Dominican Republic Set To Lead on Renewable Energy
Originally published in It’s Getting Hot In Here.
While there is a lot of debate about a national renewable energy standard and more than half of the states have some kind of RPS, where does the rest of the world stand on renewable energy targets? As an Hispanic, I’m very interested in what Latin America and the Caribbean do about global warming, not just because we need to show leadership to northerners, but also because this is our future. Most countries in Latin America depend on oil imports, and most of them are also already being and will be impacted by global warming. So, not surprisingly, we are seriously trying to be on top of this.
Everybody knows about what Brazil is doing with ethanol, but what about other countries in Latin America? And what does the future hold for renewable energy in this region. I’m from the Caribbean, specifically the Dominican Republic, and I’m very involved in what’s happening in that country and elsewhere around the region. Since 2005, I’ve been visiting the country quite often, helping found an organization that promotes sustainable development and now looking into renewable energy ventures in that country. So, what is the Dominican Republic doing about global warming? In short, it’s emissions are going up, but it has a renewable energy standard that says 25% renewables by 2025. Let’s take a closer look at the details.
Last April, the President of that country, Dr. Leonel Fernandez, signed a renewable energy law passed by the Congress. After 6 years of meetings and drafts and building support, it finally passed. Within a year of the idea that the law was going to definitely pass under Fernandez’ administration, a Spanish company invested E$100 million in solar cell production, wind companies announced over 400MW of planned installations, the Brazilian company Infinity Bio-Energy announced an investment of $200 million in a large ethanol plant (since the country has a lot of sugarcane), and lots of small solar and wind energy subsidiaries have been set up in the country. With over 25,000MW of wind potential in less than 3% of the land (over 60,000MW in 9% of the land) and an infinite supply of sunlight (sunny Caribbean), the potential is there for the country to meet all its energy needs from renewables.
Before specifying what the law does, it’s important to mention the fact that the government is committing to paying for what the incentives described below on top of all the problems the country has. Among them are an unemployment rate of 15%, a per capita GDP of just over $8,000 (though growing at 10%), some 25% of the population in poverty, a relatively high crime rate, congestion in large cities, high energy costs and power blackouts, many urban areas without potable water or paved roads, and an education system that is not near the best it can be. Of course, high energy costs justify taking this action because it will create large energy savings in the future, but the investments required to incentivize renewable energies are coming out of the pockets of citizens of the Dominican Republic.
So, what does this law do exactly? First of all, it removes all taxes from all equipment, sales, and income for at least 10 years. Clearly not the case in the United States or elsewhere. Second, it pays up to 75% of the cost of installing solar or wind in homes or community co-ops. Again, higher than the incentives in the United States or elsewhere. And third, but most important, it places a feed-in tariff! That’s right, utility producers receive a premium equal to the estimated externalities of fossil fuels for the renewable energy they produce. Essentially, they’re putting the incentives that makes solar work in Germany. But, of course, this country is sunnier, so the potential for higher installations is clearly there.
On the fuels side, they have lots of incentives for ethanol and biodiesel production, including the 100% tax exemptions. Brazil and Chile are therefore very interested in producing ethanol in the country. The law mandates that all gasoline sold in the country be blended with a 10% mix, with higher blends to come. While there may be transformations coming to the mobility sector of that country that will make ethanol unnecessary (and thus solely for tax-free exports to the U.S.; yes, CAFTA works for this), this is pretty impressive. There are several experimental plots that will be producing biodiesel from Jatropha and other plants. And the President joined investors last week at the Clinton Global Initiative to announce plans for biodiesel production in Haiti (to promote growth, create jobs, etc.).
Now, isn’t this enough to justify the U.S. hopping on board? “No,” the administration will say, “it doesn’t matter what others do, as long as India and China are not in…” But, then again, India is on track to cutting emissions 25% by 2020 anyways and China just announced investments of up to $280 billion over the next several years, and has a renewable energy standard of 15% by 2025. Well, if we go past the tipping point, the city where I grew up will be under water, and so will most of the major cities in the Dominican Republic and many other countries all over Latin America. Anyways, this is all really impressive, but don’t think we’re stopping there…
As I mentioned, I work for an organization in the Dominican Republic that promotes sustainable development. I’m currently leading a renewable energy campaign that seeks to make the country climate neutral by 2030, with a medium-term target of 50% renewables by 2020. The current law doesn’t call for this, but our campaign is looking to do something that hasn’t happened in many places. The country, as many know, is blessed with great beaches and beautiful landscapes. No wonder, then, that tourism is the #1 sector of the countries economy. Next year, it will experience a demand of around $10 billion. So, what are we trying to do with this sector, specifically the $10 billion in demand?
Our renewable energy campaign is calling on the tourism industry to use take out 2% of its demand ($200 million) every year, beginning in 2010, to invest in renewable energies and new mobility systems together with all the investors that will be rushing into the country. With this scale of annual investments, the carbon neutrality target is clearly achievable. The logical question is, why would the sector be interested? Well, a story is well-deserved. The sector began to grow in the 1960’s, when the government passed a law that gave tourism activity a 100% tax exemption and payments for roads and other services. As a result, the sector kicked off. A decade later, many incentives remained, but taxes were put in place (well, the hotels couldn’t run out, could they?). Today, they have a 30% tax on their income, though some of it is reinvested in roads and other things that they need. What we’re saying is this: here’s the opportunity to enjoy of the business opportunity you had in the 1960’s.
With this new renewable energy law, the tourism sector can meet Agenda 21’s call for social and environmental responsibility at a huge profit. The sector has the opportunity to team up with foreign investors in scaling renewable energies in this country and make profits, all with 100% tax exemptions for at least 10 years and a feed-in tariff. Under our view, there’s no reason why the sector should ignore this business opportunity. The reason why others are already planning to invest more than $2 billion in the next few years is because this law makes these investments highly profitable. Here’s a chance to reduce and stabilize energy costs in the country, promote strong economic growth and fossil fuel independence, create 1 million jobs while at it, and green up the sector’s image, attracting ever-more tourists. In fact, the sector’s decision to do this would likely lead this country to achieve a very high quality of life (more than $25,000 per capita; of course, this does not fit the entire picture of “quality of life”) within 10-15 years at current rate of economic growth.
For those skeptical ones who ask: “how is the government going to pay for this?” Currently, electricity costs are over $0.22/kW-hr. This is more expensive than solar! The reason is that most electricity comes from oil. While coal and natural gas are on the way, it will still keep electricity prices up at around $0.15/kW-hr. So, this means that funds are going to come directly from price differences. For example, if wind costs US $0.07/kW-hr, the market price is still $0.15 or 0.22/kW-hr, and that’s what they charge. The difference they keep is used to pay the premium. In addition, the government currently taxes gasoline and natural gas at 5%, so those funds will be used to pay for homeowner installations.
All in all, this looks like the future for the Caribbean and the rest of Latin America. Where is the U.S.’ leadership on this area? If nothing is done about emissions, all the work in Latin America won’t matter. Global warming will destroy us anyways. The hope is that these bold actions by both the government and the private sector send a message to Washington, D.C. and Europe: climate neutrality for the world within 2 decades is necessary!