Question

why we have not observed yet a complete transition to renewable energy sources. What economic policies can help to speed up that transition?

Answer 1

Production of these fossil fuels is expected to rise, approximately doubling the amount of use of each fossil fuel. As the world population continues to grow and the limited amount of fossil fuels begin to diminish, it may not be possible to provide the amount of energy demanded by the world by only using fossil fuels to convert energy. There are plenty of ways to convert energy without fossil fuels, and many of are being used, but not nearly to their full potential. Countries must take action to promote greater use of renewable energy resources, such as geothermal energy or nuclear power so that we can be well prepared when the supplies of fossil fuels are not as plentiful as they seem today.

The fairly low cost of converting natural resources to energy causes most countries to use fossil fuels as their main source of energy, but there is a major problem that arises out of this: natural resources are limited and non-renewable. There is only so much oil, coal, and natural gas that the earth can hold, and we can not use these resources as if there is an unlimited amount for much longer. Some estimates say that there may only be as few as 20 years of oil left if the world keeps with the increasing consumption trend before oil prices sharply increase resulting in a possible international economic crisis (EIA). Prices would go up because of the simple economic model of supply and demand. There has been an increasing demand for fossil fuels in the past thirty years, and this can be seen by the growing trend of energy produced by all three of the fossil fuels.

A major reason for countries not adopting the technologies of these renewable resources is the cost. While it is almost sad to think that we are too worried about short-term monetary costs to invest in these technologies rather than avoiding the even larger costs that a dramatic climate change or international economic crisis would bring, it is still a reality. Any plant that converts a renewable resource into energy requires a very large initial capital investment. What most people don’t know, is that once you can get past the initial payment, costs of energy will be almost identical to costs of energy converted from the burning of fossil fuels. As of now, since there is still what seems to be a plentiful supply of fossil fuels, most countries have been avoiding the monetary cost of investing in these renewable resource plants and continue to get their energy from the burning of fossil fuels.

There are a couple of solutions to increase the incentive of investing in renewable resource plants. Changes in policy are the fist way to move toward a larger use of renewable resources as the major sources of energy. It is up to countries to make unilateral moves to create policies that will help move emission levels toward the goals of the Kyoto Protocol and avoid a possible economic crisis. Greenhouse gas trends can be turned around with surprisingly modest shifts in policy. This push to overcome barriers of new technologies must come from the governments of individual countries, for it would become way too political to try to make an international agreement to set policies to overcome these barriers. One policy option is to adjust fossil fuel prices so that they reflect environmental consequences. This would give renewable resources the opportunity to be economically competitive. If prices of fossil fuels were raised, there would be no disincentive to invest in the renewable resource energy plants. Another policy option is for the government to provide tax incentives and subsidies for installing equipment and generating electricity. There are many countries that do this today: Austria, Denmark, France, Germany, Japan, Netherlands, Sweden, and The United States. Yet another policy option would be for the country to create set “purchase prices.” This is where the government creates a law that sets a fixed price at which small renewable energy generators are provided access to the electricity grid. This gives renewable resource plants incentive to enter the market since they already have a guarantee that they will have access to the electricity grid, and even at a lower price than other energy plants. This creates a competitive market atmosphere. Countries that have adopted this policy include Australia, Austria, Canada, Denmark, France, Germany, Japan, and The United Kingdom.

While it is very difficult to turn scientific evidence and findings into policy because of the uncertainty of science and the short-term consequences of political action, it is time that countries do take action. There has been overwhelming evidence that the world will run out of natural resources and that the burning of fossil fuels has, and will continue to cause degradation to our environment. We do not have the luxury of ignoring or avoiding the problems anymore. It is essential that governments create a policy to stimulate the larger use of renewable resources. Two major renewable resources that have the potential to play a large role in the future of the world’s energy are a geothermal and nuclear power.