Category Archives: energy

Solar and Wind Energy Subsidies

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There was sort of a debate presented in The Wall Street Journal a few days ago concerning the efficacy of Federal subsidies for solar and wind energy companies.  I say “sort of” because the Mark Muro’s arguments in favor of the subsidies demonstrate an utter cluelessness of the basics of economics as well as of how well the subsidies have already performed.

For instance, the WSJ‘s lede cites generic proponents as saying in all seriousness,

There is widespread agreement that pulling the plug on the subsidy at this point could hobble the wind-power industry.  Meanwhile, the biggest federal subsidy for solar power, a tax credit for 30% of the cost of installed equipment, is set to drop to 10% at the end of 2016.  A cash grant for up to 30% of solar equipment costs expired at the end of last year.

Proponents say wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop to the point where they can compete on price with electricity produced from coal and natural gas.

Yet, if the technology can’t compete in a free market on its own, if it needs the subsidy to survive, the technology is not ready for commercial use or sale.  Spending taxpayer money—private citizen money—on such a thing is a textbook example of Fraud, Waste, and Abuse.  As the proponents admit without realizing it in that second paragraph: “…wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop….”

Muro then says in his argument,

Let’s remember the point of these temporary subsidies: to help emerging clean-energy technologies gain toeholds in challenging markets and advance toward unsubsidized price-competitiveness.

And

The ultimate reward is cheaper, cleaner energy and greater energy diversity, which will help guard against price shocks, keep energy costs down through competition and lessen the damage our energy consumption does to the environment….

Except that it isn’t cheaper if it needs subsidies coupled with coal, oil, gas (hydrocarbon) prices that are artificially elevated by government mandates to include “green” additives as the Feds do, or to buy electric power from solar and wind generators, as California does, in order to compete.  Moreover, diversity is reduced, not expanded by limiting us to solar and wind—or even by demanding that we buy a certain amount of solar and wind, regardless of market forces—and actively blocking access to hydrocarbon energy.  And finally, if these really are viable technologies that will deliver cheap energy easily, private investors will flock to invest, and no taxpayer subsidy will be even in the picture.

On top of that, there’s no case for environmental “damage,” given the great amount of cleanup already done, and the falsified “damage” attributed, for instance, to fracking by the EPA.

Muro goes on:

Wind and solar need the help because the barriers for new technologies in the energy industry are tougher than those in any other industry in this country.  Fossil fuels, with the help of their own government subsidies over the years, are thoroughly entrenched, with trillions of dollars’ worth of infrastructure in place.

Never mind that that entrenched infrastructure sits on top of centuries’ worth of economical, unsubsidized hydrocarbon deposits in the ground right here in the US and Canada, and the infrastructure easily can be extended to reach into the deposits in our respective territorial and economic zone waters, as the People’s Republic of China already is doing, filling the vacuum left by the present administration’s slow-walking of drilling permits for American companies.

Additionally, the beef that “the barriers for new technologies in the energy industry” are tough is just a cynical red herring.  Those technical barriers existed for the hydrocarbon industries, also, as they were developing.  Why should solar and wind get special treatment?  Muro has no answer; he merely asserts the “need.”

Muro concludes with this long-standing “promise:”

In sum, onshore wind is likely just a few years away from true subsidy independence, while several forms of solar aren’t far beyond.

Like commercial fusion, we’ve been “just a few years away” for decades.  It’s an empty promise.

As Dr David Kreutzer points out in his argument against these subsidies, though,

Surely some alternatives to fossil fuels will be developed, but they will only work if they are affordable.  Wind and solar aren’t, and that isn’t changed by shifting the costs from consumers and producers to the taxpayers.

Bureaucrats and politicians shouldn’t be the ones deciding which technologies are the most promising or what timeline is too long or what losses are too deep.  The market will do a much better job of answering the question: are wind and solar power really viable?

Let’s get rid of the subsidies and find out.

Renewable Energy

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Has German Chancellor Angela Merkel figured out something Barack Obama hasn’t?  As recently as last June, her government had set a goal that by 2020, renewable energy (vis., wind and solar) would comprise 35% of Germany’s electricity production.  In the first half of 2012 (ending that June), Germany already was generating 25% of its electricity from wind and solar, among other renewables.

Then some other things became apparent.  Germany’s Renewable Power Act requires power companies to buy wind- and solar-originated electricity in significant quantities.  Their largest industrial electricity users consume 18% of the electricity produced,  However, they pay only 0.3% of the extra costs generated by those required buys—German taxpayers pay the difference.

The power grid hasn’t kept up with the growth in alternative energy sources—like the offshore windparks in the Baltic and North Seas off the country’s north coast.  Many of those projects are at a standstill, with no way to deliver the power they generate to the mainland.

That Renewable Energy Act provides incentives to build wind turbines, but it doesn’t provide incentives to build the natural gas-fired power plants the country needs for when the sun isn’t shining and the wind isn’t blowing (see the figure).

Withal, German consumers are faced with skyrocketing electricity bills.

Now Merkel is changing her mind.  She; her Environment Minister, Peter Altmaier; and her Economy Minister, Philipp Rösler are meeting with industry and union representatives “to discuss the rising costs for consumers.  In the run up to that meeting, Altmaier has indicated that he hopes to…put the brakes on the current rush toward renewables.”

In the US, we have these: green energy subsidies (guaranteed loans, tax credits) and a Federal requirement that power companies buy power from renewable energy producers.

Off the New England coast, special interests found the views from their beach front manses would be offended by wind farms, and the potential farms themselves were declared a “hazard” to aircraft, so they are not even being built.  In central California, environmentalists won’t allow some solar farms to be built and won’t allow the power cables that would deliver solar electricity to cities to be built.

