Breaking a deadlock

What the recent global climate change convention at The Hague could have been all about was agreeing a market structure in which the technologies most capable of economically delivering solutions to global warming are put on a fast track to development. Instead, the talks focussed on how to avoid taking any action at all. Wind power is one of the best solutions we have for replacing the technologies which pollute the world, yet it remains trapped in a series of subsidised niches. Bigger subsidies will only bring bigger niches. Europe's attempt to launch a tradable green certificate market through a renewable energy directive has fallen foul of bitter wrangling, so we offer a suggestion for a five sentence directive, which leaves legislative detail in the hands of national governments.

Observed from afar, the goings on at COP6 in The Hague last month had all the appearance of a cause which had lost sight of its objective. What the sixth conference of the parties to the global climate change convention could have been all about was agreeing a market structure in which the technologies most capable of economically delivering solutions to global warming are put on a fast track to development. Instead, the talks focussed on how to avoid having to take any action at all, which is what arguing for forests as "sinks" in which to dump CO2 is about. Where was the focus on creating new markets for clean power technologies? On introducing incentives for businesses to innovate? Somewhere east of paradise.

Wind power is one of the best solutions we have for replacing the technologies which are polluting the world. It took less than two decades of subsidised development to bring a major new technology to the marketplace at an affordable price -- and that says reams about the inherent good sense of the concept. Yet it remains trapped in a series of subsidised niches because power market structures favour the use of polluting forms of generation. Bigger subsidies are not the answer. They will only bring bigger niches. What's more, subsidies are not the best way of bringing the kind of cost-cutting technology innovation that businesses are so good at, given the incentive of a dynamic growth market.

The key to achieving that market lies in making environmental value an intrinsic part of the forces of supply and demand. Laws to reduce greenhouse gas emissions will stimulate demand for emissions credits, which renewables are well equipped to supply. The greater the demand, the higher the price and the more business created. But if COP6 did nothing else, it told us that a functioning global market for emissions credits is a long way off.

Green power credits, however, are a more direct way of achieving the same end for renewables and are nowhere near as contentious. Forcing the world to reduce emissions has become synonymous with the infliction of economic pain. Stimulating demand for green power is to create economic growth for new technologies. Renewable energy holds the undisputed potential to deliver what is required: limitless, pollution free electricity at least-cost in the long run and with no irreversible side-effects. Markets for green power credits are just coming into being. In the United States we have the prime example of Texas (page 21), while Denmark, Britain and the Netherlands are in the throes of fine tuning new national legislation. Meantime, businesses are champing at the bit to get started (pages 18 and 19). These isolated examples, however, are not enough to fully exploit the great strength of market forces to bring down costs and change the established order of power generation. For this, bigger markets are needed, such as the pan-European tradable green certificate (TGC) market long mooted by the European Commission.

Europe's attempt to launch a TGC market through a renewable energy directive, however, has fallen foul of bitter wrangling (page 26). Some countries are ready for the leap, notably those whose good winds will put them in a dominant trading position, while others are not. Breaking that deadlock is the next step. Perhaps it is time to copy Germany and create a simple law to stimulate growth, but one that will allow wind to escape from expensive niches and join the main stream of power generation. Here is our suggestion for a five sentence directive, which purposely leaves legislative detail in the hands of national governments:

In respect of the indicative targets proposed by the European Commission for the contribution of renewable energy to national electricity portfolios and in order to create a market in which these targets can be achieved at least cost to the consumer, the Commission is instructed to develop a Europe wide market for Tradable Green Power Certificates (TGCs), the intent of which is to assign a market price to the environmental value of renewable energy and ensure the polluter pays that price in electricity rates. The Commission should also develop a system for guaranteeing the origin of all electrical power and only certified TGCs shall be accepted in the marketplace. No power producer receiving a subsidy or being paid a fixed price for its renewable energy generation may enter the TGC market. Countries with fixed premium tariffs for their renewables generation must open that tariff to electricity producers outside their borders within five years of the passing of this Directive and be granted a suitable period for transition to the TGC market thereafter. All renewable energy must be awarded priority access to the grid.

Our directive side-steps the sticky issue of binding targets for renewables in the belief that national governments are capable of setting their own. It brings the polluter pays principle into force, but without the contentious requirement for a European carbon tax. It promotes the gradual preparation of a framework for TGC trading, but leaves the decision about when and if to join the market to member states, or even power plant operators. It recognises the aims of the EU to eliminate trade distortions, setting a time limit on national support schemes which represent barriers to cross border trade. Last, but far from least, it protects consumers' rights to access clean power. Simplistic, yes, but at least there is a chance it could be agreed upon, before it's too late.

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