Green Energy Investments Pay Off in the Long Run

All Western governments are currently investing in green energy. The real question therefore is how and to what extent they should do it. I believe that the goal must be a fundamental transformation of the energy systems, entailing a comprehensive shift from centralized to decentralized energy production (e.g. from large power plants to rooftop solar installations), a dramatic increase in energy efficiency, and a sharp decline in the use of fossil fuels.

How can this transformation be achieved? At the federal level, investing in green energy has usually meant one-off tax breaks and subsidies that have done little to attract small and large-scale investors. At the state and local level, renewable portfolio standards, or RPS, have proven more successful. Yet RPS have been introduced very unevenly and only in about half of the states, leaving the green energy market fragmented and therefore equally unattractive to investors.

What the federal government really needs to do is to level the playing field for green energy at the expense of fossil fuels and wastefulness. Energy costs must go up through the introduction of smart new energy taxes (e.g. a carbon tax). The additional revenue must be earmarked to help low-income families and cash-strapped companies to use more energy-efficient technology. Governments can further push the expansion of renewable energy by introducing feed-in tariffs that guarantee investors a decent return. In Europe, these tariffs have efficiently increased the share of renewable energy in electricity generation and could also be adapted in the heating sector.

To make this energy transformation economically and politically feasible, shock-and-awe must be avoided. All these measures should be introduced simultaneously, as they complement each other. Yet energy taxes should be slowly and predictably increased to allow families and companies to adapt. Government support thereby facilitates a socially just and economically sound transformation.

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Is it worth the money? Undoubtedly! First, investments will pay off in the long run. Countries such as Germany show that the new energy economy creates many more jobs than it destroys. Second, the green economy is the only reliable way to make countries energy independent. Dirty oil wars could become a thing of the past. Third, fossil fuels are finite, which means that their prices will rapidly go up in the coming years. Starting the energy transformation now means thwarting later shocks to the economy. Finally, green energy might just be the only way to steady our earth’s climate.

The United States and its people have everything that it takes to achieve the proposed energy transformation by 2050. They have the entrepreneurial spirit, the technology, the capital, and enough sunshine, wind, and geothermal heat. It would truly be a waste not to invest these resources in the green economy.

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About Christoph Stefes Professor at University of Colorado, Denver