Waxman Markey may not be perfect and it has yet to pass the Senate, but its passage through the House does move the US closer to a more robust climate change policy. Meanwhile, what of European policy? Europe has always seen itself in the vanguard of introducing renewable energy. However, analysis we have recently completed shows how a lack of a Europe wide framework for renewables is holding the EU back.
Without such a framework, variable national subsidies have been allowed to skew investments to places which are naturally less productive and therefore more expensive. The result is that we will fail to achieve our aim of producing a third of our electricity from renewables in 2020 by 40%.

Consider that Germany has 10 times the wind capacity of the windswept UK. It has six times the solar capacity of sunny Spain. But wind would be 20% cheaper to produce in the UK, and solar 40% cheaper in Spain. It is clear that investments are not being drawn to areas with the greatest natural advantages, but to those with the greatest local subsidies.

We do not argue for the immediate scrapping of subsidies. And we recognise that local industrial policies have their place. But it is worth noting the direct and indirect cost of uncoordinated financial incentives. We calculate that if all of Germany’s new wind and solar capacity between now and 2020 were to be built in the UK and Spain respectively, it would save the industry €110bn and save taxpayers €70bn.

Ideally, we would like to see a system of European Renewables Energy Certificates (RECs) introduced, using the existing ETS market framework. In time, with a rising price of certificates, investments would go to areas where natural resources minimise generation costs and maximise financial return without having to burden the taxpayer. It may not be a practical model today, but it does show that the lack of a Europe wide framework means we will continue to see an arms race of competing local subsidies that risks making renewable investments more costly than they need be.