Energy Policy: Why German's EEG Works

In the the case of energy reform, there is plenty of room for improvement from a legislative angle. Since I am more familiar with Germany's Erneuerbar Energie Gesetz (EEG), or Renewable Energy Law, I am going to continue to examine it as a reference to energy policy. This will also help tie up loose ends from my previous post on the bill as a whole.

What makes good policy good? I don't think that our leaders need to be the heroic writers like Thomas Jefferson or Thomas Paine were to produce effect legislation. I will be arguing that it is the little things that count when writing effective legislation.

Let's look at the EEG.

Taken at face value, Germany’s EEG encourages investment in renewable energy sources. Individuals who purchase, say a solar panel, know that they will earn a guaranteed rate of 42 €cents per kWh for a certain year when they sell to the utility (and remember, the utility must pay, at least, the guaranteed price). In a sentence, the EEG creates a market for renewable technologies. However, this in itself does not give the EEG its strength, as there are several other factors included in the legislation that do just as much, if not more at making the EEG successful.

1.) The EEG provided Feed-in Tariffs of scale.
A solar panel owner that produces up to 30 kW/h can earn more money/kW than a corporate solar farm that produces 5 MW/h. This promotes decentralized energy production. The benefits of decentralized energy production are invaluable and something very new to modern society. The biggest benefit is that it turns individuals into energy producers. It has a very Web 2.0 effect, in that suddenly anyone has the opportunity to transform from a consumer to a producer. The effect, in essence, is a more democratic production of energy.

Maybe this sounds like empty rhetoric and neglects the idea of efficiency from a centralized production method, but there is a phenomena that takes place when ordinary citizens start becoming energy producers. They start consuming less.

2.) The EEG is short and to the point.
The English edition that I found online was only 27 pages. 27 pages! For some reference, our Energy Independence and Security Act of 2007 (H.R.6) was 310 pages in length. While this sounds simple, and perhaps even reckless because of the risk of incomplete policy, the fact that the EEG was short and sweet enabled ordinary citizens to become beneficiaries of the bill and prospective renewable energy producers.

Together with the first point, the EEG secures a unique market for renewable energy. When average citizens are engaged by legislation and provided with legislation that is easy to read, they are more likely to take advantage of the policy and thus more likely to make the policy successful.

These measures enabled the first pioneers of wind energy to be German farmers, and some of the first pioneers of solar energy to be German homeowners.

3.) The EEG planned for the long term.
That is, the bill specified that all renewable energy providers would have a guaranteed buyer (the utility) and a guaranteed price for a 20 year period. This creates a number of benefits.

First, it decreases the risk for initial customers by providing them a 20 year time table to profit from their investment. Customers avoid the risk that comes with purchasing a new technology. Just look at who bought the apple iphone on the first day or the price for DVD players when they were first introduced, and you'll start to get the picture.

A second benefit of the twenty year plan favors renewable energy start-ups. With a 20 year guaranteed market, it suddenly makes sense for entrepreneurs to take the next step without the added risk. This will enable them to develop their industry when it wouldn't have previously been able to do so.

The third benefit occurs after the 20 year time period. Even when the bill expires, there will be a well established industry for renewable technologies, which creates a competitive energy market. By thinking in the long term, legislators can have a very positive impact on the domestic economy.

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These are important policy writing lessons, and they should be applied to every bill that wants to be successful.

Address the problem in the policy: if the problem is consumption, address consumption on the most familiar level (individual consumption).

Keep it simple, stupid: We don't want legislation to resembles a Rube Goldberg sense of logic. If the bill is written well and kept to the point, it will be easier to advertise.

Make the most out of the bill: Think long term and reap the benefits from doing so.