By Dr. Jay Lehr & Tom Harris
As governments struggle to recover from reduced revenue and increased costs caused by the coronavirus pandemic, they will be looking to eliminate non-essential expenditures. Energy subsidies that suck billions of dollars each year from the public purse should be a leading candidate for cancellation.
According to Tim Gould, head of energy supply and investment at the International Energy Agency, the current collapse of energy prices presents a “golden opportunity” to cut subsidies. As explained in the New York Times on June 11, “Lower prices make it easier to cut [energy] subsidies without inflicting much pain on the poor, especially in oil-exporting countries with reduced revenues.”
The quagmire of outdated energy subsidies in the U.S. were built up over a century of programs once intended to help develop innovative ideas for energy development. But now practically all of them are simply perpetuating the flow of money to companies and individuals no longer deserving to feed at the government trough.
Assuming governments don’t do something foolish, no one alive today will ever see energy shortages in America again. New technologies have allowed our nation to transition from worrying about oil shortages to no longer having sufficient space to store all the oil and gas we are capable of producing.
Subsidies granted to the fossil fuel industry were designed to lower the cost of production and incentivize new domestic energy sources. Despite the fact that many of these subsidies are outdated, they remain embedded in the tax code, in part because subsidies to oil, coal and natural gas industries are not obvious. While regulations that unnecessarily hamper fossil fuel development should continue to be cancelled, subsidies aid an industry that is mature and well-established, with abundant private financing. Phasing out subsidies for the fossil fuel industry should be a priority for federal policy makers.
Industry representatives argue that renewable energy gets orders of magnitude more in subsidies and in support per kilowatt-hour generated. This is indeed true: solar and wind power get 326 and 69 times more in subsidies than coal, oil and natural gas per amount of energy generated. For years now, the Energy Information Agency (EIA) has shown a combined federal benefit for wind and solar of $2.8 billion per year. It comes through a tax credit of 2.4 cents per kilowatt-hour produced, as well as a deduction of 30% of the installation cost. These benefits were supposed to expire years ago but did not.
The U.S. states are even more aggressive in helping wind and solar. At the end of 2018, 29 states and the District of Columbia had renewable portfolio mandates collectively accounting for 63% of retail electricity costs. What this means is that these states require every electric utility to include a certain amount of wind and solar power in their energy mix regardless of the cost. And, of course, for every kilowatt-hour the utilities now produce from intermittent and expensive wind and solar plants, they must create an additional kilowatt-hour of capacity from reliable fossil fuels to account for the periods when the sun does not shine or the wind either does not blow or blows too hard (at which point, wind turbine blades must be feathered or they will break).
Without your federal and state tax benefits supporting them, there would be no solar or wind industry of any significance. While they may, at times, seem cost-competitive with fossil fuels due to the extremely wide and complicated web of government policies biased in favor of renewable energy, consumer prices increase every time.
This is all a colossal waste of taxpayer monies. Like fossil fuels, these technologies are mature enough that subsidies to them should have ended long ago, leaving them to stand or fall on their own in a competitive marketplace. Our nation no longer needs a red cent spent on energy subsidies when we are already the richest energy-producing nation on Earth.
Dr. Jay Lehr is Senior Policy Advisor with of the Ottawa, Canada-based International Climate Science Coalition (ICSC). Tom Harris is Executive Director of ICSC.
The views and opinions expressed in this commentary are those of the author and do not necessarily reflect the official position of Citizens Journal.
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