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January 31, 2011

We Can End Energy Subsidies

There is a growing non-partisan national consensus for an end to ALL energy subsidies. Washington Monthly, which is part of the Liberal Blog Advertising Network, published a brilliant article by Jeffrey Leonard titled "Get the Energy Sector off the Dole". Here are some excerpts but you should read the whole thing:

"…If President Obama wants to set us on a path to a sustainable energy future—and a green one, too—he should propose a very simple solution to the current mess: eliminate all energy subsidies. Yes, eliminate them all—for oil, coal, gas, nuclear, ethanol, even for wind and solar. It will be better for national security, the balance of payments, the budget deficit, and even, believe it or not, the environment. Indeed, because wind, solar, and other green energy sources get only the tiniest sliver of the overall subsidy pie, they'll have a competitive advantage in the long term if all subsidies, including the huge ones for fossil fuels, are eliminated. And with anti-pork Tea Partiers loose in Washington and deficit cutting in the air, it's not as politically inconceivable as you might think...

"What the green lobby may underestimate is the degree to which the "free market," given the current natural direction of the energy sector, would ultimately support the cause of clean energy in the absence of subsidies. Hence a "benign neglect" approach by Washington to the energy industry would be the best strategy for now. Emphasizing the elimination of existing subsidies and the creation of a level playing field would benefit green energy sources by enabling them to fit into rational long-term energy supply strategies pursued by public utilities, while also allowing the whole energy sector to respond better to price signals and consumer demands…

"Taken together, these market trends—cheaper natural gas; more expensive oil; the gradual turnover of old, polluting, inefficient power plants and their replacement by natural gas or cleaner-generating technologies; the extended life of existing nuclear facilities; and the slow but steady electrification of transportation—will gradually turn America's economy toward reducing greenhouse gas emissions while supplying us with abundant and affordable energy. These trends will also buy us time to develop the more innovative energy sources of the future."

Meanwhile, the conservative Wall Street Journal is lambasting Newt Gingrich in an editorial entitled "Professor Cornpone" (behind the paywall) for his support of corny ethanol subsidies:

"Some pandering is inevitable in presidential politics, but, befitting a college professor, Mr. Gingrich insists on portraying his low vote-buying as high "intellectual" policy. This doesn't bode well for his judgment as a president. Even Al Gore now admits that the only reason he supported ethanol in 2000 was to goose his presidential prospects, and the only difference now between Al and Newt is that Al admits he was wrong."

The normally liberal Rutland Herald here in Vermont editorializes (also behind a paywall) against excessive subsidies (they are for smaller subsidies) for renewable energy already awarded by the Vermont legislature and being considered for extension:

"The acronym [SPEED] stands for the Sustainably Priced Energy Enterprise Development Program, but don't let the name fool you. It's only sustainably priced if you're selling alternative energy systems. House Bill 446 set the initial price for such electricity at between 12 and 30 cents per kilowatt hour, depending on what the source was. That's a premium of between two and a half and six times the going rate for electricity, so not what consumers of power would likely feel is "sustainable."

"The extreme small scale of the development is the only thing that keeps the effect on power prices from being ruinous…

"…the other problem with such generous subsidies is that it doesn't force innovation. Badly designed, badly sited projects can turn a profit at five times the going rate for power.

"A small subsidy, a penny or two per kilowatt hour, would encourage development without breaking the bank, and would take away the gold-rush mentality that has many developers begging communities to waive their review rights in order to get a project in line for financing. And a design that makes sense with a small subsidy might be exportable to other jurisdictions, whereas one that needs 30 cents on the kilowatt hour to justify it is not going to travel well…

"Vermont needs to continue to encourage alternative energy sources.

"But it needs to do so intelligently, not by giving away our money to every fly-by-nighter with a solar panel and a sharp line of patter."

Conservatives are finally disabusing themselves of the perception that a tax break is any less a subsidy than a grant. Liberals are understanding that the renewable energy business IS a business. Like any other business, it will seek all of the grants, tax breaks, and mandates it can get, just as nuclear coal, oil, and ethanol (under the green rubric) have in the past. Readers of my posts have, in general, agreed that ALL energy subsidies should be ended but have been skeptical about whether the political will exists to overcome the lobbying of the old and new energy businesses.

With the pressure of huge budget deficits, there's good reason to hope we can have a much better energy and environmental policy at a LOWER cost than the current web of subsidies, mandates, and counter-subsidies.

Related posts:

Response to Chinese Subsidies for Solar Panel Manufacturing

Government Money Drives Out Private Capital

Natural Gas Disrupts the Energy Industry

And Here Comes the Pork

The End of the Age of Incentives

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