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Federal Energy Subsidies & The Societal Costs of Energy

Michael Welch

©1993 Michael Welch

Some time ago, I presented a poster session at an energy conference at Humboldt State University that showed the advantage that the oil, gas, coal and nuclear industries received as a result of government subsidies. The session was very well received, but what amazed me the most was how little otherwise astute individuals knew about how much the energy they used truly cost them.

This column will concentrate on two facets of the issue: government subsidies and the more enigmatic hidden (societal) costs of energy, which can certainly be considered a subsidy. Basically, there are two schools of thought in the renewable energy world on government energy subsidies. First, there are those that believe that all subsidies should be removed, and that, as a result, a free-market economy will then pick and choose between available energy production methods to end up with only those energy sources that can stand on their own two feet. On the other end of the continuum, there are those that believe that we should encourage the Federal government to allocate as much money as possible to solar and other renewable energy resources (including increased efficiency) in the hopes that these funds will help renewables more quickly catch up to where the conventional energy sources are.

Many folks that are thinking seriously about this are somewhere in the middle. They realize it is overly idealistic to believe that our politicians would ever end subsidies that have been in place to a significant degree for many decades. They also realize that the very same reason will prevent large enough renewables subsidies to adequately even out the playing fields. By my way of thinking, a subsidy has merit, regardless of opposing technologies' subsidies, if it encourages new development which is considered desirable for our society, but would not get a good start on its own.

A logical, practical implementation of these beliefs would be to work hard to decrease the subsidies for less favorable technologies and then to work even harder toward leveling the playing field by increasing the subsidies for renewables and energy efficiency. At this point in time, it would not make sense to consider having equal or no subsidies as a level playing field. Infrastructure decisions and other investments have long been based on past subsidies, and these market effects could linger for decades after the subsidy itself is eliminated.

According to The Alliance To Save Energy's recent report Federal Energy Subsidies: Energy, Environmental and Fiscal Impacts, "The historical pattern of federal subsidies for energy ... refutes the notion that there is a free market in energy. If this damaging pattern is not broken, the United States may fail to achieve its energy, environmental, fiscal, and economic goals." The report is based on 1989 figures, the most recent year for which complete and reliable data could be obtained. According to the report, 58% ($21 billion) of all energy related subsidies directly promotes the use of fossil fuels and 30% ($11 billion) is earmarked for nuclear, while energy efficiency receives only 3% and emerging renewable sources account for only 2%.

The report points out that our energy subsidy pattern is damaging in several areas. First, it represented a heavy tilt toward conventional energy supply and away from energy efficiency. It is becoming increasingly apparent that efficiency and conservation are the cheapest and most environmentally effective means of meeting our future energy needs. Second, it favors mature energy resources like fossil fuels, nuclear fission and hydroelectric that should already be able to stand the test of the market over emerging technologies that could truly use a boost to get going. Third, it represents poor environmental policy because it strongly favors polluting and environmentally risky technologies over safer energy sources. And last, this subsidy pattern can be translated to lower energy bills for consumers (at least in the short run). But if you add on any associated tax burdens to the public, the heavily subsidized technologies end up being pricier in the long run. The artificially inexpensive energy rates could ultimately

Power Politics discourage the development of new technologies which may prove to be cheaper.

Other Costs of Energy

And then, there are the hidden, or societal costs of energy. WARNING: THESE FIGURES ARE STAGGERING, & MAY INDUCE LIGHTHEADEDNESS IN THE FAINT OF HEART ... or at least really tick you off. Though hard to specifically identify and just as hard to put in financial terms, these hidden costs include damage to the environment, environmental illness as the direct result of pollution from energy industry activities, economic and employment effects, damage to our country's buildings and infrastructure as a result of acid rain, and the costs of military efforts to protect U.S. control of the world's oil supplies. Thanks to the American Solar Energy Society's (ASES) 1989 Roundtable, Michael Nicklas has made an excellent stab at these annual figures (the ranges indicate the difference between various information sources researched). See table below.

When you add in the range of estimated annual government subsidies for energy at $43.3-$55.2 billion, that means that the total costs of energy that most of society does not know about ranges from $109.2-$258 billion, an absolutely staggering figure. This figure comes to over $1000 per U.S. citizen per year!

According to Nicklas, our free market economy would operate best when both the buyer and the seller have complete knowledge of which choice will benefit them the most. Obviously, when most of us make our energy

Hidden Cost of US Energy


Health Impact



Radioactive Waste

Crop Loss


$20 $40 $60 $80 Cost in Billions of Dollars per Year

I Minimum □ Maximum M Average choices, we are thinking of our immediate out of pocket expense. Who stops to consider when they pay their utility bill, that sulfur dioxide from coal burning plants cost Americans $82 billion per year, or that farmers are suffering $7.5 billion per year in crop damage, or that it will cost us $31 billion per year to deal with nuke plant decommissioning and radioactive waste? If the true costs of energy were more closely associated with our individual energy needs, the best long-term solutions would more likely result in increased energy efficiency, conservation, and, of course, renewable energy use.

Another report, The Going Rate: What it Really Costs to Drive published by the World Resources Institute (WRI), concentrates on the hidden and subsidized costs of our motor vehicle transportation system. According to the report, "Motorists today do not directly pay anything close to the full costs of their driving decisions The net effect is to make driving seem cheaper than it really is and to encourage the excessive use of automobiles and trucks." According to the WRI report, the hidden and subsidized costs of driving are at least $300 billion per year.

When you figure that Americans drive two trillion miles per year, this comes to an additional 15 cents per mile, average cost. If you estimate that the average mileage on an American owned vehicle is 20 miles per gallon, that means that our society is paying an additional $3 for every gallon of vehicle fuel consumed.

Let me ask you, what would your driving decisions be like if gasoline prices at the pump were to be increased by $3 per gallon? Mass transportation, bicycling, and even just staying at home would begin to look much more attractive. So, when you go out and buy your remote energy system or your electric vehicle or your bicycle instead of paying the energy industry for their standard fare, you can feel good about your decision for more reasons than just becoming energy independent. You can truly justify your decision based on realistic economic figures, as long as you consider more than just your immediate out of pocket expenses. The only problem with this analysis is that you and I are still paying big bucks for others' less sound decisions.

How many energy lobbyists does it take...

I don't know the exact number, but they were all in Washington this spring, and their mission was accomplished. President Clinton's proposed BTU energy tax appears to have gone by the wayside. His proposed tax, while raising $70 billion for deficit reduction, looked meager when compared to


the energy costs outlined above. The way I hear it, the special interest lobbyists came out of the woodwork to stand up for the "rights" of the oil and transportation industry. When combined with Republican efforts to discredit the Democrat President with their inflated "tax & spend" rhetoric, the BTU tax plan didn't stand a chance.

The answers to our woes in Washington are becoming clearer and clearer every year: We've got to get rid of the lobbyists and reform campaign financing. With money and influence-peddling out of the way, our government could finally get back to work for the good of us all. It does look, however, like there could be an energy tax in our future, albeit somewhat smaller than that proposed by Clinton. A transportation tax has been proposed which will raise Federal transportation fuels taxes from 14.1 cents per gallon to 21.4 cents. The whole point for the President is to use these taxes to decrease the deficit.


Author: Michael Welch, c/o Redwood Alliance, POB 293, Areata, CA 95521 voice: 707-822-7884 • fax: 707826-9582 • bbs-data: 707-822-8640 xfec


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