Governments around the world are implementing policies to support the development of renewable energy sources. Separate policy approaches are normally used for each major use of renewable energy:
- Green power (using wind, solar, low-impact hydro and other sources to provide electricity)
- Green heat (using solar and earth energy sources to provide heat to buildings and industry)
- Green fuels (using crops and waste to provide ethanol and biodiesel)
Green Power
Substantial policy mechanisms to support green power for electricity generation are in place in Brazil, China, Denmark, France, Germany, India, Japan, Ontario, Portugal, Spain, Sweden, Korea, the United States and the United Kingdom.
Feed-In Tariffs
Renewable energy feed-in tariffs, also known as advanced renewable tariffs or standard offer contracts, are used by most countries that successfully support green power. Feed-in tariffs allow for green power generators to sell power to the grid operator at premium fees set by government. The fees are usually set at different rates for different technologies. For example, Germany has different feed-in tariffs for hydropower, wind, solar, geothermal and biomass projects. If it becomes apparent that one technology is not being developed at a rate necessary to meet targets, the fees can be adjusted. The grid operators are legally required to give priority connections to plants generating electricity from low-impact renewable energy sources. The highest feed in tariffs have been set by Korea at 70 cents/kWh for solar electric power. Ontario has recently introduced a standard offer contract for wind, biomass and solar green power sources.
The use of the feed-in tariff approach can be used to support the development of a well-balanced green power portfolio. If it includes long-term commitments with fair pricing, this approach can provide a stable investment environment and lead to the establishment of local green power manufacturing facilities. It can also result in a diverse ownership structure for green power involving farmers and municipalities, which leads to more rural and economic development.
Renewable Portfolio Standard (RPS)
Another successful approach is to allow grid operators to use their own means to meet legal green power targets or a Renewable Portfolio Standard (RPS). The state of Texas in the U.S. has become a leader in using the RPS approach. At the end of 2005, Texas had an installed wind generation capacity of 1,995 MW. As of 2006, a total of 21 U.S. states have RPS regulations. Several members of the European Union have RPS or Renewable Obligations including the United Kingdom and France.
An RPS sets an escalating set of green power goals and places responsibility for meeting those goals on the electric retailers, with significant penalties for non-compliance. An RPS is often supported by renewable energy certificate (REC) trading that allows utilities with legal commitments to purchase green power from third parties if it is cheaper to do so. Because of the focus on low-cost green power, the RPS approach has been most successful in stimulating wind power development. To support other green power resources, an RPS has to assign distinct targets for each green power source.
Financial Incentives
Several countries including Canada and the United States provide production incentives for wind generated green power. These are paid to the producer of green power on the basis of each kWh of power generated.
Green power generating equipment and systems often qualifies for accelerated depreciation under tax laws making investment in green power more financially attractive.
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Green Heat
Space and water heating are responsible for the greater share of building energy use than electricity in many countries, yet there are few examples of policies to increase the use of renewable energy to meet these thermal energy needs. This gap is beginning to be recognized in countries like China, Germany and Austria.
In Austria, one out of every seven homeowners now uses solar to heat their hot water. The village of Gleusdorf in southern Austria, with a population of 35,000 people, has a greater installed capacity of solar water heating than all of Canada. China is the largest solar market in the world with over 10,000 solar water heater manufacturers.
Financial Incentives
Examples of two countries that provide specific fiscal incentives for green heat are
- Italy (since 2000) allows a tax credit for users connected to a geothermal or biomass district heating grid
- France (until 2012) offers a risk coverage fund dedicated to low-enthalpy geothermal plants with distribution networks.
The European Renewable Energy Council (April 2005) coordinated a declaration from 40 organizations in Europe, calling for a European Union Green Heat Directive to support and set targets for heating and cooling from renewable sources of energy.
Renewables Obligation
The Renewable Power Association, with Friends of the Earth and other groups, is promoting a Renewable Heat Obligation in the United Kingdom that would require a percentage of heating sources be supplied from green heat technologies. A UK Royal Commission on Environmental Pollution recently recommended such a Renewable Heat Obligation.
Supportive Policies and Financing
Governments can show leadership and kick start green industries and distribution networks by setting targets for the purchase of heat from renewable sources in all their buildings.
National, provincial and local governments can play a major role in paving the way for green heat by including solar readiness and right-to-light in building codes and bylaws, and ensuring inspectors are properly trained to approve green heat installations. China has a renewable energy law that requires every new building to use solar water heaters. Israel, Spain, Greece and Holland also have similar federal building codes.
Green heat technologies often involve a high initial cost. Innovative financing allows using the long-term savings gained from the technology to pay for the initial cost. Examples include adding the green heat cost to a building’s mortgage or leasing cost, or using municipal funds to finance green heat technologies and local improvement charges to repay the cost. The latter approach associates the cost of Green Heat with the property and not the owner — thereby making longer term investments equitable for current owners.
