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Update on Google solar panels: pricing carbon is hard to do
First, several commenters called us out for our glib comparison of California’s $90/tonne subsidy to the $10/tonne price of a TerraPass. Part of the reason TerraPass is so cheap, some pointed out, is because we piggyback on subsidies that are already in place for wind energy and other carbon reduction projects. There is definitely some truth to this, and more generally, the point of my comparison was not to suggest that California would be better off simply purchasing credits on the Chicago Climate Exchange. My only point was that the size of the discrepancy (almost an order of magnitude) suggests California might not be spending its money as wisely as it could be — more on this in a bit. Others pointed out that the carbon reductions are not the only environmental benefit of the solar project, and by focusing exclusively on carbon, we’re discounting these other benefits. But the same can be said for the wind energy and other projects that TerraPass invests in. Also, we have tunnel vision for a reason. Global warming is a much, much more serious problem than NOx emissions. Finally, some felt it was churlish of us to snipe about this particular subsidy when oil and gas are so heavily subsidized. Rather than argue amongst ourselves about which is the right clean energy to support, shouldn’t we be willing to get behind any positive step, however imperfect? Well, not really. Our paramount concern, as always, is reducing the amount of carbon dioxide being spewed into the air. Humanity is (or should be) aiming for a firm target for global CO2 concentration — about 450 parts per million according to most experts. Every pound saved is a bit of insurance against the most catastrophic effects of global warming. That’s why these pricing comparisons are so useful. As one commenter points out, California could subsidize twenty solar hot water collectors for every one photovoltaic installation. Solar hot water heaters are a brainlessly simple technology that would result in far greater energy savings than photovoltaic arrays. Heck, just getting people to paint their roof white would provide cheap environmental dividends immediately. Pricing comparisons provide for stark choices, and help us maximize the environmental benefit of our fixed budgets. I’d also like to take this discussion a little further afield by arguing that a focus on price is one of the most potent weapons that environmentalists have when trying to push a green legislative agenda. It is my belief that carbon price signals are a great counterargument to those who oppose all subsidies reflexively on principle. For example, the Reason Foundation (“Free minds and free markets”) takes a swipe at the California solar subsidy based purely on economic theory. Subsidies are bad, the argument goes, because they distort the free market in pursuit of some ideological goal that the market will eventually deliver on its own if society truly values it. But what if the point of such subsidies is not, as the Reason article claims, furthering “personal beliefs and ideology” in the form of solar panels, but rather purchasing carbon reductions at $x/tonne? We’ve suddenly taken the debate from the highly abstract to the highly concrete. Most everyone, even most free marketeers, feels that goverment should provide for the common defense. And given the severity of consequences for California and the world if carbon emissions aren’t reduced, buying carbon reductions outright surely qualifies as common defense. So suddenly the debate shifts from arid questions about whether subsidies are theoretically good or bad to quite fruitful conversations about how to get the best environmental bang for the buck. Yet another we at TerraPass ♥ carbon markets. (And one further point: in case anyone is wondering whether TerraPass has any ideological ax to grind regarding solar, here’s some amusing proof positive that we don’t: when we were first putting this post together, a math error resulted in a much lower carbon cost per tonne, and we were all set to give the subsidy a thumbs up. We’re bargain shoppers [read: cheapskates] at heart here at TerraPass, which is good for our customers…) Tags: Carbon markets, Google, Solar energy, subsidies
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Comments2.
