Spain

1
Spains New Energy EconomyBoom and Bust of the
Spanish Renewable Miracle

• Dr. Gabriel Calzada
• President, Instituto Juan de Mariana
• Associate Professor of Economics, King Juan
  Carlos University
• 2009 International Conference on Climate Change
• March 10, 2009. New York City

2
Two different types of climate policy

• The EU way
• Kyoto Cap and trade scheme
• Economic regulation
• Renewable energies subsidies
• The US way
• Promote growth and push technology (no caps, no
  big-scale regulation)

3
EUs/Kyotos cap and trade schemeThe claims

• Will reduce warming
• Will reduce CO2 emissions
• Will be done at low cost
• Will create jobs

4
EUs/Kyotos cap and trade schemeReality the
benefits

• Reduction of 0,07 degrees Celsius if every
  country meet its target
• No EU has not reduced emissions since Kyoto was
  signed
• EU (15) increase (not decrease) since kyoto
• Spain 50,4 increase (about 40 since Kyoto)
• Comparative performance
• EU doubles US rate of increase
• Kyoto countries vs US

5
EUs/Kyotos cap and trade schemeReality low
cost

• Narbonas promise The government has designed a
  gradual process to change the tendency and
  the bill that companies will have to pay starting
  next year in the emission market will
  collectively cost a maximum amount of 85 million
  euros per year. 10/2004
• IJM estimated between 4 and 7 billion Euros
  (10-16 times what Narbona claimed)
• PWC estimated 15 billion (35 times)
• Government finally gives up could be more than 3
  billion
• Lesson policymakers can determinate cap or cost

6
EUs/Kyotos cap and trade schemeReality jobs

• Loss of competitiveness and job exportation
• Companies are closing down
• e.g., Valencia The Valencia regional
  administration ordered the shutdown of three
  companies for violating the Kyoto protocol, as
  they tried to begin new production without
  greenhouse gas allocations, of which there were
  no more
• Other companies are moving away
• e.g., Acerinox S.A. Acerinox, second largest
  stainless steel company in the world decided to
  severely reduce investments in its Spanish
  factory and increase the investment in its
  Kentucky plant expressly because of the ETS
  burden and related blackouts
• for the same reasons Acerinox bought factory in
  South Africa and is looking to move part of its
  Spanish capacity to Eastern Europe.
• Acerinox ex president (now retired), Victoriano
  Muñoz, had repeatedly warned that Kyoto CO2
  rationing scheme would place Spanish industries
  in a very grave situation.

7
Regulating to comply

• The Electricity and Gas Sectors Planning.
  Transport Net Development 2002-2011
• Strategy for Energy Savings and Efficiency in
  Spain 2004-2012
• Plan for Developing Renewable Energies 2000-2010
• New Renewable Energies Plan 2005-2010
• Law of Integrated Control and Pollution
  Prevention
• Efficiency and energetic savings in buildings
  Measures
• Regulation for Thermal Installations of Buildings
• Technical Code of Buildings
• Energetic Certification of Buildings
• Updating Plan for agricultural equipments
• The Spanish Forest Plan
• Hydroforestry restoration Plan
• Plan for complementary aid for forest development
  and organization
• Subsidies Plan for sustainable management of
  public forests
• National Plan against Desertification
• The first National Plan for Municipal Solid
  Wastes 2000-2006
• National Plan for Dangerous Waste
• National Plan for Polluted Lands
• National Plan for the modernization of vehicles

8
Renewable energy subsidiesReasons

• Global warming policy
• Green job creation
• Economic stimulus

9
Renewable energy subsidiesA Spanish story

• The EU wants to increase share of energy from
  renewable sources to 12 in 2010 and 20 in 2020
• Spain has been a leader in promoting renewable
  energy
• Wind subsidies 90 over market price for 15
  years then 80 over
• Solar subsidies 575 over market for 25 years
  then 460
• 12 to 20 return

10
Renewable bubble

• Spanish companies become world leaders
• 26.137 MW installed in special regime
• Wind energy has largest share 14,836 MW (10.2)
• Solar energy has 2934 MW (0.74). The 2010 target
  was 371 MW
• Big leverage 80/20
• Waiting lists

