Biomass and the dismal science

One of my favorite CBC radio shows now has a blog! It's the Quirks and Quarks blog, and they happen to have an interesting post related to economics.
According to Quirks, biomass energy is a feasible and sensible option on many fronts, but there are economic challenges to overcome.

Quarks explains why:

Biomass energy seems to make a lot of sense. There's a vast potential, and the technology for some uses is already there, and for others is nearly there. In this it's a lot like wind energy, but in many ways its a little more attractive than wind because you can still have biomass energy available when the wind isn't blowing. Like wind, it's likely to be more expensive than fossil fuel energy, unless oil prices rise even more. The interesting thing is that very little of this extra cost comes down to the actual fuel being more expensive - in fact biomass fuel is largely going to be free, or close to it.

Some of it will be transportation, because biomass is distributed around the countryside and has to be collected. Even there, however, the difference between what it costs to deliver a tonne of coal and a tonne of straw or wood to a power plant aren't that great. And if you start counting the costs of pollution and global warming - what economists call the "externalities" things start looking a lot better for renewables like biomass. Externalities could include everything from the costs of health care because of pollution, to environmental disruption because of global warming. These kinds of costs are indirect, widely distributed, and notoriously hard to put a concrete monetary value on, which is why they're so often ignored.

Some of the biggest costs and the biggest barriers to these new energy sources, however, are the costs of changeover. If we switch to burning biomass in power plants for electricity, for example, we have to build new power plants closer to the sources of biomass to replace the fossil fuel power plants. At the moment, we have lots of these centralized fossil fuel plants. If these plants are new, then electricity producers won't want to shut them down because they haven't paid for themselves - the capital costs would be a dead loss. If these are old plants, then they're producing energy very cheaply, since fuel like coal costs so little, and earning big profits, and so
producers don't want to shut them down. So replacing operating fossil fuel plants with new biomass plants is going to cost money, unless you wait for the fossil fuel plants to to come to the end of their natural life-cycle. Those life cycles are long - a coal plant can run for fifty or sixty years.

Then there's the cost of adapting the grid. Unlike fossil fuel plants, biomass energy plants are likely to be away from urban areas where most power is consumed. Because biomass isn't dense and concentrated like fossil fuel, you don't want to transport it far. So biomass plants will likely be in farmland, or close to forestry sites. To transport the power from these sites, you'll need to build power lines, transmission towers, transformers, and you'll have to factor in the electrical losses that come with transporting power long distances. It's another large capital outlay, that building a new fossil fuel plant at the site of an old one doesn't face.

There are lots of ways to pay these costs. Direct subsidy by governments is one -- just pay the power producers for the cost difference between using renewable power and fossil power. Carbon taxes are another. If the government put a tax on power generated from fossil fuels and didn't tax renewable power, it might help even the playing field. Most energy economists, however, favour a modified scheme called "carbon emissions trading," a way of trading permission to produce greenhouse gas
for money. The UN has endorsed these, and this kind of system is already operating in Europe, and in a limited way in some parts of North America, but hasn't been officially implemented by Canada or the US.

A lot of the the science of biomass and renewable energy has been done. Now we just have to get the "dismal science" worked out.