Comment by Michael Maniates
@ Oct 19, 2006 6 AM
 Daniel: Some great #s and insights. Thanks. Can you point me to any supporting references for thse data? I’d like to draw on some of these #s for my work, but I’m reluctant to do so without some credible citations to which I can point. Daniel — My immediate response to this post is that you’re falling into a classic trap: 10 people all doing the right thing get into a room and end up arguing about who is rightest. Meanwhile the people doing the wrong things are all wink-wink-nudge-nudge-say-no-more, happy to support and emulate each others’ different ways of doing the wrong thing. So the good guys are all fighting, and the bad guys are all working together. Not that this has anything to do with current politics, or anything… :-) So look, I don’t work for Google, but I work in the industry, have observed them since well before most others had heard of them, and my company works with them. I have to say that this is a company that is doing the right thing. They are smart, and realize that part of being a successful company means being seen as a force of good. They are doing the right thing in so many different ways it’s hard to count. Are they perfect? No, but they are using their power, gained from making ungodly amounts of money, to change the world, and still make ungodly amounts of money. Some other companies we know have used all their earnings to do less good things. Exxon, Enron for example. Or almost any other public company. So sure, Terapass electricity can be had for 1/5th of the cost of California’s subsidized electricity and would save Californians lots of money. Good for you — no, really, that’s completely awesome. This demonstrates clearly that a sustainable business model may exist (yours). But you have to realize that your while your goal is to reduce CO2 emissions, there are only two means to that goal:
It’s not like there’s anything about global warming that is hurting the typical American right now in any direct way. Can you name one real impact present now that anyone driving an SUV and caring only about the present would give a damn about? The only one that I think I saw that made people think was the recent high cost of oil. Attitudes shifted. But we people have very short memories, and now, gas is back down to a little over $2.00 per gallon around here. I live in an affluent Massachusetts community of highly educated liberals. On every position, the town stands to the left. Yet my neighbors, friends, and indeed most of my acquaintances still feel that they “need” an SUV. Some of them have three children, or two that play sports. We try to show them that our Priuses are great cars and perfectly good alternatives. It’s utterly ridiculous, yet people have such strongly held beliefs and desires (for big, fancy cars, etc, etc) convincing them that they should “give up” their desires is typically futile. “It doesn’t apply to me” or, “Well, our small SUV gets much better mileage than so-and-so’s Expedition”, or whatever. They want to be doing the right thing … as long as it doesn’t require any discomfort. So if we cannot make significant, dramatic progress with my neighbors we have a long, long way to go to get to the main part of America. I think our views as a country are, as they should be, based on what they see, hear, and read, and what our leaders tell us. Too bad about our leaders and journalists. So back to Terrapass and Google. Isn’t raising awareness upwards of 100% of the problem right now? Without greater awareness, the “abstract” problem of global warming is just one more thing to worry about along with Iraq, horny congressmen, and what’s up with Tom Cruise. It’s abstract because there’s nothing bad that is really happening to most people today. And this real but abstract problem will only become real and concrete to some people “later”. And a few years after that it will become real and concrete to some more. Only once there are enough people who see a clear and present danger (to themselves) will we change. Or we get some leadership that can have enough power to effect change and evolve the will of the people. Or the positive and simple changes that some people and companies make will start changing peoples’ minds about they want. Only then will people have the motivation to trade off conveniences they have today for ameliorative or corrective actions. But if it’s not already too late, it certainly will be a lot harder to deal with the impact of global warming then than now. That’s the problem, as far as I can see. So before I rant too much more, I’ll just say, that we should use all efforts of the good guys (in this case Google and Terrapass), or even pretty good guys to trumpet the viability of alternative energy and carbon offsets. Instead of turning this issue into an argument about whose right approach is righter, let’s embrace all efforts that demonstrate any one of the hundreds of ways that doing the right thing can not just be noble, but profitable or beneficial. 4.
