carbon emissions. These threats should not be understated, but the risks associated with climate change are arguably more dangerous and imminent than the associated risks with nuclear power for electricity generation.
The strong anti-nuclear sentiment in Germany reached a boiling point in 2011. In March 2011, a 9.0 magnitude earthquake and subsequent tsunami led to a tragic nuclear meltdown in Fukushima, Japan. Thousands of people were evacuated and screened for radiation exposure. However, authors Joshua Goldstein and Staffan Qvist argue that we should recall Fukushima as a historic natural disaster rather than a nuclear disaster in an effort to continue nuclear power use as a carbon free energy source. As evidence, the authors remind us that the earthquake was the largest in recorded history in Japan and the third largest worldwide, killing roughly 18,000 people, and caused billions in damage. In comparison, Goldstein and Qvist state that the United Nations and World Health Organization studies following the accident do not connect any deaths to high levels of radiation associated with the nuclear meltdown at Fukushima.
Just three days after Fukushima, Chancellor Angela Merkel announced that Germany would phase out all nuclear power plants and immediately took steps to begin the process. The policies in Energiewende contributed to the decrease of nuclear power generation from 27.7% in 1990 to just 13.3% in 2017. However, Germany faced difficulties replacing baseload nuclear power with solely wind and solar. The nuclear phase-out within Energiewende outpaced the development and installation of renewable energy forcing fossil fuels to fill in remaining gaps. Germany now acknowledges that it will miss its target to reduce carbon emissions by 40% in 2020 from 1990 levels by nearly 8%. Germany exemplifies the difficulties of legislation and policies that emphasize an ambitious renewable energy target based solely on wind and solar to reduce carbon emissions.
b. Sweden
While Germany’s Energiewende is stalling, Sweden is leading the charge towards successful carbon reduction with a net-zero carbon goal by 2045. Historically, hydropower has been Sweden’s leading energy source for electricity due to its unique landscape of abundant rivers. In the 1970s, however, the large amount of dams in Sweden garnered political support to halt the construction of new dams to protect ecosystems that rely on free-flowing rivers. The movement to stop new hydropower coincided with the global oil crisis, in which Sweden faced high fuel costs and uncertainty related to supply disruptions. Sweden, like Germany, lacks natural resources (other than hydropower) for electricity generation and resorted to expensive fuel imports to meet demand. In response, Sweden constructed major nuclear power plants in the 1970s and 1980s. Since 1980, Sweden’s main sources of electricity generation have been hydro and nuclear power.
In 1996, Sweden deregulated their electricity market and integrated into the Nordic electricity market, an electric grid comprised of Norway, Denmark, and Finland. This enabled Swedish customers to choose their electricity provider and followed the European Union (“EU”) Directives on increasing renewable energy in electricity markets. To further incentivize wind and solar energy, Sweden established an electricity certificate system in 2003, which mandated that electricity suppliers must buy a certain amount of electricity certificates. An electricity generator receives a certificate for every megawatt hour of electricity produced from renewable energy, not including large hydro or nuclear power. This program spurred significant advances in the production of wind energy, which is expected to continue as Sweden seeks to increase its renewable energy production.
While the EU guides the framework for Swedish climate legislation, Sweden continues to implement more ambitious targets to increase renewable energy and lower carbon emissions. In 2016, Swedish political parties established a climate policy agreement (“Energy Agreement”), which the Riksdag, the Swedish parliament, used to introduce a climate policy framework in 2017. In June 2018, this legislation known as the “Climate Act” was finalized and adopted into law. The Climate Act set a target of a net-zero carbon economy by 2045 and 100% renewable energy for electricity generation by 2040, which includes hydropower but not nuclear power. However, the Climate Act does not include a timeline for a nuclear phase out. This is significant, as hydro and nuclear power provided 80% of Sweden’s electricity generation in 2017, while wind produced 10.7%. In total, 54% of electricity generation comes from renewables while fossil fuels only contribute 2% of electricity generation, suggesting Sweden is capable of a 100% carbon free electricity grid in the near future.
c. California
The U.S. Federal Government lacks climate legislation comparable to Germany’s Energiewende and Sweden’s Climate Act. However, renewable energy investment relies heavily on federal tax incentives in the U.S. The federal Business Energy Investment Tax Credit (“ITC”) provides tax credits for investments in eligible solar, wind, and other renewables. The ITC differs slightly from a FIT. An ITC is an investment-based incentive that compensates for the upfront cost to construct renewable energy infrastructure, whereas a FIT is a performance-based incentive that guarantees renewable energy generation at a competitive price.
Although the Federal Government does not have significant climate legislation or policy, California leads the sub-national push in the U.S. for carbon reduction legislation. In 2002, California enacted Senate Bill 1078 that established the state’s Renewable Portfolio Standard (“RPS”), and required energy providers to purchase a specified minimum percentage of electricity generated by renewable energy resources. This bill acts as the foundation for creating numerous legislative bills aimed at reducing carbon emissions, and was amended numerous times to raise the renewable targets under the RPS. This ultimately led to the enactment of Senate Bill 100 (“SB 100”) in September 2018, which created an ambitious goal of 100% electricity generation from carbon free resources by 2045. Additional benchmarks require 50% renewable energy sources by 2026, and 60% renewable energy sources by 2030. It is notable that the bill’s language uses “renewable energy” for the 2026 and 2030 targets while using “carbon free” for the 2045 target. In this context, California aims for the ultimate goal of zero carbon electricity generation, while acknowledging the obstacles of electricity generation solely from wind and solar.
Consumer demand for renewable energy is also increasing California’s share of wind and solar power. In 2002, California passed legislation for Community Choice Aggregation (“CCA”), which allows a city, county, or a collection of both, to act as an energy service provider. A CCA purchases electricity from a renewable source while a private utility company maintains control over the transmission and generation. Members of a CCA are automatically enrolled under the program, and can choose their energy source for electricity. This program allows customers to receive a higher percentage of electricity from renewable sources, and enables local oversight of electricity costs.
Conclusion
The effects of climate change present a daunting problem that warrants significant legislation to rapidly reduce carbon emissions. Carbon free energy for electricity generation can reduce substantial amounts of GHGs particularly as governments push for electrifying the transportation sector to further reduce auto emissions. Feed in tariffs and tax incentives help carbon free energy sources compete with and replace fossil fuels. Until greater storage capacity develops for renewables, energy diversification that implements a variety of carbon free sources, including hydro and nuclear power, is the most practical solution to reach a 100% carbon free target.