Establishing an aggressive legal framework for the future of wind energy in Europe.

• Author: Hagenbuch, Tyler

ABSTRACT

Europe is the world's frontrunner in wind energy, and European governments are committed to aiding renewable energy entrepreneurs and investors. In April 2009, the EU passed a new Climate Action Directive. The Directive set goals for both increased use of renewable energy and decreases in greenhouse gas emissions. Despite this legislative success, the Climate Action Directive was widely criticized as insufficient and ineffective. Indeed, there are numerous substantive concessions given to industry in the emission reduction portion of the Directive. Dissenters argued the weaknesses of the emissions reduction Directive squandered the EU's opportunity to be a world leader in energy reform. This Note argues otherwise, proposing that the shortcomings in the emissions reduction portion of the Directive in fact present great opportunity to develop and promote the renewable energy portion of the Directive. In particular, this Note argues there are unique regulatory opportunities for wind power to recoup the energy reform losses created by the shortcomings in the emissions reduction plan.

TABLE OF CONTENTS I. INTRODUCTION II. THE NEED FOR REGULATORY INCENTIVES IN WIND ENERGY DEVELOPMENT A. Market Barriers and Externalities B. Security of Energy Supply C. Impact of the Declining Global Economy D. The Role of Government Action in Encouraging Renewable Energy Development III. MAJOR EU SUPPORT SCHEMES DEVELOPED BY EUROPEAN COUNTRIES A. The Legal Basis for Support Schemes for Renewable Energy B. Tax Credits and Investment Incentives C. Production Subsidies and Feed-in Tariffs D. Tradable Green Certificates IV. A CORRECT PATH FORWARD: NECESSARY COMPONENTS OF RENEWABLE ENERGY LEGISLATION A. Harmonization B. Other Necessities: Grid Access, Administrative Procedures, and Guarantees of Origin V. SUCCESS AND FAILURE IN THE NEW EU CLIMATE PACKAGE A. Promotion of the Use of Energy from Renewable Sources B. The Emission Allowance Trading System VI. A BOLD PLAN TO SECURE THE EUROPEAN WIND ENERGY MARKET IN THE LONG TERM A. Policymakers Must Lead in Aiding Renewable Energy Companies Through the Global Downturn B. Supplemental Support Mechanisms Are Necessary to Attract Investment to Small and Mid-Sized Producers C. Investment in Wind Will Mitigate Concerns that Jobs and the Economy Must Take Precedence over Fighting Climate Change VII. CONCLUSION I. INTRODUCTION

The Intergovernmental Panel on Climate Change has determined that the main anthropogenic cause of global warming is the burning of fossil fuels that release carbon dioxide into the Earth's atmosphere. (1) Carbon dioxide is a so-called greenhouse gas because it allows light and heat from the sun to enter the Earth's atmosphere but does not allow light back out, thus trapping the heat and warming the Earth's climate over time. (2) By reducing the amount of carbon dioxide emitted into the atmosphere, renewable energy plays an important role in combating climate change. (3) While many sources of renewable energy were developed only recently, wind technology made its debut approximately 2,000 years ago, (4) and humans first used wind turbines to generate electricity over 100 years ago. (5) Today, policymakers and investors worldwide are paying renewed attention to wind energy. Investment in wind energy reduces carbon emissions, provides security of energy supply, reduces dependence on increasingly expensive and volatile Gil supplies, and has the potential to create hundreds of thousands of new jobs. (6)

Europe is the world's frontrunner in wind energy, (7) and European governments are committed to aiding renewable energy entrepreneurs and investors. (8) The European Union (EU) holds a 70% world market share in renewable energy (9) and added 8.5 gigawatts (GW) of new capacity from wind energy in 2007 alone. (10) Forty percent of new power installations built in Europe in 2007 were wind power installations, making wind "the fastest growing power-generating technology in Europe." (11) So too have the EU legislative bodies been champions of wind power. In 2001, the EU passed Directive 2001/77/EC on the promotion of electricity from renewable energy resources. (12) Commentators call this Directive "the single most globally important case of legislation for wind energy." (13) EU Member States have worked from the institutional framework of the Directive to develop the beginnings of national regulatory and economic mechanisms to reach renewable energy goals. (14) In January 2008, a new Proposal for a Directive on renewable energy established a mandatory goal of renewable energy for at least 20% of European energy consumption by 2020. (15) Similarly, in March 2007, the European Council called for a 20% decrease in carbon emissions by 2020 through a cap-and-trade emissions reduction scheme. (16) In April 2009, the EU Parliament passed a pair of Directives implementing these Proposals (Climate Action and Renewable Energy Package). (17) Despite these legislative advancements, many criticize the Climate Action and Renewable Energy Package as insufficient. (18) There are numerous substantive concessions given to industry in the emissions-reduction cap-and-trade Directive 2009/29/EC (2009

