Earlier this month, U.N. Secretary-General António Guterres joined virtual visitors to Berlin at the 12th Annual Petersberg Climate Dialogue, where the German government hoped to further negotiate technical details of the Paris Agreement. During the event, German Chancellor Angela Merkel urged governments to continue investing into our shared climate despite budgetary shortfalls related to the COVID-19 crisis.
Germany has walked that walk. Over the past two decades, it has embarked on a remarkable, expensive transition from coal and nuclear energy, to renewable energy sources. The set of policies to encourage this rise of green energy is known as energiewende—or “energy transition.” Energiewende has its roots in the foundation of Germany’s Green Party in the late 1970s and early 1980s and enjoys broad public support. It is one of the most ambitious green energy proposals in the global North, and represents a fundamental paradigm shift from the fossil fuel-obsessed status quo.
Meanwhile in the United States, a Center for American Progress analysis found that 139 members of the 117th Congress won’t even admit that human-caused climate change is even happening. You could say were just a little behind Germany on political will for a green future.
While congressional Democrats have proposed billions of dollars to improve the grid and extend renewable energy tax credits, the existence of massive fossil fuel subsidies and planned expansions of natural gas means the United States has failed to embrace the same spirit of energiewende. But that doesn’t mean it never can. One good way to start would be with a central component of German energiewende: a feed-in-tariff to promote less developed renewable technologies. It’s not what you might normally think of as a tariff, as in a tax levied on other countries’ goods. It works through phase-out subsidies that provide a fixed price for every kilowatt hour for a specific period following a renewable plant’s construction. So, for example, an existing solar plant would receive less of a subsidy than a brand-new geothermal plant. However, over time the FIT would decrease for this geothermal plant to provide a market incentive for efficiency and market competitiveness.
FITs work most efficiently if they subsidize early-stage renewable energy generation sources only up to the amount needed to be market competitive. But perfect efficiency is unlikely in any policy rollout; in practical application Germany has spent a lot of money on its transition—to the tune of tens of billions of dollars a year across energiewende policies. Thus, an energy transition on the scale of Germany’s in the U.S. won’t be cheap—but it will be cheaper than the massive economic impacts of climate change wreaking havoc upon our planet. And despite my personal pessimism on American climate change action, now might actually be the perfect time for massive energy policy overhauls: “Lots of folks on both the right and the left nationally are talking about reforming federal clean tech deployment policy,” says Alex Trembath, deputy director of the Breakthrough Institute.
To pay for the aggressive energy transition, in 1991 the German government established a surcharge on electricity usage. This is a form of Pigovian tax—a tax on an activity that generates negative externalities intended to correct the undesirable market outcome. It is the type of innovative and forward-thinking policy that is necessary to guide the world through the growing climate change crisis.
Even through the pandemic, Germany was largely able to continue its investments in renewable energy by emphasizing low-carbon technology in its pandemic stimulus. This included billions for public transit development and aid for electric vehicles, as well as more spending on renewable infrastructure. Helpfully, FITs’ fixed price incentive ensures longer-term investment contracts for renewables so they can withstand market fluctuations like the pandemic. In terms of promoting an energy transition, the incentive works: Germany’s renewable energy production has skyrocketed over the past two decades. In 2020, renewable sources met 46.3 percent of Germany’s power consumption. The German FIT has democratized energy production with local and community projects like energy cooperatives increasing eightfold in the first decade of the 2000s alone, and it has created hundreds of thousands of jobs in the renewable sector. Many in the country are urging their government to go even further by eliminating all fossil fuel investment. Citizens and political leaders alike have expressed the need for a more resilient energy economy with a diverse renewable portfolio, especially as their national lignite (dirty, young coal deposits) industry continues its phase-out. To do that, however, renewables need to become fully competitive and reliable in the German energy market.
And energiewende is not without its downsides. Energy costs remain higher in Germany than other similarly developed nations due to the tax on electricity consumption, as critics like to point out. (More on that in a minute.) But this both reflects the negative externalities of energy production and encourages consumers to use energy more efficiently—from cutting out wasteful uses to buying more efficient appliances.
Back across the Atlantic, natural gas, oil, and coal continue to dominate U.S. primary energy production, while renewables only represented about 12 percent of U.S. energy consumption in 2020. To hasten the transition to renewables as companies work to decrease costs and increase reliability, a national FIT with a modified Pigovian tax could help usher in a faster energiewende.
States like California and Vermont have already found some success with this approach. For example, the U.S. Department of Energy noted in its January 2021 Hydropower Market Report that state-level feed-in tariffs have helped Vermont encourage the growth of smaller-scale renewable generating sites. Burlington ranked fourth among U.S. cities for solar energy per capita. Vermont’s FIT contributed to a spike in cumulative solar capacity in the first half of the 2010s. Further, the National Association of Regulatory Utility Commissioners found that while FITs would increase American’s electric bills, they can also promote local job growth from both the construction and operation of new facilities. In fact, the program was estimated to increase Vermont citizens’ personal income by over $50 million during the course of the program.
A national FIT could shake up America’s continued reliance on fossil fuels—signaling a serious effort by the world’s biggest historical polluter to address ongoing climate harms. But the U.S. shouldn’t just follow Germany’s lead on everything here. Germany made two major mistakes—mistakes the U.S. could (and should) avoid.
Its first was to overlook the role nuclear energy must play in combating climate change. Energiewende in Germany was partially a response to growing anti-nuclear sentiment in the country, so nuclear power plants are ineligible for FIT funding. The result: The scheduled shut-down of all six remaining nuclear plants (an additional 26 are already undergoing decommissioning) by 2022 is causing fear that the country will have to rely on more fossil fuels until renewables are able to pick up the slack. Which could be awhile, seeing as nuclear still represented 11.4 percent of Germany’s energy mix in 2020. While Germany has no doubt made progress on renewable usage, it’s not quite ready to be fully reliant on intermittent energy sources. American states, too, have struggled to meet energy demand when closing nuclear infrastructure—like California and New York.
Currently, nuclear energy represents almost 9 percent of total U.S. electricity generating capacity, and it’s a relatively environmentally friendly and highly efficient technology, if done correctly. Not to mention, nuclear can operate no matter the weather.
“Nuclear power is going to play a critical role in America,” Secretary of Energy Jennifer M. Granholm confirmed in April. A good FIT scheme in the U.S. has to offer incentives for advanced nuclear energy, too. These small modular reactors are more flexible and far safer given built-in mechanisms that continue cooling even without pumps or power sources—greatly reducing the risk of any possible meltdown. The main problem? Trembath notes that the U.S. “has never built a small modular reactor that is not in a submarine.” Investors don’t believe in the technology because it just hasn’t been proven yet—and a FIT could help provide stable investment to demonstrate small modular reactors’ effectiveness. This would give the U.S. another solid source of energy to rely on as they transition away from carbon-intensive energy projects.
More importantly, American policymakers need to consider FITs’ economic costs for consumers. The average price of electricity for Germans doubled between 2000 and 2019, with a price about 2.5 times higher per kilowatt-hour than the U.S. Therefore, to avoid a regressive tax and energy bill shortfalls, the U.S. should implement a graduated tax with fewer tax breaks for large companies than the German model. Whether this is possible in the special interest dominated Congress is an entirely different question.
The good news is that unlike Gemany, the United States does not have to rely solely on a surcharge to fund this new energy policy—it already has a massive funding pool already at its disposal: Even conservative estimates of direct subsidies to American fossil fuel companies total $20 billion a year.