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Research Desk counts: How much does the U.S. subsidize clean and dirty energy?

By Dylan Matthews

jeirvine asks:

I'd love to see some graphics on where all US Gov't subsidies (tax breaks, incentives, direct funding) for energy go -- dirty vs. clean.

The Environmental Law Institute did a study (PDF) on this last year, tallying up how much the U.S. spent, either in grants and direct spending or tax subsidies and foregone revenue, to support fossil fuels and renewable energy from fiscal years 2002 to 2008. The results weren't particularly surprising; fossil fuels receive more, and most renewable energy money goes to corn ethanol, which is of questionable value in fighting climate change:

federal_energy_subsidies_by_type,_fy2002-2008.png

The data is distressing at a global level as well. A new Bloomberg New Energy Finance study finds that all the world's governments spent $557 billion to subsidize fossil fuels in 2008, while spending only $43-46 billion to subsidize clean energy. The U.S. and Europe made up most of the latter figure, with Europe's "feed-in tariffs" (PDF), which require utilities to buy clean energy and are considered one of the more effective means of spurring renewable energy investment, making up most of its share.

By Dylan Matthews  |  August 4, 2010; 3:02 PM ET
Categories:  Energy  
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Comments

As a follow-up, could you report on any available estimates of this differential level of subsidy on energy (especially electricity) prices? If the subsidy magnitudes were reversed, so that renewable subsidies were 7 x fossil fuel subsidies, how much of the difference in price per kwh could be eliminated? Also, what about nuclear? Is that a traditional renewable?

Posted by: rwclayton7 | August 4, 2010 3:10 PM | Report abuse

Thanks for the answer. And I'll echo rwclayton7's interest in knowing how much these subsidies skew the costs. Solar is gaining in price competitiveness. Would a slight change in subsidies put it over the top?

Posted by: jeirvine | August 4, 2010 3:16 PM | Report abuse

Nuclear isn't a renewable resource, and isn't treated that way in energy subsidies. One benefit to cap and trade or carbon pricing for the nuclear people is that it would help them out as much as it helps out the renewables.

It should also be noted that efficiency improvements, which are effectively zero carbon, aren't subsidized like renewables. That would be a good policy change, absent some sort of carbon pricing.

Posted by: mschol17 | August 4, 2010 3:28 PM | Report abuse

I work for an energy company with a portfolio of wind, nuclear, gas, and coal electric generating plants. This is our production cost for generating a kwh of power: Coal 2.3 cents, gas 2.7 cents, nuclear 4.7 cents, and wind 23.5 cents. These costs include fuel, operation and maintenance, and capital costs. It does not include any tax breaks or subsidies. The only reason that we are building more wind turbine sites is because certain states are mandating that a percentage of our electrical generating capabilities be from renewable resources. Plus we are allowed to pass the increased cost on to our customers and the pictures of windmills looks good on the cover of our annual report.

Posted by: cummije5 | August 4, 2010 4:04 PM | Report abuse

I'd be interested in seeing how "fossil fuels" breaks down into coal, oil, and natural gas.

Posted by: tl_houston | August 4, 2010 4:16 PM | Report abuse

Answering my own question (that was easy):

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf

As of 2007, of $5.45 billion in fossil fuel subsidies, $3.3 billion, or about 60% went to coal and the rest to oil and gas.

For comparison, in 2007, renewables got $4.875 billion, most of that for ethanol.

The 2007 snapshot is, IMO, a better representation of current policy than a 2002-2008 average.

Posted by: tl_houston | August 4, 2010 4:31 PM | Report abuse

My quick stab at answering my own question, using the prices cummije5 reports and data on overall generation from the EIA website here http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html

suggests that the effect is on the order of about 3 cents per kwh. In other words, if we took the net annual subsidy to fossil fuels (about $9 billion a year) and transferred it to renewables, the price of fossil fuels would rise by about 3 cents per kwh while renewables would fall by about 3 cents per kwh.

