Subsidies, the Free Market and Renewable Energy

Hopefully, many of you taken a look at the great conversation going on between my old friend Bobby (we’ve known each other since the 9th grade), sustainablog’s favorite celebrity activist Tod Brilliant, and myself about Sir Nicholas Stern’s report on the economic impact of climate change. You’ll figure out quickly that Bobby’s a climate change skeptic… he’s also been completely courteous (appreciate it, man). The debate between us has been really interesting, and I thought I’d use tonight’s post to address one of the issues I feel the most comfortable with: climate science… HA! Just kidding… I pointed him to Real Climate for that. I feel much more comfortable with some of the economic issues Bobby raises, and did a little digging around today on US government subsidies to various energy recovery or generation technologies.

I took particular notice of Bobby’s statements that “I also honestly believe that pseudoscience is being employed to … market technologies that have proven themselves utter failures,” and

I mentioned failing technologies above. Solar water heating has been around for over a century and photovoltaics for 3 or 4 decades, but they still cost at least ten times more than carbon based energy sources. Electric cars are nothing new and are still not competitive. The hydrogen economy is plagued with high energy production issues and is an infrastructure nightmare. Is increased subsidization of these questionable technologies via changes in the tax code really the answer? No matter how you slice it they still hit the pocketbook harder than carbon based or nuclear energies. You would think that if they want to offer the same old solutions, they could at least find a cheaper way to produce their products.

With all due respect, I think this is a common perception among our conservative-leaning friends who distrust the environmental movement: a product didn’t make it on the market, so it must be deficient. As regular readers will know beyond a shadow of a doubt, I don’t agree with the “failed technologies” characterization, and I think what we see happening in the market isn’t “the invisible hand” pointing us to the best technology, but rather the workings of something conservatives otherwise criticize: subsidies.

I know better than go into an argument with Bobby without my facts in order, so I did some hunting and found my way back to EarthTrack, a site that deals with these very issues. Author Doug Koplow does a very thorough analysis of the 2003/2004 energy bill that shows that most subsidies for energy go to already mature industries: oil & gas, coal and nuclear power. Doug’s writing for a policy audience, so I also looked around and found this summary of the energy bill from the Center for American Progress Action Fund. In short: “Big energy companies are flush with so much cash, they don’t know what to do with it. That didn’t stop Congress from showering the electricity, coal, nuclear, natural gas and oil industries with $8.5 billion in tax breaks and billions more in loan guarantees and other subsidies.” As for renewables,

The final legislation dropped a provision that would have required utilities “to generate at least 10 percent of their electricity through renewable fuels by 2020.” The proposal, championed by Sen. Jeff Bingaman (D-NM) was “was a low-cost, market-driven approach to cutting demand for fossil fuels and easing air pollution.” On this issue, we are officially less progressive than China.

These examples come from only one (major) bill, but I they serve to illustrate my main point: there is no “free market” in terms of our energy supply. Of course fossil fuels and nuclear power have fared better on the market, because massive subsidies bring down the costs. On the other hand, despite these inequities, renewables have grown by double digits in recent years, despite the relatively paltry subsidies they receive. I read just the opposite here: renewable are viable technologies that can compete, but they’re currently playing on a very uneven field.

The point here isn’t to cry “unfair”; rather its to question the purpose of subsidies for energy technology. At their best, they’re investments in promising technologies that haven’t reached a point of development to compete with established industries. At their worst, they suppress these newer technologies. It isn’t the technology that’s failed — it’s a corrupted political process that keep funding industries that don’t require it to compete. Until there’s some remedy to this situation, we simply can’t talk about failed technologies…

On electric cars… Who Killed the Electric Car comes out on DVD this month.

OK, fire away… that’s an invitation to everyone… I’m sure I’ve missed many things here.

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