Effective conservation incentives would send appropriate price signals to consumers. The more common approach, unfortunately, involves arbitrary standards that introduce market inefficiencies and...
Transforming Production Tax Credits
Three reasons to make them a permanent part of U.S. energy policy.
benefit falls, it appears that many of the benefits of the PTC do not go to developers but flow down to the utilities and consumers in the places where the projects are developed. The PTC represents a federal policy that encourages aggressive individual state actions to meet an important national goal and seems to provide at least some benefits to the consumers of those states. As a result, federal, state, developer, and individual consumer interests will be lined up in a consistent, positive manner.
Finally, a permanent national program of supports for renewable development will create a major new demand for a variety of component parts that can be manufactured domestically. An equivalent set of supports for any firm willing to expand production facilities in order to supply component parts to these new renewable projects should be encouraged.
To see how the PTC can function as an integral part of carbon policy requires only one small step: If the stabilization of carbon emissions is determined to be an important public goal, then the removal of carbon from the generation of electricity should be recognized as an important public benefit. If you have two technologies, both of which can deliver electricity, but one of which can deliver it with no carbon emissions, the carbon-free technology should be provided with a public return that recognizes the public benefit it provides. Any private entity that can deliver the benefit should be allowed to earn a public return.
Calculating this public return is simple: It begins with an initial estimate of the value of a ton of carbon removed from electric generation. The value per ton can be set a number of ways, but the initial estimate is not that critical because it can be adjusted over time as energy developers react to it.
Every renewable kilowatt-hour generated displaces another kilowatt-hour, and that displaced kilowatt-hour will be assumed to have carbon emissions. This amount of avoided carbon determines the public return.
If a value of $50 per ton carbon is the initial estimate, then the value per kilowatt-hour is simply the number of kilowatt-hours required to displace a ton of carbon divided into the $50. If that number produces a huge response, far beyond what is needed, the value can be reduced. If the value does not produce the kind of response necessary to hit the carbon reduction target, then the value can be raised.
This type of policy represents a departure from the present consensus on how to reduce carbon emissions from the generation of electricity. At this time, the majority of energy and environmental policy experts favor intervention at the consumer end, and, in particular, in the price consumers face as the favored method to implement a carbon policy.
These consumer/price-oriented policies rely on a long and potentially weak chain of actions and reactions that eventually could lead to the discovery, development, and commercialization of carbon-free technologies. A cap or tax is set and passed on to the appropriate price. Consumers see that price and react. Other technology developers see that price