In his latest book, Hot, Flat and Crowded, Pultizer-Prize-winning New York Times columnist Thomas L. Friedman peers into the near future and sees a world in which clean technology is a baseline product, with a major strategic advantage going to those countries having leadership in the area. In the last TLQ, we discussed the federal government’s forthcoming carbon cap-and-trade system, which is part of the government’s stated goal of turning Canada into a “clean energy superpower.” Several initiatives elsewhere suggest additional avenues that Canada might also pursue to attain this vaulted status.
Taking Demand “Off the Charts”
The impressive growth in recent years of clean energy technologies, wind energy in particular, masks the true challenge facing the industry. Clean technology still is far from being in a position to entirely replace conventional energy resources. Major technological innovation is needed for this to change. Moreover, total energy consumption is set to rise due to economic and population growth, meaning that the clean technology sector is chasing a moving target in terms of the demand that needs to be satisfied.
According to Mr. Friedman, what the world needs is “wild, off-the-charts demand” that will create sufficient certainty to encourage business to invest in the technology needed to meet that demand. And here is the problem: clean technology needs to be able to meet a huge demand in order to become a truly viable alternative to fossil fuels, yet clean technology industry leaders need to see evidence of a huge demand for their products before they take the risk and invest in innovation. How to break this cycle?
Inspiration from Germany and Brazil
The countries that lead the world in clean technology have adopted legally binding national targets requiring utilities to derive a fixed portion of their electricity from renewable resources. These laws specify the prices utilities must pay for such electricity, usually over a 20-year period — enough time for businesses to earn a return on their investment. In most cases, prices vary depending on the manner in which the electricity was generated.
For example, Germany’s Renewable Energy Sources Act (RESA) sets higher rates for electricity derived from offshore wind farms (compared to onshore wind farms) because of the higher costs involved. Similar policies are to be found throughout Europe as a result of a European Union Directive requiring Member States to adopt legislation. With its many cloudy days and relatively moderate wind speeds, Germany seems, at first glance, a most unlikely world leader in either wind or solar energy. Yet, it is a global powerhouse in both areas, a success story widely attributed to the RESA.
Europe is not alone. In 2002, Brazil adopted Proinfa, a program designed to encourage investment in wind, small hydro and biomass projects that has made it a clean technology leader in Latin America.
The initiatives in Brazil and Germany may suggest further avenues for Canada to explore in order to generate the broad-based demand needed for investment certainty and to position Canada among the world’s leaders in clean technology.