Wallonia’s regional government has just announced its intention to build a 200MW biomass power station. This facility is set to use wood-pellets imported from the United States to provide up to 7.5% of Wallonia’s total electricity consumption.
Biomass power stations are not economically viable under current energy market conditions. As a result, the Walloon government is promising vast subsidies to nudge private energy suppliers to step in. Based on the subsidies received by existing biomass power stations in Wallonia, it is estimated that every adult resident will see their annual electricity bill rise by £24-£36. Our forecasts are supported by Greenpeace’s own projections, which labelled the project as “an economic nonsense”. Furthermore, the green credentials of large-scale biomass power plants are highly questionable. As Greenpeace pointed out, several renowned institutions, including the European Environmental Agencies, have rejected the idea that energy from biomass is carbon-neutral for two reasons. First of all, newly planted trees may take decades to absorb the CO2 emitted by the combustion of their full-grown predecessors. As a result, burning wood, a process which releases more greenhouses gases in the atmosphere per MWh than natural gas or coal, will only be carbon neutral in the long-run. Secondly, trees are not always replanted on those cleared areas which may be used for non-forestry purposes such as agriculture.
Considering the above, you might wonder why any government would spend lavishly to support an uneconomical and polluting technology. The answer to that question lies in the strategy that has been adopted by the EU to support the development of renewable energy and tackle climate change. This strategy, which was implemented in 2009, set a 20% target for the share of renewable energy for the EU gross final energy consumption by 2020. To achieve this community-wide goal, each member state was assigned an individual mandatory target. Then, they would be asked to draw a plan detailing their future energy mix and the technologies they would rely upon to reach it. Lastly, national governments would pilot private energy suppliers’ behavior by using a mix of tax, subsidies and regulatory measures to ensure that the (skewed) market result match their desired energy mix.
One of the main issues with this target-driven approach is that governments become obsessed with the idea of increasing renewable energy production at any cost while paying little attention to other green projects. For instance, the subsidies that will be granted to that single 200MW biomass power station (£65-100m per year) could increase worldwide public-funded research in solar technology by 5%-7.5%. Also, investing less than three quarters of those subsidies in cycling infrastructure would allow Wallonia to catch up with the Netherlands in terms of cycling spending per inhabitant.
From a broader perspective, I believe that only a uniform carbon tax could lead to a significant and cost-effective reduction in greenhouse gases. One of the most enthusiastic advocates of this policy, Dr. Richard Tol from the University of Sussex, backs a levy that would apply to all emissions of any of the six main greenhouses gases. As a result, the price of any goods and services (electricity, transportation, food, consumer goods…) would reflect their full environmental costs and individuals would be free to adjust their consumption and behavior in a way that minimizes their utility loss. According to Dr. Tol’s calculations, that utility loss would be small or could even turn into a utility increase if carbon tax receipts were used entirely to fund a mix of (limited) benefit increases and income tax cuts.