I wanted to develop a few more points on solar PV. Like quite a few commenters, I think subsidies for rooftop solar PV installations are not a first-best policy option, and probably not even second-best. But the fact remains that a relatively modest subsidy is enough to make this a reasonably attractive choice (in comments to the previous post, Uncle Milton describes it as ‘marginal’, which is about right – at the margin, there’s just enough to make it an appealing option for suitably located households).
It doesn’t look so good as public policy. Assuming 6 KWh/day, the energy saving is around 2MWh/year, which, if it displaced brown coal would save about 2.5 tonnes/year. If the public subsidy is $5000, and the real annual interest rate faced by the government is 4 per cent, that’s about $100/tonne.
There are certainly better options than trying to achieve a large proportion of our emissions reduction goals through an approach like this. But lets suppose that the kind of political noise being made by Tony Abbott and others forces us into a high-cost winner-picking approach. Now suppose we decide to reduce emissions by 500 million tonnes a year (about 90 per cent of existing emissions), using approaches that are, on average as efficient as residential rooftop PV, that is, at an average cost of $100/tonne. The cost would be $50 billion a year or about 4 per cent of GDP, that is, about 2 years worth of annual growth in income per person.
In other words, even using highly inefficient approaches, the cost of climate stabilization would be marginal in comparison to the ordinary fluctuations in GDP associated with the business cycle, let alone the variations in personal income (IIRC, the coefficient of variation is more than 20 per cent).
This is a point that seems to be resisted vigorously both by advocates of ‘business as usual’, and by lots of people who think that the existing order of things is doomed by virtue of necessary increases in the cost of energy. The arithmetic above shows that this can’t be true, but I doubt that I will convince to many people of that.
A couple of points noted down here, for want of better. First, the infant industry argument for subsidising this looks reasonably good, if you postulate a 20-40 per cent reduction in the total cost of rooftop PV over, say, the next five years. Since the subsidy is currently 50 per cent of total cost, this means it would fall by 40-80 per cent. In the best case of a 40 per cent reduction in total cost, the subsidy would fall to around $20/tonne which would make the policy a reasonably appealing one.
Second, here’s my list of technologies that could reduce CO2 emissions at cost much below $100/tonne
* Energy efficiency – reductions of at least 50 per cent in energy use for almost all energy-intensive activities
* Wind – at least up to 30 per cent of electricity supply, more with storage which could easily be afforded at costs well under $100/tonne and with large intelligent grids (ditto)
* Carbon capture + biochar pyrolysis (scope unclear, but potentially large)
* Hybrid/electric vehicles – most road transport emissions
* Fuel cells – ditto
* Nuclear – assuming reasonable success of current US efforts to restart the industry
* Large-scale solar PV and solar thermal again, up to 30 per cent of electricity supply and more with storage+grids
* Geothermal – again including cost of distribution
* Natural gas replacing coal
As a little bit of arithmetic on this shows that a doubling of energy efficiency, a switch from petrol fuelled vehicles to electric, and an electricity supply that’s 60 per cent zero-emissions, 40 per cent gas would achieve a 90 per cent reduction in emissions with ease. That could be done, with current technology at a cost below $100 tonne. And there’s plenty of room for one or more of the above to fail.
fn1. And the point won’t be salvaged by quibbles about intermittent power and similar.