Quick: Who is greener, Germany or Texas? Yes, Germany is still friendlier to the environment than gas-guzzling Texas. But thanks in part to some innovative, market-driven renewable energy policies, Texas is gaining ground faster than anyone might have guessed. In fact, it is already significantly cheaper to purchase wind energy in Texas than in Germany, Europe’s most progressive center for environmental thinking.

In Germany, wholesale prices for wind are between 7 and 11 cents per kilowatt-hour. In Texas, prices hover between 4 and 5 cents, according to the president of Virtus Energy, Mike Sloan.

How did an oil-drilling state drive down the price of wind power? For one thing, Texas is rich in wind. But policy also played a role. The Germans and Texans took very different approaches to developing this energy source. The Germans believed that a renewable-energy market needed maximum stability and minimal risk to take root. Hence, the 1990 “Feed-In” law, which guaranteed renewable energy producers a set price for their energy for the next 20 years (10.7 cents per kilowatt-hour is the going rate for a windmill that comes online in 2006). Since then, Germany’s renewable market has thrived, with small- and medium-sized producers driving a relatively decentralized industry. Wind now supplies an impressive 5.5 percent of the country’s electricity.

Texas took a big-business, market-driven approach, at then Gov. George W. Bush’s behest. “He said to me, ‘Pat, we like wind,’” said Pat Wood, who, as head of the Public Utilities Commission of Texas, was charged with developing the state’s renewable-energy policy in 1995. Under a 1999 Texas state law, electric retailers are obliged to buy a certain amount of energy from renewable sources. With this incentive, corporate power...