Globe & Mail takes revealing look at energy subsidies

A Sept 17, Globe & Mail, Report on Business article (by Globe Reporter
Neil Reynolds) provides an interesting look into the subsidies provided to various forms of energy in the U.S. Reporting statistics on energy subsidies from the April 2008 EIA study "Federal Financial Interventions & Subsidies in Energy Markets 2007", Reynolds questions the textbook rules for economics since, despite substantial subsidies, renewable energies still make up a minor portion of our generation capacity.

On the other hand, the EIA analysis suggests that government
subsidies don’t deliver the increased energy production that people
expect from them. In its report, for example, the agency notes that
Congress provides far more subsidies for renewable energy than for any
other single category of energy – giving "renewables" one-third
($4.9-billion) of its energy "interventions" in 2007. It provides less
than half as much ($2.1-billion) for oil and natural gas, less than
one-quarter as much ($1.2-billion) for nuclear. Because "renewables"
provide essentially negligible quantities of energy, the subsidies that
sustain them show a commensurate impact (that is, almost nil) on energy
production.

For comparison purposes in production of electricity, the EIA
converts the contribution of the various forms of energy into
megawatt-hours and calculates the relationship between the different
subsidies that Congress now gives to all these forms of energy. Coal
gets 44 cents per megawatt-hour. Oil and natural gas get 25 cents.
Nuclear gets $1.59. Hydroelectric gets 67 cents. Wind gets $23.37.
Solar gets $24.34. Yet, the EIA notes, wind and solar contribute "less
than 1 per cent of total net [electricity] generation in the country" –
even though production has tripled in the past three years.

The EIA conducted the same exercise with energy subsidies across the
board, in this case using British thermal units. In this comparison,
coal gets 4 cents in subsidies per million BTUs. Oil and natural gas
get 3 cents. Refined coal – "synthetic fuel" – gets $1.35. Ethanol,
however, gets $5.72. Although already widely discredited as an
alternative energy, ethanol still gets four times the federal support
given to advanced forms of clean coal and more than 150 times the
federal support given to fossil fuels, of which the U.S. has a 1,000
years (or more) of reserves.

Reynolds and the EIA report both focus on the fact that despite energy subsidies have doubled over the past eight years (’99 – 2007), actual energy production has remained the same. The report then points to a variety of factors that have made increased production of energy unlikely to impossible.

A variety of factors unrelated to prices or subsidy programs such as
State and Federal statutory limitations imposed on onshore and offshore
oil and natural gas exploration in environmentally sensitive areas,
uncertainty regarding future environmental policies possibly
restricting future emissions of greenhouse gases, and declines in
future production from previously developed domestic oil and natural
gas resources may have impeded growth in energy production despite
modest growth in consumption.

It would seem that in some cases, the government is working at cross purposes with itself by providing expanded subsidies on one hand and then restricting the ability of the energy industry to capitalize on the opportunities that funding provides.

Reynolds also offers this interesting bit of editorial on the nature and reach of the choice to subsidize certain energy sources.

Fossil fuel subsidies? Coal, oil and gas production will continue
without them. Alternative energy subsidies? Wind, solar and ethanol
could well disappear – without altering energy production in any
significant way.

 

17. September 2008 by
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