With the 2012 election cycle in full swing, an emerging hot topic has been government subsidies in energy. Government funding for renewable energy has come under attack, coupled with claims that renewable energy is the Obama administration’s pet project, that it receives disproportionately large sums of money, and so on. However, when one looks actually looks at the numbers, another conclusion becomes apparent—that conventional fuels such as coal, oil, natural gas, and nuclear have received the lion’s share of subsidies for decades in spite of the maturity of these industries and that the money that does go to renewables is an effective investment toward a prosperous America.
Putting Renewable Energy Subsidies in Context
The United States has a massive budget—about $3.5 trillion per year. Of this $3.5 trillion, a portion of perhaps a few percent could be considered to be used on energy—most of which goes to non-renewable energy. Because of the highly nuanced nature of analyzing subsidies, different estimates of how much the government spends on energy programs vary greatly. Yet the estimates almost unanimously agree on one thing: subsidies for fossil fuels and nuclear outweigh subsidies to renewables by significant margins, despite being old, mature industries that have been on government aid for decades longer than renewables and despite some of them being literally the most profitable companies on earth!
Early last month, the Baker Institute at the University of Tennessee released a report about energy subsidies that included the most comprehensive comparison of U.S. energy subsidy analyses to date. They stacked up nine different studies side-by-side, each of which broke down the dollar amount that each fuel type received in government support. Eight of the nine studies concluded that fossil fuels and nuclear receive the bulk of energy subsidies. This is consistent with international subsidy data, which state that fossil fuels are subsidized to the tune of a half trillion dollars per year globally, which is ten times or more the amount given to renewables.
As journalist David Roberts points out, not only have conventional fuels received the bulk of government subsidies, but are also the main recipients of benefits of government funded infrastructure. For example, government support for railroad development locked in more than a century of guaranteed sales for the coal industry as the primary fuel stock for trains and today continues to guarantee sales for other fossil fuels. The Highway Act and subsequent federal funding for roads locks in sales for oil companies. The transportation infrastructure expenditures that the federal government has made to facilitate market access for fossil fuel industries has been on the order of $6 – $12 trillion. “The mere existence of that infrastructure, which is to say our complete dependence on it, means that we’re already committed to spending at least $1.6 trillion additional dollars per year in maintenance, new vehicles, and fuel,” says journalist Chris Nelder.
“As soon as there was a tax code, the oil industry was getting breaks. These subsidies have long outlived their useful life. The oil and gas industry is well-established and highly profitable; it should bear its own costs of doing business.” – Ryan Alexander, President, Taxpayers for Common Sense
Why Renewable Energy is a Wise Investment
Here’s why renewable energy investment makes sense, even in our current financially-strapped situation: renewable energy subsidies have been very effective at pushing the technology forward, they have supported the emergence of an industry that employs hundreds of thousands of Americans (and will employ more in the future), and they have supported our transition away from conventional fuels which impose great liabilities to the country in the coming years.
Presumably, the goal of a subsidy should be to help a young industry get on its feet and give it a fighting chance to compete on its own merit. Judging by that metric, renewable energy subsidies have delivered big results. Generally speaking, the cost of renewable energy is constantly decreasing (see chart at left for just one example, specifically the declining cost of solar photovoltaic) and installation of renewable energy has become mainstream. For example, wind energy has accounted for 35% of new installed electric capacity in the U.S. since 2007; South Dakota and Iowa get over 20% of their electricity from wind and three more states get between 10% and 20%; rooftop solar systems are providing electricity cheaper than the grid in some states; and technology advancements have made it possible to economically generate wind power on twice or three times as much land area as was feasible a decade ago.
Furthermore, renewable energy has been paying the bills for more and more Americans. Hundreds of thousands of Americans are employed in the renewable energy industry and clean energy companies have been moving to the United States from all over the world to do business. Reversing the trend of outsourcing manufacturing jobs, new renewable energy manufacturing facilities are opening in the United States. It was reported last year that the United States is a net exporter of solar system components and since 2005, wind turbines installed in the United States have increased their domestic content, or the amount of components manufactured within the U.S., from 25% to 60%, even though during those same years the U.S. lost nearly one-fifth of its total manufacturing jobs. These figures look even more deserving of our attention and investment as growth of international clean energy demand grows globally as it is anticipated to and opens new markets to U.S. companies. Put simply, the renewable energy supply chain we invest in today has the potential to pay off hugely for American workers.
Perhaps the biggest subsidy provided to fossil fuels has been the externalized costs – the costs we all pay in health care costs, environmental remediation and lost productivity and life .
As one example, a 2009 National Research Council report detailed and quantified the direct contribution of fossil fuel emissions to public health… the results: fossil fuels contributed to $120 billion worth of health and environmental damages that were passed on to the public to absorb. This number does not even reflect damage due to climate change, ecosystem degradation, or mercury pollution, nor does it include costs of national security or of upstream mining operations, which could be hundreds of billions of dollars more.
Then look at what the public pays in cleanup costs for catastrophes all too common with conventional fuels—an estimated tens of billions of dollars to clean up BP’s disastrous 2010 oil spill, along with more than 100,000 people and businesses suffering major damages from the spill; $1.2 billion to clean up TVA’s 2008 Kingston coal ash spill. Just imagine if a Fukushima-scale nuclear disaster, which is costing Japan perhaps $250 billion, happened here. On the other hand, there is no such thing as a wind turbine meltdown or a solar energy spill.
The point I’m driving home here is that if you are someone who is concerned about cutting government spending, renewable energy is the wrong place to focus. Going after renewable energy programs is not only a waste of time, but is also sabotaging one of our nation’s real hopes for true prosperity. A long history of heavy government investment in a diversity of fuel sources has effectively eliminated any notion of a free market, rendering the idea of the government getting out of the way and letting the market decide the winner a merely theoretical notion. Singling out renewables for budget cuts, while ignoring the larger energy problem is just lip service. At the risk of being a hypocrite, a true deficit hawk should be aiming for the real money-wasters—fossil fuels and nuclear—and a real free market advocate should focus on internalizing the external costs of energy. Our national priority today should be to invest in the technology that will allow us to power our way of life at the least cost, least risk, and greatest economic benefit. Taking these factors into account, renewable energy is the clear the winner.
If this information inspires you to action, please see how you can advocate for the extension of tax credits for renewable energy and save tens of thousands of America manufacturing jobs or how you can push for the elimination of subsidies for fossil fuel polluters to the tune of $113 billion over the next ten years.
Tags: Baker Institute, budget, CERES, Chris Nelder, cost of energy, David Roberts, debt, Environmental Law Institute, Green Economy, green jobs, investment, LCOE, National Research Council, risk, Ryan Alexander, SEIA, subsidies, Taxpayers for Common Sense, University of Tennessee
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