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California’s Solar Panel Edict

Why California’s new rooftop mandate isn’t good enough for some solar power enthusiasts

In California, builders will be required to include solar panels on new, single-family homes and multifamily buildings of less than three stories beginning in 2020.
Image Credit: Steve and Michelle Gedes via Flickr

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.

This rule immediately sparked lively debates. Even experts who generally advocate for solar energy expressed skepticism that it was actually a good idea.

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 solar mandate’s fans

The solar mandate’s defenders, including Gov. Jerry Brown and Sierra Club leader Rachel Golden, make several arguments — two of which I find credible.

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.

Garth Heutel is an associate professor of economics at Georgia State University. This post originally appeared at The Conversation.


  1. JC72 | | #1

    The author is on to something however..
    The problem with carbon taxes is that the amount of the tax is essentially a made up number. It's made up in the sense that it is based upon imperfect economic models which attempt to determine the present value of future damages attributed to climate change. Economic models are imperfect, always have been and always will be because of the infinite amount of variables and assumptions. After all, if economists can't reliably forecast recessions in the near term how can they forecast the cost of environmental damage 100 years in to the future? Answer is that they can't.

    In fact, one economist I know who worked with the previous Administration on carbon taxes commented that they provided the Administration with scenarios from three different models. One of the models suggested, I'm paraphrasing here, that GHG emissions would, in the near term at least, actually be beneficial to the planet. It's no surprise that since that model didn't dovetail with the policy objectives of that Administration it was not publicly mentioned and instead was relegated to a footnote in order to meet federal public disclosure requirements. Therein lies the danger. If it doesn't affirm the policy objectives of whoever is in charge then it's discarded/ignored. Win for them and their crony's.

  2. Expert Member
    Dana Dorsett | | #2

    The carbon tax basis is usually less than the damage @John Clark
    Even the most conservative estimates of the costs of climate damage are usually more than any carbon tax proposals being run up the flagpole. And like any tax, it can be amended as better information comes in.

    Whatever the real 100 year cost it's not plausible to say that it's cost-negative (like the alleged short term model had it), and isn't likely to be zero. Crude as it may be, ANY carbon tax is enough to move the needle on fossil fuel burning.

    Even if ignoring the 100 year greenhouse gas costs, the non-carbon short term externality costs of carbon fuels are easier to estimate (though still imperfect), and on that basis alone should be included in the fuel cost. Using carbon as a proxy for those other externalities isn't perfect either, but way better than pricing them at zero.

    Bottom line, policies are never perfect. We shouldn't allow a perfectly priced perfectly measured externalities to be the enemy of the good, or even the merely "better than nothing", when it's clear that there ARE externalities of significant value currently priced at zero. I'd personally be happy to let carbon be used as a proxy for the "all of the above" externalities with at least some assigned price in the short and medium term, even as some of the related emissions get curtailed by regulation. Taxes can always be adjusted.

  3. john_prospect | | #3

    Jump in - the water is fine.
    We have had a carbon tax in BC for years. A few minor grumbles, but it isn't like the world ended. The political noise is a distraction.

    Governments are going to tax many things. Why not tax things we want to reduce, like carbon? Is it somehow "better" to tax income or land ownership?

  4. STEPHEN SHEEHY | | #4

    Carbon taxes?
    Here in the US, a squillionth of a cent per ton of carbon would be considered an unacceptable affront to freedom and yet another job killing socialist plot.

  5. Expert Member

    Interestingly, it wasn't our social-democratic NDP government that brought in the carbon tax, it was their predecessors, the more free-enterprise Liberals. This morning's unemployment figures for BC are 4.8%!

  6. JC72 | | #6

    Disregarding that fact that taxation is legalized theft, the problem is that there's no economic basis on which to determine said tax rate.

    It's akin to saying that one doesn't mind the little neighbor boy coming into their house every day and stealing 50 cents just because they happen to like the kid and well ya's just 50 cents.

    A better alternative would be to abolish subsidies for ALL energy generators.

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