Currently, Germany is in the process of backtracking from overly generous subsidies for renewables because they’ve resulted in skyrocketing electricity prices and increased carbon emissions. These unintended consequences should serve as a cautionary tale to U.S. policymakers as to the harm that outsized government handouts for renewables can have. Thankfully, there’s time to prevent anything like this from happening in the U.S., so long as we draw upon lessons learned from Germany and quickly act to end egregious subsidies like the wind Production Tax Credit (PTC).
The policy, which is being considered by the Senate as a part of its extenders package at a cost of $13 billion to taxpayers, should be allowed to permanently expire. We need look no further than Germany to understand why.
In 2000, Germany embarked on an “energy transformation” to have the bulk of its energy supplied by renewable power sources by 2050. As part of this, Germans invested heavily in wind and solar power, encouraged by a generous “feed-in tariff” that guaranteed prices and access for any renewable energy fed into the nation’s power grid. In effect, this guaranteed renewable energy producers a selling price for their power, often at above-market rates.
Rather than an energy transformation, these factors have created an energy disaster. First, these subsidies have led to an increase in residential electricity prices, which have more than doubled between 2000 and 2013 (from 18 cents to 37 cents per kilowatt-hour). In fact, electricity prices in Germany are the second-highest in the European Union, according to Eurostat. This has led to as many as 800,000 Germans having their power cut off because of an inability to pay for rising energy costs.
Germany’s government-forced promotion of renewable energy, as well as its decision to phase out nuclear power, has also led to increased emissions due to an increase reliance on coal and natural gas to keep the lights on. Germany emitted 951 million metric tons of carbon dioxide last year, compared to 913 million metric tons of carbon dioxide in 2009, despite spending about $138 billion to go green in the last decade.
Accordingly – and this is where U.S. policymakers should take heed – officials in Germany are changing course, with the government announcing just last month that state support for wind and solar will be reduced because of the strains these policies have caused on Germany’s consumers, economy and industry. In fact, in reference to the scaling back of renewable subsidies, Economy Minister Sigmar Gabriel said it was necessary because rising prices due to excessive tax handouts “have become the [country’s] biggest problem by straining our economy and industry.”
While the way subsidies for renewables work – and the reasons for their implementation – are different in the U.S., Germany’s experience should serve as a cautionary tale of the unintended consequences they can bring, in the form of higher energy prices and increased carbon emissions. America has its own version of costly and wasteful subsidies for green energy; one of them is the PTC.
Chairman and CEO, Nickles Group