Subsidizing Fossil Fuels and Green Energy, Subsidies Built Coal, Can they do the same for Wind?

Location: New York
Author: Ken Silverstein
Date: Monday, November 22, 2010

It's become the key question bandied about in energy circles: Which sector has received the most government help? Fossil fuels get five times the subsidies, say wind advocates - a point quickly countered by free marketers who note that coal and natural gas produce a lot more electricity than wind.

The discussion over how taxpayers' money should be allocated to the various energy sources is a good one. But what is often lost is that all such fuels will be needed to meet this country's expected demand for electricity - an amount that is often cited to be about 30 percent more than now over the next 20 years. As such, the government has a role to ensure that all forms are cleaner and reach their potential.

"I don't think you guys understand that energy is special," says Van Jones, senior fellow for the Center for American Progress, who participated on EnergyNow, a televised show devoted to energy and environmental issues. "Energy is never a free market - a private thing out there by itself."

In a review of the literature released by the U.S. Energy Information Administration, the more traditional forms of energy -- coal, natural gas and nuclear -- have received their respective cuts of the federal pie. In 2007, the renewable sector got more than any other energy classification at nearly $5 billion. But when added together, those others topped that amount by well over $1 billion.

By contrast, 10 years earlier, coal, natural gas and nuclear got about $3 billion in federal subsidies. Renewables received half that amount. For the record, total payouts for all energy forms equalled about $16.5 billion in 2007 and about $8.2 billion in 1997.

The renewable sector says that, generally, production costs have dropped 80 percent in 20 years. To do better would require a more proactive government and more certain policies, it adds. The energy information unit, in fact, said that development would jump if tax credits are extended and expanded.

The production tax credit, which gives a 2.1 cent credit for each kilowatt-hour of power generated by some green facilities for the first 10 years of operation, has been allowed to expire three times in the last decade. The stimulus program extended these benefits to 2012 for wind. It goes further, though, than previous efforts by allowing investment tax credits or cash grants in lieu of such tax benefits.

In fact, much of the growth so far in the renewable energy sector is because of government-sponsored tax breaks and state renewable mandates. But that's exactly how to foster technologies that are in their infancy. Moreover, until banks and other lenders get it together, many economic analysts say that the federal government must step up.

Hidden Costs

Wind, in fact, is becoming a critical component of the American economy, says Denise Bode, chief executive of the American Wind Energy Association, who also spoke on the Energy Now panel. In the last five years, she says that wind-related components have grown from being 25 percent of the manufacturing base in this country to 54 percent. That is coming from 400 factories, which have created 85,000 jobs - none of which are being directly subsidized by the federal government.

"I'm for having equal level playing field support and they've (the fossil fuels) have been supported for 80 years, and we get on and on," says Bode, of the wind association, who adds wind is cost competitive at six-cents per kilowatt hour.

Obviously, the production credits touch on a sore point with those who think that renewable energy would wither in free markets. Critics say that developers go forth not because economics dictate it but because of the tax breaks. It's particularly true in the early years of operations. Besides the credit, they say that wind developers get accelerated depreciation and sharply reduced sales and property taxes.

They point out that the fossil fuels are cheaper and relatively plentiful. Coal, for example, provides about half of the nation's generation supply. It also has 300 years worth of reserves in the ground. Newfound shale gas supplies, meanwhile, are said to be so abundant that they can help fuel this nation's needs for at least 100 more years. Together, those fuels supply about 70 percent of the nation's electricity while wind and solar are less than 2 percent.

"I think all subsidies to all energy forms should be removed: coal, natural gas and oil," says Ken Green, resident scholar at the American Enterprise Institute, who also participated in the panel discussion. "Without a subsidy you (wind and solar) don't exist as an industry. If your energy was cheap, I'd have nothing against you."

Bode and other advocates for green energy take exception to what they would refer to as specious arguments. They first point out that the cost of fossil fuels has been subsidized for decades, notably through public utility commissions that allow power companies to "pass-through" to consumers their expenses. Those guaranteed rates of return have literally built up the coal and natural gas industries.

And while those facilities are seemingly less expensive to construct than today's newer and more sustainable units, there are a number of hidden costs - a reality that critics such as Green acknowledge. Those inconspicuous figures include health-related medical issues such as asthma.

The bottom line is that the country will require a portfolio of energy sources to meet its expected future demand. But they must all be cleaner and be required to use the best available technologies. To that end, green energy development is part of the pie and like those of its fossil-fueled brethren, will require subsidies to move forward.

 

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