Emissions Trading Scheme Directive). (19) Dissenters argue that the weakened 2009 Emissions Trading Scheme Directive has squandered the EU's opportunity to be a world leader in energy reform as the 2009 UN Climate Conference in Copenhagen approaches. (20) This Note argues otherwise: The shortcomings of the 2009 Emissions Trading Scheme Directive present a great opportunity to implement proposals for the increased use of renewable energy through the development of Directive 2009/28/EC (2009 Renewable Energy Directive). In particular, this Note argues that there are unique opportunities for wind power to recoup the energy reform losses created by the shortcomings in the emissions reduction plan.

Energy supplies over the long-term are expected to rely heavily on energy from renewable sources. (21) So long as that remains the case, now is the time for EU Member States to implement broad, aggressive policies that support the development of wind and other renewable energies. This Note provides an argument for distilling and synthesizing the support policies developed throughout Europe over the last decade in a way that presents a bold legal path forward for wind energy in the EU. Fortifying and expanding the European wind energy industry is the best way to remedy the failures of the emissions reduction program. Furthermore, EU investment in wind and renewable energies mitigates concerns that attention to climate change necessarily means a threat to jobs and economies.

Part II of this Note examines the general need for government regulation to support the development of wind energy in the European market. Part III presents the major support schemes employed by European governments to promote the development of wind energy. Part IV analyzes the additional supplemental regulations needed for any major renewable energy legislation to succeed. Part V analyzes the successes and failures of the widely criticized Climate Action and Renewable Energy Package. Part VI argues that given the EU's imperfect emissions reduction program against the backdrop of a declining global economy, there is both immediate need and ripe opportunity for the EU to inject additional bold, community-wide regulations for the promotion of wind and renewable energy.

2. THE NEED FOR REGULATORY INCENTIVES IN WIND ENERGY DEVELOPMENT

   1. Market Barriers and Externalities

      Despite the strong environmental advantages obtained by the introduction of native, local renewable energy, wind companies and wind investors face a steep climb as new entrants in the European energy market. (22) Renewable energy companies must compete with conventional fossil fuel plants that have been operating comfortably for decades in a monopoly market. (23) Many of these companies enjoy economies of scale due to vertical integration that new renewable energy producers are unable to achieve. (24) Furthermore, because producing electricity with coal and gas does not internalize the social costs of production, there is a market failure that puts renewable electricity at a competitive disadvantage against energy produced from fossil fuels. (25)

      All electricity-generating technology produces some pollution or has some negative impact on the environment. (26) For example, emissions during construction and operation of any plant--even a wind farm--cause quantifiable damage to human health and the environment. (27) This damage is termed an "externality" because energy producers do not pay for these costs" to the human health and environment, nor do they pass the costs on to consumers. (28) Costs are considered internalized only when the polluter itself pays for the damage it causes to human health and the environment. (29) If the external costs of electricity produced from coal and oil in the EU were taken into account, it is estimated that the cost of electricity in the EU would double. (30)

      Electricity generated from wind and other renewable sources has less external cost than energy generated from fossil fuels. (31) Wind technology has particularly low external costs, even when compared to other renewable energies. (32) As a result, there is a market failure that puts wind at a competitive disadvantage with fossil fuels. (33) That is, "[i]f externalities were incorporated in ... market prices, the perceived cost of renewable energy would be practically unchanged, whereas the perceived low cost of conventional technologies ... would increase dramatically...." (34) Thus, by incorrectly pricing the full cost of energy produced from the burning of fossil fuels, the market fails by making that technology appear competitively priced, when renewable energies are actually cheaper over the long term.

      Where the cost of externalities is not taken into account, it is difficult...