Germans debate continued solar subsidies
There is a debate going on inside Germany regarding the appropriate level of subsidies that should be allocated to solar energy generation. After years of government encouragement, solar energy generation in that country has boomed. In fact, the world’s largest manufacturer of solar cells, Q-Cells, is based in Germany. Now critics are arguing that these subsidies have led to unreasonably high energy prices. On the other side, solar proponents counter that without government protection, Germany’s dominant solar energy industry will go the way of past world leaders, like the United States and Japan, whose governments failed to maintain high incentives for solar power.
One of the unique components of Germany’s solar energy policy is that it requires power companies to purchase all of the energy generated by solar panels, even if they are just located on a private citizen’s roof. This has created a huge demand across the country to install solar panels on a micro-level.
While we are far too removed from the intricacies of domestic German energy policy to be able to take sides in this debate, it is interesting to see how much effect governmental policy (subsidies) can have on the development of alternative energy sources. But with these subsidies, there is always the danger that the alternative that is being encouraged may turn out to be a less than ideal solution. (Not that we believe there is any indication that solar energy is a bad solution.)
We feel that while governments should take measures to encourage clean technology, mechanisms that properly price the cost of externalities into polluting energy sources (i.e., carbon taxes), rather than subsidies for alternative sources, may prove to be a more efficient solution. Of course budding technologies often require some propping up, but at some point they must be able to stand on their own. And one way of ensuring this is to properly price the cost of energy generated from fossil fuels through a carbon tax. Subsidies may be necessary at first, but should probably not be a long-term policy.
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