Posted by: rwclayton7 | August 4, 2010 4:38 PM | Report abuse

rwclayton7's question is answered in table ES5. The absolute dollar amount of subsidies for wind and solar power generation is relatively small, but it's huge on a per-kW-hr basis, $23+ and $24+ respectively. For comparison, the subsidy for oil and gas used in power generation is 25 cents/kWh. For conventional coal it's 44 cents. "Refined coal", which I understand to by synfuel, gets a whopping $29. Nuclear gets $1.59.

Posted by: tl_houston | August 4, 2010 4:48 PM | Report abuse

much as I want to see more subsidies for renewables and especially conservation, I think the chart should also include subsidies per btu or KW generated. Unfortunately I think that renewables will be much high per unit of energy produced than fossil fuels. Of course the are carbon neutral unlike fossil fuels so that cost of carbon generated is not figured in the unit cost of energy.

--TL Houston answered my question Thanks...

Posted by: srw3 | August 4, 2010 5:28 PM | Report abuse

Yeah, it appears that virtually the entire cost of solar and wind power have to be subsidized in order to make them competitive.

And correction: The figures I quoted were per megawatt-hour, not kWh.

Posted by: tl_houston | August 4, 2010 5:38 PM | Report abuse

Until utilities are charged the true price of the pollution they produce, coal and gas will always win.

Posted by: mschol17 | August 4, 2010 5:50 PM | Report abuse

Government failure, exhibit #878.

If you can't get a carbon tax or cap and trade, at least FREAKIN QUIT SUBSIDIZING DIRTY ENERGY!!!!

I see we occasionally subsidize tobacco farmers too (and then complain about smoking being a public health problem - which admittedly it is). Not huge amounts, but why a single penny?

http://farm.ewg.org/progdetail.php?fips=00000&progcode=tobacco

I also see we subsidize corn producers, which leads to lots of cheap high fructose corn syrup. Then we worry about the rising healthcare costs - to the government and elsewhere - from diabetes and obesity.

Instead of legalizing (and perhaps taxing) the various types of drugs out there, we instead spend billions to lock away people on account of what is basically a lifestyle choice, all the while fueling chaos in Mexico (and then we send money there to fight the drug lords). Maybe the goal of this has been full employment for lawyers, police and prison guards, albeit to the detriment of everyone else.

The government decides terrorists are a huge problem. It then decides to undertake military invasions of countries which (not always) have a few notorious terrorists living there, effectively (at great expense) taking on a huge advertising campaign on behalf of the terrorists.

All these failures take resources out of the private sector, resources which almost certainly would have been put to better use.

Sometimes the reason to oppose government intervention isn't that government cannot possibly help, but that in real life it often fails and on many occasions government intervention actually manages to be counterproductive.

Posted by: justin84 | August 4, 2010 6:32 PM | Report abuse

By the way...

http://www.marginalrevolution.com/marginalrevolution/2010/08/sentences-to-ponder.html

Posted by: justin84 | August 5, 2010 9:44 AM | Report abuse

@justin84

I think the left agrees with libertarians that when possible desirable things should be done by individual effort. If these produce positive externalities -- a better economy for everyone -- that's great. It's when individual efforts produce negative externalities that some collective effort at remediation of these externalities is required. This is not because the collective effort -- government intervention, in practice -- is efficient, but because it sucks to bear someone else's negative externalities. And if we can't manage collective effort -- the aim of the Republicans at the moment is to ensure that we can't -- then for crying out loud let's stop collectively screwing things up. Your examples are all good.

Posted by: dfhoughton | August 5, 2010 10:17 AM | Report abuse

dfhoughton,

Speaking of screwups, here's another one. What is one of the key economic problems? Homeowners with no equity. And look at what FNMA comes up with (I wonder if Ezra already posted this somewhere)...
http://washingtonindependent.com/93795/the-return-of-the-1000-down-mortgage

Anyway I understand the externality argument. I'm just extremely discouraged by the government's propensity to do the wrong thing.

