Investors are pouring billions of dollars into renewable energy projects such as windfarms, solar and wave power and biofuels. They seem to be confident that the present popularity of renewables makes them safe investments with a long term future. But are they, like the dotcom bubble, just a flash in the pan?
A belief that we must reduce emissions of manmade CO2 is the driver of the boom in renewable energy. This has led to huge direct and indirect subsidies for otherwise uneconomic renewables. These subsidies and tax breaks caused the boom. Without them, it wouldn't have happened.
In Europe, windfarms are paid about three times the cost of generation from conventional power stations and, in most cases, they don't have to pay for the transmission lines and the costs of the backup thermal power stations needed when the wind doesn't blow. In the United States, tax breaks constitute two-thirds of the benefit reaped by the owners of the wind farms. Subsidies for solar cells, and many other renewables are even higher. Subsidies and tax breaks for biofuels are persuading farmers to switch from food to biofuels, contributing to deforestation and pushing up the price of staple foods.
According to the UK National Audit office, the current policies to reduce carbon emissions cost $140 – $280/ton. The same report estimates that the value to society is between $20 and $40/ton. Yet over the last year or so the price of emissions on the European carbon market has dropped from about $30/ton to about $1/ton.
