Econ-Utopia: Greenbacks for Green Energy

By Jonathan Teller-Elsberg, CPE Staff Economist

With Al Gore on Oprah giving his “inconvenient” PowerPoint presentation, new reports of melting ice sheets and rising sea levels, and the release of the British government’s Stern Review, which is the latest major estimate of the economic costs of climate change, the issue of global warming is becoming a part of mainstream politics and kitchen-table conversations. Since the burning of fossil fuels (oil, natural gas, and coal) is the main source of human-caused warming, the need for alternative forms of energy is clear.

Historically, low prices for fossil fuels have meant that renewable energy systems were rarely economically viable. With improvements in technology and production methods, renewable energy has been closing the gap over time. But one thing has almost always been left out of the equation: the long term, hidden costs of global warming from fossil fuel use. These costs might be financial (the cost of building new homes for people displaced by rising oceans), human (the trauma people experience when their way of life is ruined), or something else (the loss of millions of species of life than cannot survive a hotter planet).

In the language of economics, this is an example of a “negative externality,” a cost that is not included in the market price. As a result, the monetary price is “wrong”—in this case, the monetary price of fossil fuels is too low, and so people use more fossil fuel than they would if they knew the “true cost.”

Lately, some governments have taken the question of energy’s true cost to heart, and created incentive plans called “feed-in tariffs” to promote renewable energy. Germany has been at the forefront with its 2004 law, the “Renewable Energy Sources Act.” The law mandates that electric utilities must pay a guaranteed price to anyone who installs a renewable energy system, and that price is guaranteed for 20 years. The price the utility pays is much higher than the price the utility charges for fossil-fuel derived energy that it supplies.

For example, if you put a small photovoltaic (solar electricity) system on the roof of your home and connected it to the electric grid, the German utility must pay you just over 68 cents per kilowatt-hour (kWh) (calculated at the exchange rate on 12/14/2006). Meanwhile, the price you would pay for electricity you get from the utility would be around 20 cents/kWh.

The German government’s logic is that each bit of electricity that comes from a renewable source instead of a fossil fuel has long-term savings built in, because the renewable energy isn’t contributing to global warming. The law turns those long-term savings into cash up front that citizens can use for investing in green power.

As a result, there has been an explosion of interest in alternative energy in Germany. In 2005, some 635 megawatts (1 megawatt = 1,000 kilowatts) of new solar electric systems were installed—enough power to supply the needs of nearly 60,000 average American homes (and the average German home is almost surely more efficient). Spain, Italy, Greece, South Korea and France have all followed Germany’s lead and established their own feed-in tariff systems.

Starting in 2007, residents of California will enjoy a similar incentive to go green; the state’s feed-in tariff guarantees a five year contract paying 38 cents/kWh for newly installed photovoltaic systems. With all that valuable beachfront property to worry about, it’s no wonder that California is leading the way in the U.S. to avoid catastrophic global warming. But the only hope for sufficiently reducing greenhouse gas emissions to save Malibu is that the rest of the country (and world) follow a similar path to make fossil fuels the economic losers that they ought to be.

Sources and resources:

For a taste of the bad news on global warming, see

For Al Gore’s An Inconvenient Truth

For information on photovoltaics, feed in tariffs, and electricity usage, see

For an overview of renewable energy options for homeowners, small businesses, and communities, The Citizen-Powered Energy Handbook by Greg Pahl.

© 2007 Center for Popular Economics
Econ-Atrocities are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.



    In order to insure energy and economic independence as well as better economic growth without being blackmailed by foreign countries, our country, the United States of America’s Utilization of Energy sources must change.
    “Energy drives our entire economy.” We must protect it. “Let’s face it, without energy the whole economy and economic society we have set up would come to a halt. So you want to have control over such an important resource that you need for your society and your economy.” The American way of life is not negotiable.
    Our continued dependence on fossil fuels could and will lead to catastrophic consequences.

