by Michael Welch
Giant energy-related companies continue to feast on the abundance of fat government subsidies, while renewable energy industries scramble for meager scraps, trying to find the means to make RE the commonplace energy source that it should be. What are government subsidies for, and how do they impact business in the United States, including our slowly growing renewable energy industries?
The original goal of most subsidies is to lower the consumer cost of the targeted product. Subsidies are designed to work within basic market economics of supply and demand, supporting businesses so they will develop, manufacture, and sell more of a product to increase supply (such as R&D incentives) or stimulating consumer demand (such as PV rebates).
Occasionally, subsidies are used to discourage production of a product to give a competing product an advantage or to stabilize prices for the target product. An example of this is when some dairy farmers are paid to not bring milk to market, which manages supply to keep prices up so other farmers can make a living.
Most subsidies have a dollar amount associated with them and are "direct," since the payments usually go straight to the recipient. Indirect subsidies include just about everything else, like tax breaks and international trade barriers. But in all cases, it is important to remember that somebody (taxpayers) or something (like the environment) is paying the price of subsidies.
There are other less tangible means of subsidizing products and industries. For example, federal issuance of inexpensive or free leases for drilling for natural gas or crude oil on public lands and waters makes it cheaper for oil companies to produce more of their end product. Allowing the flooding of vast watersheds makes it possible for utilities to use dams to provide hydro electricity. While the government incurs little or no monetary expense for allowing the use of public spaces, there are larger costs to the general citizenry—such as loss of land that is held on behalf of the public good and loss of habitat that is important to non-human species.
An example of a very intangible subsidy is the Price-Anderson Act, which limits the liability of nuclear power plant utilities in the event of an accident. The only way we will find out the cost of this subsidy is if a major U.S. nuclear accident occurs, in which case the largest share of the burden (potentially hundreds of billions of dollars) will be shifted to taxpayers. Yet this very subsidy is crucial to keeping the industry alive, since nuclear utilities would not accept (and could not afford) the risk on their own.
The most important result of subsidies should be to give favor to a product or industry that needs a boost to break into a market, or to make a product more readily available. This assumes that availability is needed or desirable by society. Green energy technologies that are promising or developing too slowly are appropriate targets for subsidies. Given the right breaks, solar, wind, and alternative transportation industries can be boosted to help replace nonrenewable technologies, furthering the environmental and sociopolitical goals that are important to the public good, like reversing human-caused climate change and decreasing acid rain, and eliminating wars over diminishing oil resources.
In theory, "mature" technologies, which have approached or achieved their pinnacle of development, don't need the subsidies that newer technologies can benefit from. In fact, subsidizing those mature technologies can impede the advancement of desirable, immature technologies when the technologies are competing for the same market share. In the energy industry, subsidizing fossil fuel and nuclear technologies just makes it more difficult for renewable technologies to get the momentum they need.
But "need" is a very subjective concept and is often misused. After a few decades of government handouts, many businesses that have become accustomed to receiving public funds make it their goal to continue getting subsidies. Corporations are the worst of the bunch, because by design they are just money-making vehicles—nothing more, nothing less. To them, subsidies are just another source of money that they can tap into.
Ironically, the bigger and more powerful the industry, the more likely it is to get government handouts—the exact opposite of the way it should be working. For example, the 2005 federal energy bill included $8.1 billion in tax breaks, with mature fossil fuel and nuclear industries receiving 93% of the subsidies and renewable energy industries receiving only about 7%. The bill included about $80 billion in authorized direct spending largely being paid out to nonrenewable-based industry. Indirect subsidies were also included in the bill, like exempting "hydraulic fracturing," a particular natural gas well-drilling method, from the Clean Water Act. These inappropriate allocations make it very difficult for renewable energy to get a solid foothold in the energy market.
Determining appropriate need is where government subsidy programs often get on the wrong track, helped, of course, by fat campaign contributions, bevies of aggressive lobbyists, and the "revolving door" syndrome that often puts industry heads in charge of the very agencies designed to regulate them (which is also a kind of indirect subsidy). The constant pressure by business interests for our government to take care of the business's particular needs results in passing massive government handouts to mature industries—many of which are at odds with national environmental and social priorities.
Good, Bad, or Just Ugly
Government subsidies are, depending upon any individual's priorities, one of the best government ideas ever to be implemented, an evil to be tolerated, or very bad policy.
People adept at playing the stock market have learned to keep an eye out for many different indicators, and try to predict which corporations are going to be the beneficiaries or losers of government funds, both contracts and subsidies. Successfully making such predictions gives the opportunity to buy or sell stocks before prices change as a result of subsidies. Other investors who buy stock for longer-term investments benefit when their companies are subsidized— it makes it more likely that their dividends and stock values will go up, while often bringing future payoffs for new and successful products.
Free-market advocates are certain that subsidies, and nearly every other kind of government meddling in business affairs, are the worst thing that can happen in our economy. They believe that the most appropriate products, industries, and technologies will automatically win out on a truly competitive and even playing field. But this would require a nearly pure economic system devoid of government interference, along with highly informed consumers—both highly improbable situations under any known form of government.
Under the current political system, the reality is that corporations are too powerful to be stripped of their unwarranted subsidies, so if and until control of politics and government changes, advocates for a clean and safe future must swallow a bitter pill and continue to ask that a share of government money be allocated to fund their priorities.
In many cases, our government's system of subsidies is failing to support its citizenry's efforts toward a more sustainable future, and this is going to be difficult to change. A recent example of this is the 2007 Farm Bill, which was passed in the House, and now has the blessing of Senate leadership. Massive efforts by progressive activists and leaders were put into trying to remove the billions of dollars in subsidies for corporate agribusiness, which is already profitable, instead of supporting the independent family farms that continue to struggle. But corporate America prevailed in their efforts to include those unneeded payments.
Two major areas need to be addressed to bring the system of subsidies back on track. First, political power needs to be removed from the hands of big business, and put back into the hands of the citizenry. Second, until that happens, the renewable energy industry must continue fighting for consumer incentives, research and development funds, and other forms of assistance to be on a fair playing field with the fossil fuel, nuclear, and transportation industries. Until then, it will be difficult, if not impossible, to adequately address solutions to climate change and other environmental problems that are so important to the public welfare.
Michael Welch ([email protected]) has been working for a clean, safe, and just energy future since 1978 as a volunteer for Redwood Alliance and with Home Power magazine since 1990.
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