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Green Fuels
A number of governments around the world including Canada, the United States, Japan, India, Brazil and the European Union have introduced supportive policies to encourage the use of green fuels (also called biofuels), including ethanol and biodiesel.
Such policies can benefit countries by
- increasing energy security by diversifying fuels used by transportation and industry
- diversifying income and employment opportunities in rural areas through the production of green fuels and
- improving local air quality and reducing greenhouse gases by cutting down on harmful emissions resulting from the use of fossil fuels.
Policies to Support Low-Impact Green Fuels
While green fuels generally boast greater environmental benefits than fossil fuels, not all ethanol and biodiesel are created equal. For example, low-impact green fuels such as biodiesel and lignocellulose ethanol made from plant fibers such as straw, hay or wood have lower life-cycle GHG and criteria air contaminant (CAC) emissions than starch ethanol. The wider environmental impacts of producing green fuels — such as the sustainability of land-use practices used in growing biomass resources — are also important to consider.
Sustainability Criteria for Green Fuels
There are ongoing efforts to promote green fuels that have the lowest life-cycle environmental impacts using sustainability criteria. A notable example is the Dutch government’s efforts to advance concrete and measurable sustainability criteria for biomass production based on a long-term vision for biofuel sustainability. A selection of the Dutch government’s criteria and indicators for sustainable biomass production include:
- reduction targets for greenhouse gases
- no decline of biodiversity or valuable ecosystems
- prevention of soil erosion
- preservation of quality and quantity of surface and ground water
- increased human welfare
- no reduction in food supplies.
By applying this criteria, the Netherlands is supporting the production and use of low impact green fuels to increase the percentage of biofuels used in its national transportation fuel mix to 5.75% by 2010 (in accordance with the EU Biofuels Directive discussed below).
Certification of Green Fuels
Certification programs that help consumers identify green fuels can be effective in helping us reduce the impact of meeting our transportation needs. Canada’s Environmental Choice Program includes an EcoLogo certification for automotive fuels that reduce toxic emissions into the atmosphere. The Environmental Choice Program encourages the use of both alternative fuels in specially designed vehicles and modified fuels such as ethanol-blended gasoline. However, as Canadians primarily use gasoline-fuelled vehicles, the EcoLogo certification is currently only available for ethanol-blended gasoline that
- contains 5% ethanol by volume
- is completely made from biomass
- meets or exceed all applicable governmental and industrial safety and performance standards, and is manufactured and transported in accordance with all applicable acts and laws, including those under the Fisheries Act and the Canadian Environmental Protection Act.
On an annual basis, Canadians use approximately 40 billion litres of gasoline. By choosing to use EcoLogo certified automotive fuels, Canadians can be assured they are helping to reduce greenhouse gases and other toxic emissions.
Renewable Fuels Standards
Renewable Fuels Standards (RFS) set targets for the production and use of green fuels, similar to Renewable Portfolio Standards.
In 2005, the U.S. government signed a federal renewable fuel standard into law that puts the U.S. on track to double its use of renewable, domestically produced ethanol and biodiesel by 2012. The RFS sets production targets of 4 billion gallons of green fuels by 2006, increasing to 7.5 billion gallons by 2012.
The European Union has set a target under its 2003 Biofuels Directive to increase the market share of biofuels to 5.75% of the total transport fuel supply by 2010, which will reduce the ratio of fossil fuels used. The target is accompanied by a tax exemption policy for biofuels aimed at offsetting the price difference with conventional gasoline, as well as efforts to improve public transport and increase the fuel efficiency of vehicles. Japan and India have also set targets for increasing the use of green fuels in vehicles — with Japan pursuing a goal of increasing the ratio of ethanol in fuel to 20% by 2030.
Tax Policies
In Germany, a tax exemption for biofuels (pure and mixed) has helped to encourage spectacular growth in the biofuels market. According to EurObser’ER, Germany produced 1,669,000 tonnes of biodiesel in 2005 — up 61.3% from 2004. This accounts for over 50% of the biodiesel produced in the EU. Conversely, the United States has introduced a 10cents-per-gallon production income tax credit to assist small-scale ethanol producers. The credit is available for up to 15 million gallons of production annually and is capped at $1.5 million per producer per year. A similar tax credit exists for biodiesel producers.
Beyond Green Fuels. . .
Evidence from around the world demonstrates that introducing supportive policies can help increase the use of green fuels for transportation. Ensuring low-impact green fuels are promoted through the use of crediting schemes or sustainability criteria could further strengthen many of these policies. However, improving the fuel efficiency of our vehicles and choosing alternative transportation choices such as walking, biking and public transport are also critical in reducing our fuel consumption and the environmental impacts of our transportation choices.
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