    The federal, state and local government should implement a mandatory renewable energy installation program for residential and commercial property on new construction and remodeling projects with the use of energy efficient material, mechanical systems, appliances, lighting, etc. The source of energy must by renewable energy such as Solar-Photovoltaic, Geothermal, Wind, Biofuels, Ocean-Tidal, etc. including utilizing water from lakes, rivers and oceans to circulate in cooling towers to produce air conditioning and the utilization of proper landscaping to reduce energy consumption. (Sales tax on renewable energy products should be reduced or eliminated)

    The implementation of mandatory renewable energy could be done on a gradual scale over the next 10 years. At the end of the 10 year period all construction and energy use in the structures throughout the United States must be 100% powered by renewable energy. (This can be done by amending building code)

    In addition, the governments must impose laws, rules and regulations whereby the utility companies must comply with a fair “NET METERING” (the buying of excess generation from the consumer at market price), including the promotion of research and production of “renewable energy technology” with various long term incentives and grants. The various foundations in existence should be used to contribute to this cause.

    A mandatory time table should also be established for the automobile industry to gradually produce an automobile powered by renewable energy. The American automobile industry is surely capable of accomplishing this task. As an inducement to buy hybrid automobiles (sales tax should be reduced or eliminated on American manufactured automobiles).

    This is a way to expedite our energy independence and economic growth. (This will also create a substantial amount of new jobs). It will take maximum effort and a relentless pursuit of the private, commercial and industrial government sectors commitment to renewable energy — energy generation (wind, solar, hydro, biofuels, geothermal, energy storage (fuel cells, advance batteries), energy infrastructure (management, transmission) and energy efficiency (lighting, sensors, automation, conservation) (rainwater harvesting, water conservation) (energy and natural resources conservation) in order to achieve our energy independence.

    “To succeed, you have to believe in something with such a passion that it becomes a reality.”

    Jay Draiman, Energy Consultant
    Northridge, CA. 91325
    Jan. 26, 2007

    P.S. I have a very deep belief in America’s capabilities. Within the next 10 years we can accomplish our energy independence, if we as a nation truly set our goals to accomplish this.
    I happen to believe that we can do it. In another crisis–the one in 1942–President Franklin D. Roosevelt said this country would build 60,000 [50,000] military aircraft. By 1943, production in that program had reached 125,000 aircraft annually. They did it then. We can do it now.
    The American people resilience and determination to retain the way of life is unconquerable and we as a nation will succeed in this endeavor of Energy Independence.

    Solar energy is the source of all energy on the earth (excepting volcanic geothermal). Wind, wave and fossil fuels all get their energy from the sun. Fossil fuels are only a battery which will eventually run out. The sooner we can exploit all forms of Solar energy (cost effectively or not against dubiously cheap FFs) the better off we will all be. If the battery runs out first, the survivors will all be living like in the 18th century again.

    Every new home built should come with a solar package. A 1.5 kW per bedroom is a good rule of thumb. The formula 1.5 X’s 5 hrs per day X’s 30 days will produce about 225 kWh per bedroom monthly. This peak production period will offset 17 to 2

    4 cents per kWh with a potential of $160 per month or about $60,000 over the 30-year mortgage period for a three-bedroom home. It is economically feasible at the current energy price and the interest portion of the loan is deductible. Why not?

    Title 24 has been mandated forcing developers to build energy efficient homes. Their bull-headedness put them in that position and now they see that Title 24 works with little added cost. Solar should also be mandated and if the developer designs a home that solar is impossible to do then they should pay an equivalent mitigation fee allowing others to put solar on in place of their negligence. (Installation should be paid “performance based”)

    Installation of renewable energy and its performance should be paid to the installer and manufacturer based on “performance based” (that means they are held accountable for the performance of the product – that includes the automobile industry). This will gain the trust and confidence of the end-user to proceed with such a project; it will also prove to the public that it is a viable avenue of energy conservation.

    Installing renewable energy system on your home or business increases the value of the property and provides a marketing advantage.

    Nations of the world should unite and join together in a cohesive effort to develop and implement MANDATORY RENEWABLE ENERGY for the sake of humankind and future generations.

    Jay Draiman
    Northridge, CA 91325
    Email: renewableenergy2 {at} msn(.)com

  • I must say i was obviously a little leary of all of the hype happening around solar. After examining plenty of programs and buy options my spouce and i decide to make the leap. We wound up getting solar without money down and immediatly started putting money aside the very first month is was installed. I have to admit the advantages of solar look like they’re real and I am very happy that we thought to move forward with it.