How effective are renewable energy subsidies? Maybe not effective as originally thoughts, finds news study

December 24, 2013 by Neil Schoenherr, Washington University in St. Louis

How effective are renewable energy subsidies?
( —Renewable energy subsidies have been a politically popular program over the past decade. These subsidies have led to explosive growth in wind power installations across the United States, especially in the Midwest and Texas.

But do these subsidies work?

Not as well as one might think, finds a new study from Washington University in St. Louis' Olin Business School.

The "social costs" of carbon dioxide would have to be greater than $42 per ton in order for the environmental benefits of wind power to have out weighed the costs of subsidies, finds Joseph Cullen, PhD, assistant professor economics and expert on environmental regulation and energy markets.

The social cost of carbon is the marginal cost to society of emitting one extra ton of carbon (as carbon dioxide) at any point in time.

The current social cost of carbon estimates, released in November and projected for 2015, range from $12 to $116 per ton of additional carbon dioxide emissions. The prior version, from 2010, had a range between $7 and $81 per ton of carbon dioxide. The estimates are expected to rise in the coming decades.

Cullen's findings are explained in a paper titled "Measuring the Environmental Benefits of Wind-Generated Electricity" in American Economic Journal: Economic Policy.

"Given the lack of a national climate legislation, renewable energy subsidies are likely to be continued to be used as one of the major policy instruments for mitigating in the near future," Cullen says. "As such, it's imperative that we gain a better understanding of the impact of subsidization on emissions."

Since electricity produced by wind is emission free, the development of wind-power may reduce aggregate pollution by offsetting production from fossil fuel generated electricity production. When low marginal cost wind-generated electricity enters the grid, higher marginal cost fossil fuel generators will reduce their output.

However, emission rates of fossil fuel generators vary greatly by generator (coal-fired, natural gas, nuclear, hydropower). Thus, the quantity of emissions offset by wind power will depend crucially on which generators reduce their output, Cullen says.

The quantity of pollutants offset by wind power depends crucially on which generators reduce production when wind power comes online.

Cullen's paper introduces an approach to empirically measure the environmental contribution of wind power resulting from these production offsets.

"By exploiting the quasi-experimental variation in wind power production driven by weather fluctuations, it is possible to identify generator specific production offsets due to wind power," Cullen says.

Importantly, dynamics play a critical role in the estimation procedure, he finds.

"Failing to account for dynamics in generator operations leads to overly optimistic estimates of emission offsets," Cullen says. "Although a static model would indicate that wind has a significant impact on the operation of coal generators, the results from a dynamic model show that wind power only crowds out electricity production fueled by natural gas."

The model was used to estimate wind power offsets for generators on the Texas electricity grid. The results showed that one mega watt hour of wind power production offsets less than half a ton of carbon dioxide, almost one pound of nitrogen oxide, and no discernible amount of sulfur dioxide.

"As a benchmark for the economic benefits of renewable subsidies, I compared the value of offset emissions to the cost of subsidizing wind farms for a range of possible emission values," Cullen says. "I found that the value of subsidizing wind power is driven primarily by carbon dioxide offsets, but that the social costs of would have to be greater than $42 per ton in order for the environmental benefits of to have out weighed the costs of subsidies."

Explore further: NREL calculates emissions and costs of power plant cycling necessary for increased wind and solar

More information: Cullen, Joseph. 2013. "Measuring the Environmental Benefits of Wind-Generated Electricity." American Economic Journal: Economic Policy, 5(4): 107-33.

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2.3 / 5 (3) Dec 24, 2013
"The Energy Information Administration (EIA) just released its 2014 Annual Energy Outlook, which predicts electric vehicles will only just start to become mainstream in 2040.

EIA's report states that the majority of cars on the road in 2040 will still use gasoline, and that 78 percent of cars sold that year will still use gas-powered motors. Five percent will be standard hybrids, 1 percent plug-in hybrids, and only 1 percent entirely electric.

Read more: http://dailycalle...oOaOS6ue
It't not working for electric cars.
3.9 / 5 (7) Dec 24, 2013
Actually, doug, in a healthy economy wealth is actively redistributed by commerce.

USA could put millions to people to work with alternative energy and conservation/efficiency products and projects. And, simultaneously stanch the flow of funds to our so-called friends, the house of saud...

are you an oil-rich arab, Doug?
2.3 / 5 (3) Dec 24, 2013
n a healthy economy wealth is actively redistributed by commerce.

Free or forced commerce?
Whydening Gyre
3.7 / 5 (3) Dec 24, 2013
That was an interesting read, Eric.
Whydening Gyre
3.7 / 5 (3) Dec 24, 2013
n a healthy economy wealth is actively redistributed by commerce.

Free or forced commerce?

Ryg - Why would it really matter? Commerce is commerce...
3.4 / 5 (5) Dec 24, 2013
Why would it really matter? Commerce is commerce...

Compare and contrast commerce in Venezuela and Florida today. Does it matter?
4.7 / 5 (3) Dec 24, 2013
Effectiveness refers to the ability of the action to achieve a prescribed goal. Any such program will have many such goals, not all of which are overt. The covert goal of rewarding political donors to the 'correct' candidates (those who won) has been well achieved. It is called 'graft.'
2.8 / 5 (4) Dec 28, 2013
Effective as compared to what? Are the 7cent per kWh good when you consider that in germany alternative energy sources already supply more than nuclear ever did? No? How about the 70cent per kWh that nuclear got as subsidies in the startup phase? Or the subsidies that coal is still getting after more than a century as an established energy source?

By any calculation that you care to open up alternative energies give you the most bang for the buck.

That not all alternatives are created equal when it comes to subsidy effectiveness is not surprising. but looking at it solely from an CO2 aspect (even if that is very important) is missing a big part of the picture why these forms of energy generations are so important.
not rated yet Dec 30, 2013
How effective are renewable energy subsidies?

Best to give the money back to the tax payer, but barring that use it for new exploration.

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