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Time To End All Energy Subsidies – Here Is Why
It is time to finally end the quagmire of outdated energy subsidies in the U.S. They were built up over a century of programs once intended to help develop innovative ideas for energy development. But now practically all of them are simply aiding and abetting the flow of money to companies and individuals no longer deserving to feed at the government trough.
Assuming governments don’t do something foolish like trying to enable the damaging and hopelessly impractical Green New Deal, no one alive today will ever see energy shortages in America again. Powerful new technologies have allowed our nation to move from worrying about running out of oil to no longer having sufficient space to store all the oil and gas we are capable of developing.
Of course, the problem of over-abundance has been exacerbated by the government’s hysterical reaction to the Chinese Coronavirus that shut our economy for the past two months. Soon, that will pass and our abundance will settle back to normalcy. In the process, there will be a ‘survival of the fittest’ shakeout in the energy sector with some companies having to close their doors, but that ultimately is the way of the world for all industries.
While the vast amounts expended on dozens of subsidy-type programs in the energy sector are near impossible to pin down, the programs developed long ago can give us an idea of wasted tax dollars. Our colleague, American lawyer, policy analyst, and columnist, Peter Ferrara, was able to track the names of 187 different means-tested welfare programs in his 2015 book Power To The People. Obviously, many of them should have been phased out long ago but, as we all know, government programs rarely die. We will not attempt to uncover the breadth of all energy subsidies currently in operation but rather to make a case that it is time to end each and every one of them, no matter the technology.
First, there is the colossal waste of taxpayer monies on so called renewable energy, in particular, wind and solar power. These technologies are mature enough that subsidies to them should have ended long ago, leaving them to stand, or more likely fall, on their own in a competitive marketplace.
Without your federal and state tax benefits supporting them, there would be no solar or wind industry of any significance. While they may, at times, seem cost-competitive with fossil fuels due to the extremely wide and complicated web of government policies biased in favor of renewable energy, consumer prices increase every time. The renewable portfolio mandates requiring utilities to invest in renewables force all ratepayers to subsidize them whether we want to or not.
For years now, the Energy Information Agency (EIA) has shown a combined federal benefit for wind and solar of $2.8 billion per year. It comes through a tax credit of 2.4 cents per kilowatt-hour produced, as well as a deduction of 30% of the installation cost. These benefits were supposed to expire years ago but did not. Now they are set to expire in 2021 but don’t hold your breath on that one either. A 10% tax credit on solar and geothermal installations would still remain, as well.
The situation in Canada is also nonsensical. There, the federal government will spend more than $2.4 billion over the next four years to promote the production and use of “clean energy”, especially solar and wind power. Samples of wind & solar subsidies in Canada include:
> R&D funding
> Funding for demonstration projects
> Grants, contributions and low-interest loans to suppliers or purchasers
> Preferential procurement practices
> Tax incentives (e.g., credits, deductions and exemptions that are not provided to other firms)
> Preferences granted through regulation
> Preferential, above-market utility rates, e.g., “feed-in-tariffs,” often guaranteed for the life of the contract
> Restrictions on property and other taxes on solar and wind project sites
Economist Dr. Andrew Reed concluded that variable renewable energy “subsidies and other hidden costs would likely more than double the ‘real’ costs to society for wind and solar in Canada.”
The U.S. states are even more aggressive in helping wind and solar. At the end of 2018, 29 states and the District of Columbia had renewable portfolio mandates collectively accounting for 63% of retail electricity costs. What this means is that these states require every electric utility to include a certain amount of wind and solar power in their energy mix regardless of the cost. And, of course, for every kilowatt-hour the utilities now produce from intermittent and expensive wind and solar plants, they must create an additional kilowatt-hour of capacity from reliable fossil fuels to account for the periods when the sun does not shine or the wind either does not blow or blows too hard (at which point, the blades must be feathered or they will break).
Electricity consumers across America are being severely punished by the cost of this energy that has yielded no benefit to the service they receive from the utility.
And all this in the name of protecting the environment, which, as Michael Moore demonstrated in his superb documentary, Planet of the Humans (over 8 million views on YouTube since April 21), is being severely damaged by these supposedly green energy sources.
Moving on to the even larger elephant in the room: historically, subsidies granted to the fossil fuel industry were designed to lower the cost of fossil fuel production and incentivize new domestic energy sources. Today, U.S. taxpayer dollars continue to fund many fossil fuel subsidies that are outdated, but remain embedded in the tax code. A sample of these include:
> Intangible Drilling Cost Deductions
> Percentage Depletion Deductions
> Non-Conventional Fuels Tax Credit
> Credit for Clean Coal Investment
> Foreign Tax Credits
> Master Limited Partnerships
> Domestic Manufacturing Deductions for oil
> Master Limited Partnerships
> Clean Energy for America Act
Add to these, financial gifts from the U.S. Export-Import Bank and the Overseas Private Investment Corporation.
Not all of the subsidies that oil, coal and natural gas industries receive are obvious, and this is part of the reason that they have been going on forever, long after we went from a nation thought to be running out of oil to one now awash in it.
In seeking fiscal reforms that have the potential to save taxpayer dollars, phasing out subsidies for the fossil fuel industry should be a priority for federal policy makers. While regulations that unnecessarily hamper fossil fuel development should continue to be cancelled, especially those that are founded on the nonsensical climate scare, subsidies aid an industry that is mature and well-established, with abundant private financing. Industry representatives argue that renewable energy gets orders of magnitude more in subsidies and, in support per kilowatt-hour generated, this is indeed true: solar and wind power get 326 and 69 times more in subsidies than coal, oil and natural gas per amount of energy generated, according to an article published in Forbes earlier this month.
But two wrongs do not make a right. Our nation no longer needs a red cent spent on energy subsidies when we are already the richest energy-producing nation on Earth.
Note: Portions of this article were excerpted from Climate Change Reconsidered II: Fossil Fuels (CCRII: Fossil Fuels), produced by the Nongovernmental International Panel on Climate Change (NIPCC) published by The Heartland Institute, with permission of the editors Joseph Bast and Diane Bast. The authors strongly recommend the book for a complete exposé of the fallacies behind the nation’s energy subsidies.
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