Small Government for Big Growth in Clean Energy Jobs

by Navin Nayak

Although anti-government sentiments are seemingly all the rage these days in the U.S., the truth of the matter is that it amounts to little more than an empty political rhetoric.  Most public officials will acknowledge that the federal government does play an important role in our lives, whether it is securing our boarders, building roads and bridges, or providing some degree of retirement security. Yet while the current U.S. political debate is characterized by phrases that fit on rally placards – exaggerated by the endless chatter of cable news talking heads – other countries are busy implementing innovative government solutions that are helping to grow their economies and put people to work. This was especially evident on a recent trip I took to Germany to learn about their energy policies.

A decade ago the German government made some prescient policy choices. Bolstered by strong public support, they decided to implement policies that would create a stable clean energy market in Germany. The most heralded policy was the so-called “feed-in tariff,” which is essentially a guaranteed clean energy credit. It provides entrepreneurs and utilities certainty that if they produce clean energy it will be purchased at a fixed price, which is set for each specific renewable energy source, such as wind and solar power. The credit is also guaranteed for 20 years so that investors have confidence that large capital projects will not be stranded because of shifting political winds. In addition to the certainty for business, this system provides consumers with transparency so they know exactly how much they will be paying for clean electricity.

The results of this policy have been staggering. In the span of a decade, Germany has witnessed a surge in clean energy production, with renewables now accounting for 16 percent of the electricity market. The conservative government currently in power is proposing to set a new goal of 35 percent renewable electricity by 2020—more than doubling production in a decade. What is obvious is that this thriving industry could not exist were it not for the involvement of the federal government; entrepreneurs and historians will acknowledge that major new industries require some sort of government intervention. But what is less obvious is that government involvement doesn’t necessarily imply creating a major new bureaucracy, generating new revenue or increasing government spending. 

Indeed, given the current debates in the U.S., one of the most appealing aspects of Germany’s approach is that it doesn’t increase the size of government. The federal government establishes the rules of the road (or wires, as it were in this case) and then allows the market to work. The clean energy credit system essentially builds off of the existing relationship between consumers and producers of electricity while providing the backing of the federal government so that all involved can have confidence in the new market.  No taxpayer money is sent to the federal government and no new government expenditures are made.

An even more appealing outcome of this innovative program is that it has decentralized Germany’s energy market. Whereas four major utilities used to control all of the electricity production in the country, the guaranteed access to the grid and the fixed credit have opened up the electricity market, rapidly decentralizing the country’s energy oligarchy. The shift has been so dramatic that utilities only account for a tenth of the entire renewable electricity market in the country. Instead, it is small businesses, families and farmers that are responsible for producing the vast majority of the clean energy used in the country. This has ensured that the economic benefits of clean energy have been broadly distributed – helping to ensure that more Germans will benefit from the boon and creating even greater support for the industry.

All of this provides clear lessons for the U.S. Although clean energy remains one of the most popular issues in the country—80 percent support isn’t easy to find on any issue these days—our ability to create a clean energy economy has stalled. Part of the problem remains the entrenched power of the fossil fuel industry of course, but there is no doubt that opponents like to raise the bogeyman of “Big Government” to ensure a handful of powerful utilities will remain in control of America’s energy production. The German example shows that an honest debate about the government’s role in building a clean energy economy can provide a path forward and enable the U.S. to get its foot in the door in the clean energy sector, which promises to be the largest job creator in the next few decades.  

Navin Nayak is TCN Transatlantic Climate Fellow 2010. Navin is Director of the Global Warming Program at the League of Conservation Voters. From November 8-11, 2010 Navin met with energy experts, political advisors and decision makers in Berlin, Germany.