Comparing apples to oranges: Why the coal industry is still growing in Asia

Comparing apples to oranges: Accepting fossil fuel subsidies while criticising feed-in-tariffs is not fair.

“It is unfair to accept fossil fuel subsidies while criticising feed-in-tariffs.” – Dennis Posadas

Taking grand displays of climate-change action at face value, we seem to be heading towards a cleaner future. Earth Day and Earth Hour with their millions of participants may lead us to think that there is strong public support for climate change mitigation.

The reality is somewhat more grim. In terms of capacity, the growth of new coal plants has outpaced that of clean energy, especially in Asia.

This now means that the main cause of greenhouse gas emissions is still growing, despite what seems to be a growing public clamour for environmental protection. In light of news that the atmospheric carbon dioxide level has reached 400ppm for the first time in three million years, we need a rethink. Are our strategies working?

The reason for the unchecked growth of coal is simple: cost. People are willing to turn off a light for an hour because that is not much of an inconvenience, but ask them to pay a slightly higher electricity bill and a significant portion of the populace will balk.

While the Kyoto Protocol Clean Development Mechanism (CDM or “carbon credits”) helped make many renewable energy installations like wind and solar viable, coupled with feed-in-tariffs (a fixed pre-agreed purchase price of electricity per kilowatt-hour), this has still not dampened demand for coal plants.

Percentage wise, the amount of renewable energy compared to fossil-fuel-based power is minuscule. The CDM credits only pay for a small percentage of the cost of a new solar or wind farm, and the feed-in-tariff remains high compared to the cost of coal. This situation will remain in effect until economies of scale and R&D for renewables force a significant drop in price, like they did for personal computers and semiconductors. For example, although manufacturing in China has contributed to a large price decline in solar photovoltaics, the recent bankruptcy of China-based solar manufacturer Suntech has shown that much work remains to be done.

What we do in public, and what we actually do when the going gets tough (or expensive), is different.

Coal is cheap because the price of externalities like air pollution and climate change is not factored in to the cost of a new plant. If there is an increase in hospital admissions for asthma and bronchitis because of air pollution problems caused by older coal plants, too bad. This was not factored in when the plant was being built, as it is what economists call an externality. This is why having a carbon tax is important – to price in the impact of these externalities. In addition, hidden subsidies by governments around the world tend to make fossil fuels cheap, and so one priority should be the dismantling of these subsidies.

The sad fact is that most people, if given a choice between heading off an Arctic ice melt and paying only for the cheapest source of electricity, will go for the cheap electricity – and thus coal wins. So what we do in public, and what we actually do when the going gets tough (or expensive), is different. This is why a carbon tax or cap and trade system is needed, to price in these externalities and reflect the true cost of generating power.

If passing a carbon tax is tough in developed countries like Australia, imagine how difficult it would be in places like the Philippines or Thailand. A carbon tax would raise the average price of electricity significantly, because most power sources are still fossil-fuel based.

The experience with Feed-in-Tariffs illustrates the political difficulty of implementing effective measures. A Feed-in-Tariff (FiT) is a long-term, fixed purchase price per kwh agreed with a renewable power generator. While China, Japan and other Asian countries have been able to implement it, in the Philippines the FiT rates, particularly for solar, were for a time attacked by a group of free market economists. They went to court to stop its implementation, arguing that fixed electricity prices go against the grain of electricity free markets and raise prices. A Philippines FiT is enshrined in the 2008 Philippines Clean Air Act, but strong opposition from industry groups derailed its implementation until recently.

If people are not willing to budge on electricity prices, then high-profile events are tokens of symbolism at the expense of real action.

There is hypocrisy when pro-coal groups claim that measures such as feed-in-tariffs threaten free-market electricity, because these are fixed pre-agreed prices. To have a true free market for electricity one should not be comparing apples to oranges. Blind acceptance of fixed subsidies for fossil fuels, while at the same time criticising feed-in-tariffs, is not really fair market practice.

For the sake of fairness, we either remove fossil-fuel subsidies altogether and add a price for carbon before comparing the cost to renewable energy, or we accept that both need subsidies. Then the price “superiority” of coal over renewables will no longer be as apparent.

In addition, while the cost of solar and wind at present may be higher than coal, this is partly because fossil-based fuel has economy of scale to its advantage. FiTs are not meant to be given to all renewable energy investors, just the initial ones, in the hope that a spur in market demand will let the genie of economies of scale and R&D out of the bottle – leading to better, cheaper renewable technologies.

While worldwide events like Earth Day might indicate popular support for climate mitigation, the real test is if people are willing, in the short term, to pay extra for more expensive clean energy sources, or at least to accept a carbon tax of some sort. There could be a compromise, perhaps a slightly higher amount that people are willing to pay for cleaner-sourced electricity, without going overboard. Eventually, once economies of scale and the fruit of R&D have settled in, prices will drop.

But if people are not willing to budge even an inch on electricity prices, then what we are achieving with high-profile events is merely easy tokens of symbolism at the expense of real action. This inevitably means more coal plants will be built.

This is an edited version of an article by Dennis Posadas for JapanToday. You can view the original here.

greenergizedDennis Posadas is an Asia-based fellow of the Washington, DC based Climate Institute and a technical consultant for clean energy projects. He is the author of Jump Start: A Technopreneurship Fable (Singapore: Pearson Prentice Hall, 2009) and Rice & Chips: Technopreneurship and Innovation in Asia (Singapore: Pearson Prentice Hall, 2007).

Although the importance of climate change is hard to overstate, it nevertheless consistently fails to engage at the level that it so patently needs to. This is what has led technology expert and seasoned commentator Dennis Posadas to approach the issues in a new and intriguing way. Greenergized is a much-needed route into the issues surrounding the most serious debate our generation faces. And it pulls off the brilliant trick of being highly readable at the same time.

Greenergized is out now. To find out more head over to our website, where you can claim a blog-exclusive 10% discount on your copy. Just enter code GNZ10 at the checkout.

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