Comment by Mark Shahinian
@ Oct 20, 2006 3 PM
Dear Adam, I think your subsidy argument trips over the point it sets out to prove. The OED defines “to subsidize” as “to support by grants of money”. By that definition, we subsidize lots of things in this society, including the military, schools and solar panels. The state of California has decided it wants to subsidize solar panels, not “carbon reductions”. There are of course reasons to subsidize solar panels in California. The solar industry is a source of current and future income for the state. Solar panels have nice load curves that match electricity usage in the state. However, the reasons for California to subsidize carbon reductions are less clear. The rest of the U.S. puts out so much CO2 that CA’s reductions will be paltry.The biggest build-outs of wind farms are in the midwest, and with the exception of GE blades, the turbines components are not made in California. So the state bears 100% of the cost of the subsidy while others reap the majority of the benefits. So how can California (and its taxpayers) get around these drawbacks while fostering the obviously worthy goal of long-term CO2 reductions? Move to subsidize areas where it has a competitive — and comparative — advantage. The solar industry, because of our tech background and, well, sun, is an area in which CA has an obvious competitive advantage. Yes, in the short run, CA will pay more for the acheived carbon reductions. But in the long run it will help develop local industry and create wealth for the taxpayers funding these initiatives. Yes, CA has just passed a law mandating emissions reductions. But that’s for private industry, which I’m sure will drive toward the lowest-cost solution. The luxury of government action is longer-term thinking — like subsidies of solar power. If CO2 reduction is the goal then Global Warming should be the solution. I know, sounds stupid. But, greenhouse gasses (primarily CO2) make it warmer and having had a greenhouse I know that means more plant life growing faster. More plants means more CO2 processed and carbon locked away. So, wait a few hundred years, It will all work out ;-) 
Joe — I’m not sure whether you’re being serious or tongue-in-cheek (I suspect the latter), but since this is an argument that is occasionally advanced, it’s worth noting that it most likely dangerously wrong. The amount of carbon stored in soil dwarfs the amount stored in living vegetation, and rising temperatures will cause this stored carbon to be released in an unfortunate positive feedback loop. Also, changes in rainfall patterns due to global warming could cause the collapse of the Amazon rainforest, with obvious dire consequences. Worse still, experiments have shown that food crops don’t respond well to a combination of increased CO2 and increased temperatures, so agricultural yields will drop. A Demand Responsive Transit Exchange (DRTE) will reduce CO2 emissions more immediately and more effectively than most other measures. And best of all, it can begin immediately. If we can bring liquidity to world transport markets, we can apply efficiency alogrithms to the whole fleets of vehicles in cities. This is the goal of Texxi. To become the first and largest network of DRTEs and also be a large broker.
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Comment by Chad
@ Oct 25, 2006 3 AM
Why do people like to use Brazil as an example? Yes, Brazil is mostly renewable (about 88% of its electricity, 60% of its transport fuel). However, Brazilians are largely poor and do not own many energy-using devices, and this is changing. Since they are running out of rivers to dam and rain forests to chop down and replace with sugarcane farms, they will only do worse in the near-term future. Either way, America could not mimic them even if we wanted to. Dan Barker: I think you are far too optimistic about renewables. If God Almighty himself came down today and dropped ten trillion dollars into the govermnment’s lap, with the command to switch to renewables as soon as possible, we still couldn’t do it in ten years. Neither the technology nor the trained manpower exists to make such a rapid change. In a real world of finite money and competing priorities for tax expenditures, it is going to take us decades to reach majority renewable and probably close to the end of the century for a nearly-complete switch. This implies that anyone who claims to have an “energy policy” needs to also have a plan for procuring and utilizing dinofuels for the indefinite future.
9.
Comment by Flashdaddy
@ Oct 25, 2006 6 AM
Daniel- Thanks for bringing up ground-source compressorless A/C. It really is a great idea and I believe we aren’t that far away from seeing it applied. However, I think that it will materialize differently. It will more likely pump air through tubes in the ground and out ducts in your home (very cheap) or use a closed-loop fluid based system that would cool air in ducts (better humidity control). The system you described is similar to in-floor heating, which is very effective and comfortable, but in-ceiling cooling has condensation issues which can be over come, but not without increased expense. One nice thing about a duct based system is that it can be retro-fitted into existing homes, however the cost of burrying the in-ground loops is prohibitive for many people. Anyway thanks for the good post. The subsidies for oil are a red herring in the context of alternative energy and efficiency. Adding up all the subsidies applicable to the oil industry, which Daniel kindly lists above, I get $3.3 billion. Not chump change. However, when we consider that the US oil industry operates on a scale 3 orders of magnitude larger than current alternative energy, and produces roughly 8 million barrels per day domestically, that works out to $1.12/barrel in government subsidies/benefits to the industry—just under 3 cents/gallon of product. Wiping those out won’t change the competitiveness of alternative fuels such as ethanol, which gets over $0.50/gallon of direct subsidy, ignoring the ag subsidies to farmers and the mooted subsidies to retailers to put in E85 facilities. We should focus on improving the technology and reducing our demand for all fuels.
11.
Comment by Stefam
@ Oct 26, 2006 6 AM
Transportation options give you good bang for the buck too. Too bad I cant sell my drive to work 12.
