The consequences of a government's energy policy are of immense scale. An insufficient long term plan can lead to the lights shutting off and an abrupt halt of economic activity. Because of the gravity of a potential market failure, the U.S. government has played a more active role in developing energy markets than it has in other sectors of the economy.
2013 will be a year in which Americans continue to come to terms with the unsustainability of their traditional habits. Some form of fiscal austerity seems to be inevitable. The pace and manner in which it is implemented will determine whether the nation rises to meet the challenges at this point in its economic history.Given this, it will be helpful to examine how the U.S. provides public subsidies to the production and development of renewable energy.
Critical components in U.S. energy policy are the Renewable Energy Portfolio Standards (RPS) that many states have adopted. RPS are a legislative mandate that a state's utilities produce a certain percentage of their total energy consumption from renewable energy sources. If a utility can't produce it themselves, they can purchase it from private producers, such as a family that installs a grid-tied solar PV system on their rooftop.
The American Legislative Exchange Council (ALEC), a "nonpartisan public-private partnership of America's state legislators, members of the private sector, and the general public", advocates for the elimination of the RPS system in favor of a free market approach to energy deployment. Todd Wynn, Director of Energy, Environment, and Agriculture provided the group's rationale behind this policy stance:
* Forcing utilities to purchase renewable energy reduces total supply and increases the cost of electricity. This increased cost has a greater impact on lower income ratepayers who devote a higher percentage of their expenses to energy costs.
* Free markets lead to more cost effective, reliable, and sustainable forms of energy.
* It is not ethical for the government to favor one particular form of energy over another.
The first point is difficult to disagree with. If clean energy producers were instead paid from income tax or property taxes, lower income folks would be spared from the regressive nature of this de facto tax. The second premise is impossible to evaluate however, because the U.S. hasn't had a "free" energy market in at least two centuries. Nancy Pfund and Ben Healey offer a comprehensive summary of energy subsidization in a report called "What Would Jefferson Do? The Historical Role of Federal Subsidies in Shaping America's Future", which chronicles historical government intervention in various energy markets:
1823 - 1837
States subsidized geological surveys combine with tax waivers lead to significant growth in the coal industry.
1841 - 1878
Land grants subsidize development of the timber market in the West.
1916 - 1985
Tax accounting rules are changed, adding a "percentage depletion" loophole that allows coal and oil producers to benefit from accelerated depreciation.
1947 - 1990
The federal government invests heavily in research and develpoment of nuclear power, indemnifies utility companies from damages caused by nuclear meltdown, signficantly reducing their insurance expenses.
1955 - 1970S
NASA invests heavily into developing photovoltaic technology to power space aircraft.
1978
Energy Tax Act establish tax credit for installation cost of solar and geothermal systems.
1992
Energy Policy Act establishes production tax credit for renewable energy.
1983 - PRESENT
Individual States begin enacting Renewable Energy Portfolio Standards.
These historical facts have led advocates of renewable energy production to argue that the current subsidies are needed to level the playing field for a new industry that is competing against the heavily subsidized traditional energies, like fossil fuels. ALEC responds in the following way to this claim:
" The Energy Information Administration calculates the per megawatt hour subsidies for different energy forms which is an apple to apple comparison. For an energy source that barely exceeds one percent of electricity output in the U.S., total 2010 federal subsidies to wind generation are 56.29 per megawatt hour. This is around 88 times that of the 0.64 per megawatt hour that go to the foundation of U.S. electrical power output, coal and natural gas. Coal and natural gas account for over 70 percent of U.S. electrical power supply. For solar power, the subsidies totaled 775.63 per megawatt hour which is nearly 1,212 times that of coal and natural gas. The playing field is not level. In fact, it is heavily tilted towards renewable energy and these figures do not even take into account the subsidies and tax breaks given at the state level nor the monetary value of state governments mandating their products to be purchased. "
Setting aside serious problems surrounding the methodology of this data from the Union of Concerned Scientists, this view is rather biased. Scientists, researchers, and engineers have had many decades of government support to improve the efficacy of fossil fuel based energy. Pfund and Healy depict the magnitude of this support in the following graphs from the "What Would Jefferson Do?" Report :
The graph shows historical trajectories of energy subsidization during the first 30 years of their respective implementation:
The final premise of the "free trade argument" for abolition of the RPS cites a moral obligation for the government to refrain from limiting the production of energy from technologies that are not "politically preferable". This ethos seems to promote a belief that the push for cleaner, more sustainable energy is some kind of fad, nothing more than a superficial mark of sophistication.
However, this opinion of the clean energy movement ignores some indisputable facts: 2012 was the hottest year in recorded history. Billions of dollars were spent recovering from Hurricane Sandy and prolonged droughts in the West have led to massive forest fires and increased food scarcity. If one holds that government has an obligation to protect its citizen's health, property, and economy, then it must act to combat global warming and dwindling supplies of limited resources.
One can make a defensible case for reforming the Renewable Energy Portfolio Standards system. However, if the only alternative policy recommendation is to "let the free market decide" how energy is produced, we'll first need to invent a time machine.
The post The Illusion of a Free American Energy Market appeared first on Infinite Solar.
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