11
Renewable Bubble

• Big production means jobs
• 50,200 according to MITRE
• 26,000 only in the solar sector since 2000.
• It also means big subsidies
• 28.6 billion Euro
• 0.7 of installed energy (solar) gets 9,6 bill
  Euro
• Who pays? Energy distributors
• Deficit Tarifario (DT) 15.7 billion
• The green premiums represent 2/3 of the DT
• Only in 2007 the renewable subsidies account for
  2.6 billion Euros

12
Unsustainable energy

• Miguel Sebastian declared renewable energies are
  green and clean but very costly .Last year the
  premiums paid sum up 2000 millions while this
  year will be 3000.
• The government had to reduce by 30 the subsidy
  to solar energy and placed a cap of 300 new solar
  MW (2253 MW has been installed in 2008)
• Now the Spanish green industry is falling down
  and going abroad to find more generous
  governments willing to give away taxpayers money

13
Unsustainable jobs

• The softening of the renewable support in 2007
  brought about 10,000 job losses
• This years softening threatens to result in
  40,000 new green unemployees
• 15,000 in the solar industry

14
Subprime jobs

• The sector companies calculated they will have to
  fire over 40 of the workers
• The sector generates almost no stable jobs
  (installation and construction)
• The only way to generate jobs in this field is by
  creating artificially produced expectations

15
Unsustainable subsidies

• The CNE has been unable to sell the DT in the
  auctions even with government sponsorship
• Companies have now to refinance over 15 billion
  Euros
• This year the electricity had to be increased by
  5.7 in order to cover the renewable subsidies of
  2008
• According to CNE, under todays system, the price
  of energy would have to increase by 31 starting
  this year to stop the bleeding
• Opportunity cost Spanish electricity companies
  have announced that due to DT they will have to
  cancel 4,5 b annual investment between 2007 and
  2011
• Risk primium has jumped up

16
Unsustainable energy

• The reduction of the subsidies in September has
  reduced the market value to a fraction

17
The bubble bursts
18
Subprime energy

• Last year only 750 MW out of the 15000 MW (5)
  solar and wind energy installed counted to REE to
  calculate the coverage rate of the Spanish system

19
Climate policy, energy and the crisis

• Spain has one of the largest current account
  deficits (10)
• 2/3 energy deficit (oil)
• EU Climate policy (Cap and trade scheme and
  renewable subsidies) is largely responsible
• Under the present credit-crunch Spain has either
  to increase exports or diminish energy dependency
  to offer credit

20
The economics of expensive energy

• Expected incomes and costs are what drives
  investments
• To produce you have to combine resources
• The cheaper some of them are, the more
  possibilities exist to use them in different
  productive processes (offering interesting
  products at good prices to the consumer)

21
The economics of expensive energy

• Some factors, like wages in the US, are
  relatively high
• But if combined with other cheaper and
  intensively used factors of production, such as
  low energy cost, the unitary cost can be
  competitive
• Reducing the unitary costs will open new markets
  to layers of the population are not still
  marginal consumers
• Expanding the market will create new investment,
  therby creating new jobs (despite high wages)
• This is the way jobs are created

22
Energy and the new economy

• The total electricity consumed by major search
  engines in 2006 was 5 gigawatts (Las Vegas)
• George Gilder The web machine is on track to be
  consuming half of worlds output electricity by
  end of this decade
• Microsofts power consumption has risen 10 times
  in the past three years
• At 15 cents per kilowatt-hour, power dominated
  Googles calculus of costs
• James Snow "We ran out of power before we ran
  out of space"
• Microsoft and Yahoo are building me-too data
  centers in Quincy and Wenatchee, Washington

23
Energy and the new economy

• China plans to build 30 new nuclear plants
• Comparative cost to establish data-centers

24
EU climate policies and the crisis

• Increases public spending when reductions are
  most needed
• Redirects scarce real savings to inefficient ways
  of producing energy, thereby increasing costs of
  production
• Makes it impossible to reduce trade deficit and
  restart credit markets
• Subprime jobs and unemployment source
• Reduces competitiveness

25
EU climate Policy and the crisis

• Will reduce warming?
• Will reduce CO2 emissions?
• Will be done at low cost?
• Will create jobs?

26

• NO