Comment by Chad
@ Oct 26, 2006 8 PM
It is likely true that the biggest “subsidy” to fossil fuel use is the free dumping privedledges for the CO2, NOx, SOx, particulates, mercury, etc that using these fuels costs. Force the polluters to pay appropriate taxes or institute cap-and-trades, and you can largely address these issues. The problem is that almost everyone supports “polluters pay” laws until they realize that THEY are polluters and would have to pay, too. Post a comment |
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The comment thread on yesterday’s 
Here are some of the subsidies the fossil fuel industry receives:
1. Immediate Expensing of Exploration and Development Costs – $200 million/year Oil, gas, and coal producers can immediately expense (write off) most or all of their development costs. Other businesses must deduct these expenses over a longer period of time.
2. Percentage Depletion Allowance for Oil and Gas – $600 million/year
Independent oil and gas companies can deduct 15 percent of their sales revenue using the special percentage depletion allowance – instead of the standard cost depreciation – regardless of the actual loss in value over time.
(3 is for coal)
4. Intangible Drilling Costs – $500 million/year
Integrated oil and gas companies can immediately deduct 70 percent of “intangible” drilling costs. Most other businesses deduct such expenses over time and therefore receive less of a tax benefit.
5. Passive Loss for Oil and Gas – $100 million/year
This tax shelter for investors in oil and gas allows certain owners to offset “passive losses” against income to pay lower taxes.
6. Non-Conventional Fuel Production Credit – $1.3 billion/year
This tax credit for certain types of fuel extracted from “non-conventional” sources was intended to provide incentives for petroleum alternatives, but most of the credit has gone for oil and gas production.
7. Tax Breaks for Enhanced Oil Recovery – $100 million/year
Expensing (writing off) tertiary injectant costs and the tax credit for enhanced oil recovery encourage extraction of difficult to reach and expensive oil deposit remnants.
(#8 is for coal)
(#9 is for coal)
10. Other Fossil Energy R&D – $100 million/year
The federal government provides subsidies for oil and natural gas research and development.
11. Multilateral Development Bank Loans for Fossil Fuel – $80 million/year
The U.S. federal government supports several multilateral development banks, which provide loans for fossil fuel development in other countries.
12. Export Import Bank Guarantees for Fossil Fuel – $300 million/year
The Export Import Bank provides federal loan guarantees for investments in unstable countries. A portion of these loans are used for fossil fuel development.
(#13 is for coal)
14. Income Tax Exemption for Publicly Owned Utilities – $200 million/year
Publicly owned utilities and cooperatives are not subject to federal income tax on their profits or retained earnings. Some of these utilities use fossil fuels.
15. Rural Utilities Service Loans – $900 million/year
The federal government provides low-interest loans to rural-electrification cooperatives. These cooperatives have invested heavily in energy plants using fossil fuels.
16. Tax Exemption for Publicly Owned Utility Bonds – $550 million/year
Publicly owned utilities (POUs) can issue tax-exempt bonds. A significant portion of POUs have invested in energy sources using fossil fuels.
Democrats and Republicans agree we should end our dependence on foreign oil to end the madness. What we are fighting over is where we will get our energy from. Republicans want to use our own fossil fuel, Democrats want to use renewable energy.
At $5 a watt, it takes decades for solar energy (electricty) to pay for itself. This is because there is intense sunlight for just a few hours a day, clouds decrease the amount of sunlight, excess power has to be stored in batteries (which are expensive) which are not 100% efficient, and the DC from the batteries has to be converted back to AC. But when the price of PVs becomes low enough it will become affordable.
Solar energy (heat) pays for itself in just a few years. I sometimes wonder why the world didn’t go solar sometime fifty years ago.
As people are realizing, Brazil is about to become the first fossil-fuel free country, deriving all the fuel from alcohol from sugar cane. There are crops (not corn, don’t get me started on the corn subsidies the Republicans are counting on!) that produce alcohol in sizable amounts.
Another cheap form of cooling is using the Earth to provide a low temperature. The average temperature is about 50-55 degrees, which is the temperature of the soil a few feet down. In the summer, you pump a coolant through pipes in the ground that cool it down, then pump the coolant to the ceilings of your house. This system will pay for itself quickly.
We could be fossil-fuel free in less than ten years if we wanted to.