This article was originally published on The Conversation.
More California rooftops will soon sport solar panels, partly due to a new state mandate requiring them for all new houses and low-rise residential buildings by 2020.
As an environmental economist who studies the design of environmental policies, I believe that doing something about climate change is important, but I don’t consider this new solar mandate to be the best way to achieve that goal. I’m also concerned that it could exacerbate problems with California’s housing market.
More than two sides
You might expect the debate over this policy, which became official when the California Energy Commission unanimously voted in favor of it on May 8, to pit two well-defined camps against each other.
Environmentalists who prize fighting climate change might love it due to a presumption that increasing the share of power California derives from solar panels will reduce greenhouse gas emissions by cutting demand for natural gas and coal.
On the other hand, those who question whether the costs of addressing climate change are worth it might hate the solar mandate, since they either see no benefits or think the benefits aren’t worth the costs.
But there are more than two sides.
Environmental economics 101
Many renewable energy experts, including economists like me, want governments to do something to address climate change but question the mandate.
University of California, Berkeley economist Severin Borenstein summed up this take in his open letter to the California Energy Commission opposing the rule. University of California, Davis economist James Bushnell also opposes the mandate for similar reasons.
Above all, what we economists call “command-and-control policies” like this mandate – inflexible requirements that apply to everyone – often don’t make sense. For example, going solar is less economical in some cases. Even in sunny California, builders can construct housing in shady areas, and not all homeowners use enough electricity for the investment to pay off before they move away.
The mandate does have some exemptions tied to shade and available roof space, but there could property owners subjected to the requirement to own or lease solar panels who might consider it unreasonable.
We tend to think that “market-based policies” would work better. By relying on incentives instead of requirements, people get to decide for themselves what to do.
Good examples of these policies include a tax on pollution, like British Columbia’s carbon tax, or a cap-and-trade market, like the European Union’s Emissions Trading System. Instead of restricting the right to pollute, these approaches make people and businesses pay to pollute, either through taxation or by buying mandatory permits.
The flexibility of market-based policies can make meeting pollution reduction goals cost-effective. When people – or businesses – have to factor the costs of pollution into their decision-making, they have a financial incentive to pollute less and will find ways to do so. By reducing pollution as cheaply as possible, more money is left over to spend on other pressing needs like housing, health care and education.
This advantage is not merely theoretical. By many accounts, market-based policies have successfully worked according to theory, including the U.S. sulfur dioxide trading program and the EU’s carbon trading program.
California itself has a cap-and-trade market. I believe that expanding and improving it would cut carbon emissions more cost-effectively than the solar mandate would.
Many economists also fear that the mandate will worsen California’s housing unaffordability. This crisis has many causes, such as restrictive zoning regulations that curtail construction. But the solar-panel requirement, which could increase the cost of a new home by more than $10,000, probably won’t help, even though supporters of the policy argue that the solar panels will pay for themselves in terms of lower monthly electricity costs.
The first is what I’d call the “Panglossian” argument, after the character in “Candide,” Voltaire’s 18th-century classic satire. In what Voltaire would call “the best of all possible worlds,” taxing carbon would make perfect sense.
But this is a world riddled with political obstacles that make enacting almost any climate policy next to impossible. If a big American state can enact an imperfect law like this mandate that might do some good, then it should go for it.
The other argument I find reasonable is that by drumming up more demand, the solar mandate will expand the solar panel market – thereby driving solar costs down, perhaps more quickly than a carbon tax would. There’s some evidence supporting the theory that these mandates can spur innovation in renewable electricity technologies.
If the mandate works out, it might address two issues at once: shrinking California’s carbon footprint and bolstering technological progress in the solar industry.
To be sure, the cost of residential solar panels has plummeted in recent years, although generating solar energy through rooftop panels remains less cost-effective than power from utility-scale solar farms.
A practical policy
After mulling all the various arguments made by these different camps, I don’t think that whether California’s rooftop solar mandate is the perfect policy for the climate or the state’s homebuyers is the question.
The answer to that question is a resounding no – but that is beside the point because no policy is perfect. The key question is whether this policy – given its imperfections and given the difficulty in passing more cost-effective policies – is a winner overall. That question is harder to answer.
Ultimately, I believe the mandate will yield some environmental benefits, though they could be more cost-effectively achieved through other means.