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Are Renewable Energy Subsidies an Unprecedented Budget Buster?

28 Jul 2016 12:52 PM | Anonymous

(Stan Hazelroth contributed the following article in early 2016, based on personal research.  For the full article, including figures, click here)


Subsidies from government to new technologies or industries date back hundreds of years in the U. S.[1] The purpose of subsidies is generally to give exciting new technologies a boost in helping fund the cost of starting up until its’ cost of production is competitive with older, less desirable methods. Subsidies keep prices for consumers below market levels or for producers above market levels, or reduce costs for consumers and producers.[2]  Subsidies have also been introduced to increase production of a product whose national need has increased due to war or other national calamity.[3]


Like all subsidies, those for energy are a redistribution of wealth from one group to another. In the case of the coal subsidy described in the article in footnote 3, supra, Congress increased income tax rates to pay for the Korean War and reclassified tax on income from coal to a royalty, thus reducing the tax paid on its sale.[4] Taxpayers thus paid increased income tax reducing their wealth and the decreased the tax on coal that increased wealth in the coal industry. The intended benefit was to increase coal production to fill the need to fuel the war.


A negative consequence of many subsidies is that they frequently outlast the purpose for which they were created. Using coal again as an example, while the Korean War ended in 1953, the treatment of income from coal was still enjoying its status as a royalty well into the 21st Century. The result is that wealth continues to be redistributed

from all taxpayers and redistributed to the shareholders and employees of a mature, self-sufficient industry. Even worse, some in the oil and gas industry not only benefit from these unnecessary subsidies, but actually spend money and resources in an effort to defeat subsidies intended to give a temporary boost to new more efficient types of energy. [5]

 

Coal is not the only beneficiary of subsidies still in existence long past their justification.. Petroleum and natural gas continue to receive large re-distributions of wealth from the taxpayer long after they have become hugely profitable and in no way in need of continued taxpayer support. In Susan Kraemer’s article, “Despite Fears, New Renewables Are Not Bankrupting California” she says “[r]enewables..haven’t had the decades of persistent government support to back them the way that traditional energy had. Throughout the 1980’s, and ‘90’s, the Department of Energy led R&D into fracking…and federal legislation has long allowed pass-through investment in fossil energy through favorable tax treatment via Master Limited Partnerships”[6].

 

Billions of tax dollars continue to be redistributed to profitable, mature industries. On top of this, the myth continues that subsidies  for renewables are extremely expensive and out of line with past subsidies for earlier forms of energy during their respective start-up years. They certainly are not.  The following chart shows the comparison in relative dollars of the subsidies given to several major energy sources during the first 15 years of their respective subsidies.[7]

 

“Some argue that the consumer can purchase warmth or work or mobility at less cost by means of coal or oil or nuclear energy than by means of sunshine or wind or biomass. The argument concludes that this fact, in and of itself, relegates renewable energy resources to a small place in the national energy budget. The argument would be valid if energy prices were set in perfectly competitive markets. They are not. The costs of energy production have been underwritten unevenly among energy resources by the Federal Government.”

— August 1981 report of the DOE

Battelle Pacific Northwest National Laboratory

 

So are renewable energy subsidies an unprecedented budget buster? The answer is clearly no. Even when wind, solar and other renewables were at the prototype stage and subsidies were needed to develop them, the argument that the relatively small subsidies were more expensive than those for earlier antiquated forms of energy was never valid.  The cost comparison premise is demonstrably false: renewables now offer better prices than fuel based generation resources especially if subsidies for both are extinguished completely. The taxpayer could be relieved of the billions of dollars they pay each year to subsidize all energy while still enjoying the cheaper, cleaner renewables. It’s time to unburden taxpayers from the redistribution of their income to all mature forms of energy until such time as even better sources not yet imagined emerge.


[1] “A Closer Look at Fossil and Renewable Energy Subsidies”, by Susan Kraemer, Renewable Energy.World, June 10, 2015, http://www.renewableenergyworld.com/article2015/06/content/rew/en/authors/g-k/susankraemer.html

[2] “The Future of Energy Use” by Phil O'Keefe, Geoff O'Brien and Nicola Pearsall, Published by Routledge (2nd Ed., 2010) at 268.

[3] “What Would Jefferson Do? The Historical Role of Federal Subsidies in Shaping America’s Energy Future”, by Nancy Pfund and Bill Healey, DBL Investors, September, 2011

[4] Supra.

[5] “Elon Musk Fights Back Against the Koch Brothers’ Lobbying”, by David Z. Morris, Fortune Magazine, February 22, 2016.

[6] “Despite Fears, New Renewables Are Not Bankrupting California, by Susan Kraemer, Renewable Energy World, May 22, 2013

[7] See 3, supra.

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