The Importance of Not Picking Winners

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The fact is, governments have long provided massive subsidies for the fossil fuel and nuclear industries–and despite the fact that these industries are amongst the most profitable in the world, and continue to raise prices while inflicting tremendous damage to the environment, these subsidies continue unabated.

IEA reports that fossil fuels get six times the level of subsidies of renewables. And according to the most recent report on energy subsidies by the U.S. Energy Information Administration in 2007, subsidies to nuclear were 9.6 times higher than those for solar; natural gas and petroleum subsidies were 11.2 times higher; and coal subsidies were 22.2 times higher than solar.

In 2010, despite the ARRA, coal subsidies were still 20 percent higher, nuclear subsidies 120 percent higher, and natural gas and petroleum 148 percent higher than solar subsides. Moreover, 93 percent of the fossil fuel and nuclear subsidies were permanent, whereas almost 70 percent of the solar subsidies were temporary stimulus bill subsidies, and will expire if not renewed.

The EIA study itself notes that it includes only direct grants and tax subsidies available only to energy companies, and excludes many categories of subsidies provided to other companies, most of which favor conventional fossil and nuclear fuels more than renewables. For example, EIA does not count reductions in taxable income for American manufacturers, including domestic oil and gas producers and refiners; subsidized credit for energy infrastructure projects by export credit agencies; and tax-exempt municipal bonds used for energy projects.

EIA also acknowledges that it does not include the nuclear industry subsidy resulting from limits to liability in case of a nuclear accident provided by the Price-Anderson Act. And EIA does not include the enormous subsidies to fossil fuel companies from allowing them to emit harmful pollution into the air, water, and land, and into our lungs and bodies. As Nobel Prize-winning economist Paul Krugman recently wrote, “letting an industry impose costs without paying compensation is in effect a huge subsidy.”

The National Academy of Sciences National Research Council has found that damage to human health from coal-fired power plants amounts to $62 billion per year, or $156 million per plant, with a mean value of 3.2 cents per kWh. They did not include additional damage from air toxics, like mercury, or from carbon dioxide’s contribution to climate change. A more recent analysis by the Harvard School of Public Health’s Paul Epstein, which included air toxics, carbon dioxide, and more recent studies on the health effects of air pollution, concluded that life-cycle damage from US coal power plants (including mining, fuel refining and transport, and waste disposal as well as power plant emissions) costs over $300 billion per year, or almost 18 cents per kWh.

Fossil fuel and nuclear energy companies argue, however, that they receive lower subsidies per unit of energy generated. The EIA report finds, for example, that renewable energy technologies generate 10.3 percent of US electricity but collectively receive 55.3 percent of the subsidies. As mentioned above, this analysis excludes environmental and health damage. Even without considering such externalities, however, some of the difference per kWh is a result of ARRA subsidies being front-loaded in order to create jobs and stimulate the economy during the recession, and because many companies did not have the taxable income to utilize tax credits which had previously been spread out over ten years.

More importantly, however, a fair comparison of subsidies among different energy sources must look at comparable stages of energy resource and technology development. A primary purpose of energy subsidies, after all, is to help new energy competitors get off the ground by funding basic research and development, and fostering the economies of scale new technologies need in order to reduce prices and compete with mature technologies and industries.

A study by DBL investors found that:

[a]s a percentage of inflation-adjusted federal spending (eliminating increases in new programmatic spending since the introduction of early oil and gas subsidies in 1918), nuclear subsidies comprised more than 10% of this normalized federal budget over their first 15 years, and oil and gas subsidies constituted 5% percent of the total budget. Measured on a similar scale, renewables constituted only about one percent. That is to say, in an apples-to apples comparison, the federal commitment to O&G was five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear.

As a sidebar, Lee Raymond, the former head of Exxon Mobil, made $144,357 a day, or about $100 every second.

But the important thing is that we don’t pick winners.

Vote Solar is a non-profit grassroots organization working to fight climate change and foster economic opportunity by bringing solar energy into the mainstream.

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About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.