The EPA still requires ethanol to be blended into our gasoline, even though not enough of that is being produced to meet EPA requirements, much that is produced is exported, and the whole charade is driving up the cost of food.

Maybe we should, in  this case, try Obama’s meme of being more like Europe, or at least more like Germany.

Growing Foreign Oil Dependency

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Amid claims by the Obama administration that we need to reduce our dependence on foreign oil—and actual Republican and conservative efforts actually to do so by opening up access to our own gas and oil supplies, protect our coal producers, and their failed effort to facilitate American purchase of Canadian oil—we get this, from The New York Times, no less.

The United States is increasing its dependence on oil from Saudi Arabia, raising its imports from the kingdom by more than 20 percent this year, even as fears of military conflict in the tinderbox Persian Gulf region grow.

The increase in Saudi oil exports to the United States began slowly last summer and has picked up pace this year. Until then, the United States had decreased its dependence on foreign oil and from the Gulf in particular.

If the Obama administration weren’t slow-walking permits for off-shore drilling, closing off Federal lands to oil and gas development, and attacking natural gas fracking, we’d be getting access to increased American oil—and a major product substitute, gas—right about now, instead of having to buy more oil from Saudi Arabia, and thereby enriching a nation that has closed off Israeli access to its airspace should our erstwhile ally want to preempt an Iranian nuclear strike by attacking Iran’s nuclear facilities.

If the Obama administration hadn’t closed off American access to Canadian oil by killing the Keystone XL pipeline, and thereby pushed Canada to sell its oil to the People’s Republic of China (which has its own purposes for getting Canadian oil), we’d have reduced further our dependence on oil from countries that don’t like us all that much.

Some Notes on Energy Subsidies

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Here are some data taken from the US Energy Information Administration’s report Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010.

The following table is excerpted from the EIA report’s Table ES4, and it shows the amount of subsidy that each energy source received along with the per centage of the total of nearly $12 billion in subsidies handed out that each energy source received.

2010 Total (millions)

Share of Total Subsidies and Support
oal $1,189 10.0%
Natural Gas and Petroleum Liquids $654 5.5%
Nuclear $2,499 21.0%
Renewables $6,560 55.3%
    Biomass $114 1.0%
    Geothermal $200 1.7%
    Hydropower $215 1.8%
    Solar $968 8.2%
    Wind $4,986 42.0%
    Unallocated
Renewables		 $75 0.6%
Transmission and Distribution $971 8.2%
Total $11,873 100%

 

This table, excerpted from the report’s Table ES5, gives an indication of the relative amount of energy we taxpayers are receiving for our subsidy.

Share of 2010 Generation (percent)
Coal 44.9%
Natural Gas and Petroleum Liquids 25.0%
Nuclear 19.6%
Renewables 10.3%
    Biomass Power 1.4%
    Geothermal 0.4%
    Hydroelectric 6.2%
    Solar 0.0%
    Wind 2.3%
Total 100.0%

 

Notice that: coal, natural gas, and oil get 15.5% of the total subsidies while producing nearly 70% of our nation’s energy; renewables get over 55% of the subsidies and produce just 10% of our energy.

As the Wall Street Journal tells us that DoE, which owns the EIA,

…warned that “Focusing on a single year’s data does not capture the imbedded effects of subsidies that may have occurred over many years” for other energy sources.

Of course.  Because if we did consider such things, we’d have to notice that renewable energy subsidies have been costing taxpayers for 40 years—since the ’70s—with next to nothing to show for it.

“Get rid of the subsidies for the fat-cat oil and gas companies,” says Democratic Presidential Candidate Barack Obama.  Ignoring the snide tone of his remark (albeit paraphrased by me), I agree—get rid of the oil and gas company subsidies.  Get rid of the alternative energy subsidies, too.  If the (renewable) energy industry cannot survive in the market on its own, this simply demonstrates that the industry isn’t ready for the market.

At least the oil and gas and coal companies, with their subsidies, are generating actual electricity, though: look at solar—it’s getting 8% of the total subsidies handed out, and generating no electricity (can you say, “Solyndra?”).  Not a watt, except for rounding error to get to that zero.

Subsidy and Food

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Here are some minor facts concerning a particular subsidy, courtesy of an The Wall Street Journal op-ed.

USDA lowered its 2012 corn forecast by 13% from last year’s, to 10.8 billion bushels, the shortest harvest since 2006, even though the planted acreage is the highest since 1937 and 4% more than last year.

only 24% of the corn crop is in good or excellent condition in the 18 major corn belt states, down from 72% just since June.

USDA’s world agricultural outlook board estimated that global corn consumption will be reduced by 38.9 million tons, with US problems responsible for ¾ of the shortage.

As a result,

Corn futures are up nearly 50% over the last six weeks.  The US accounts for 60% of global exports, and corn feeds cows, pigs, chickens, and humans through its role as a key ingredient in a broad range of foods.

Those corn futures will be realized as actual, sharp price increases that consumers will pay.  The price increase wouldn’t be so bad, but for a certain Federal subsidy.

The food-to-fuel mandate, Renewable Fuels Standard, requires 13.2 billion gallons of ethanol to be blended into the gasoline supply this year, rising to 36 billion gallons by 2022.  Fully 40% of 2011’s corn production went to ethanol, and courtesy of our EPA (though the subsidy originated in an earlier administration), and now more corn is devoted to fuel than to livestock or other foods.

But not to worry.  Despite the drought, the resulting corn crop failures, and the succeeding price increases driven by the crop failure, despite all of these hardships and negative impacts on the food supply, the ethanol makers got theirs.  The Renewable Fuels Association put out a statement, without a trace of irony, that there’s no danger of an ethanol shortage:

obligated parties under the RFS will have every opportunity to demonstrate compliance this year.

Helps to have your priorities straight.