Take global warming. Being generous to the conservatives, lets assume carbon emissions have a 65% chance of causing undesirable consequences, 30% of causing no change, and a 5% chance of causing desirable consequences. Nevermind the general view of scientists is more like 95%/4%/1% respectively.

The government needs revenue. 99% of economists agree that the income tax weakens the economy, at least to some degree (running from near zero impact to a large impact) by discouraging work effort and investment and encouraging productive resources to flow to reporting, enforcement and tax avoidance/evasion uses.

An obvious policy appears despite the uncertainty surrounding climate change - shift revenue collection from income taxes to a carbon tax.

Unfortunately, we are actively spending tens of billions of dollars - dollars that are currently being raised through the distortionary income tax (now and in the future) to subsidize dirty energy.

So the rational policy choice is to shift taxation away from income and towards dirty energy consumption. Responding to an incentive to make sure constituents have access to cheap energy, the actual policy we have is to spend far more money promoting dirty energy use.

Given the actual failure of policy over decades, perhaps it would be better that the government did not have the power to subsidize either activity, so that a minimum it wouldn't be subsidizing the wrong one.

Posted by: justin84 | August 5, 2010 12:54 PM | Report abuse

Dirty energy brings in special tax revenues. It is the SUM of these and the (much smaller) subsidies that one must look at if one really wants to understand.

The dirty energy on which government takes the biggest profit appears to be natural gas. That is why gas-fired plants spring up so quickly and -- with exceptions such as the Kleen Energy one, which blew up during construction, killing six workers -- with so little fuss.

Usually it's as quick and subtle as the insertion of a mosquito's proboscis ...

Posted by: GRLCowan | August 5, 2010 2:11 PM | Report abuse

Its important to remember that the subsidies in the graph are over a 7 year period (2002-2008) and that the fossil fuel and renewables subsidies are in the end mostly for transport fuels, not electricity. Also, these subsidies don't net out the taxes collected on the federal excise tax on gas.

Looking in more detail at electricity, where coal and real renewables play a role, the subsidies are much less weighted to coal on a $/kWh basis. Over the 7 yr period, $17.5bn in tax and direct subsidies went to coal while $5.8bn went to renewable electricity sources (this is from the data behind the graph above). During that period, coal generated 13,891 billion kWh and non-large hydro renewables generated 657 billion kWh. So the subsidies for coal were 1/10 of a penny per kWh while for renewables it was 9 times as much.

Since renewable power generation is increasing rapidly since 2007 (up 55%), that subsidy for renewables is also increasing dramatically because new renewable power gets $0.02/kWh in tax credits and $0.015/kWh in tax benefits from accelerated depreciation.

The problem still remains that the costs of renewables are still higher than gas and coal fired generation. Wind costs have levelled off, so they are only competitive if gas prices go back up to where they were in 2007 and 2008. Solar costs are still declining, but they will need another 3-7 years to grid parity in most of the country including their subsidies.

Additionally, coal and gas fired generation offer the benefit of being available whenever needed, unlike wind and solar. Until electricity storgage comes dramatically down in cost (10+ yrs), we will still need a majority of power generation from coal and gas or nuclear. New nuclear would be great, but cost is an unknown and fears make new nuclear a difficult prospect at best.

Posted by: ez718 | August 5, 2010 3:53 PM | Report abuse

23 cent wind is absurd. I work for a wind Independent power producer, which means my company's profits are comparatively earned rather than legislatively guaranteed. This means we work hard to keep costs down and power plant performance very high. OUR wind prices are around 5 to 7 cents. I mean, everyone here realizes that even cape wind is cheaper than 23 cents, right? For that power price you can make PV work in Seattle.

Posted by: mikegreczyn | August 5, 2010 8:36 PM | Report abuse

The very fact that somewhere, some PUC signed off on letting a utility build and construct a wind project so poorly conceived that it costs 230 bucks to produce a megawatt hour and let them rate-base it to their customers for a guaranteed return is a testament to how broken energy markets in this country really are.

Posted by: mikegreczyn | August 5, 2010 9:07 PM | Report abuse

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