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Energy Subsidies in the USA

March 23, 2013

Federal-Subsides 1

Source: Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

Often, when government subsidies for green energy initiatives like wind and solar power are discussed, subsidies and support for oil/petroleum are immediately introduced into the conversation. Per the EIA, however, oil is virtually not used to make electricity in the US (less than 1%). Therefore subsidies for petroleum companies, the effects of oil spills, the political instability of OPEC nations, and all the other issues associated with oil do not belong in a discussion regarding generation of electricity. In the USA oil is used for transportation fuel and home heating. Therefore, no amount of solar panels or wind turbines will affect the amount of oil we use; unless we do stupid things and allow “green energy” implementation to raise the cost of electricity. Raising the cost of electricity could very well inhibit any ability to transition away from oil for transportation fuel and home heating, and have the effect of increasing our use of oil.

U_S_-Electricity-Net-Generation-By-Fuel-2012

In general I am not a fan of subsidies of any kind, and am very open to getting rid of all subsidies. By referencing the subsidies paid to other energy sources; however, one implies equivalence with the subsidies for solar & wind power which is false; there is no equivalence (not even close). Per the EIA, on a per MWh basis we subsidize natural gas and coal by about $0.64 per MWh, and we subsidize nuclear by about $3.14 per MWh. In comparison, we subsidize wind by about $56.29 per MWh, and solar by an astronomical $775.64 per MWH. The solar & wind subsidies are orders of magnitude larger. They are not equivalent, not even in the same ballpark; and I do not see any reason to believe that the level of subsidies for solar and wind will ever decrease.

Federal-Electric-Subsidies

Source: Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

It should also be noted that when we subsidize natural gas, coal, and nuclear, we get a return.  For the subsidies we pay for solar & wind, we do not get a return.  Speaking subjectively; when we provide natural gas, coal, or nuclear with subsidies; we get thousands & thousands of gigawatt-hours of constant, concentrated, and reliable electricity that drives our economy.  When we provide solar & wind with subsidies we do not get enough electricity to pay back even as much as the initial investment; and that electricity is not constant, not concentrated, and not reliable.  In fact it has to be continuously backed up by natural gas, or nuclear, or coal just to keep the lights on.

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From → Energy Subsidies

6 Comments
  1. Very insightful and an interesting perspective on the subsidies on different types of energy. Have you read The Truth about Subsidies by Claire Tomkins?

    http://www.huffingtonpost.com/claire-tomkins/the-truth-about-subsidies_b_1913498.html

  2. I have not read anything by Claire Tomkins. I will look her up.

  3. Jerry,
    Your analysis doesn’t address/acknowledge some of the cautions in the EIA report, such as:

    ===========
    “…While the overall amount of federal subsidies and support provided per unit of overall energy consumption or production has clearly grown, simply dividing the current value of subsidies by current consumption or production does not reflect either the long-run impact of imbedded subsidies and or the future impacts of current subsidies and support that may only be starting to impact energy markets.”

    ============
    “…Direct expenditures accounted for 39 percent of total electricity-related subsidies in FY 2010 (Table ES4). These expenditures were mostly the result of the ARRA Section 1603 grant program, 84-percent of which went to wind generation. As noted, the relatively high value for this program stems from the fact that the grant program places all of the costs in the year that a project is initiated, while the existing production tax credit that the grant substituted for spread the costs of the tax credit over the first 10 years of a project’s operation. If developers return to using the production tax credit in the future, the first-year costs for each project will be much lower.”

    ==========
    “…Relative to their share of total electricity generation, renewables received a large share of direct federal subsidies and support in FY 2010. For example, renewable fuels accounted for 10.3 percent of total generation, while they received 55.3 percent of federal subsidies and support (Tables ES4 and ES5). However, caution should be used when making such calculations because many factors can drive the results. For example, many of the programs that showed the largest increases in subsidies between FY 2007 and FY 2010 are supporting facilities that are still under construction, including energy equipment manufacturing facilities that may not affect energy consumption or production for several years. Furthermore, the ARRA 1603 grant program, that allows investors to choose an upfront grant instead of a 10-year production tax credit, tended to lead to much higher overall electricity subsidy estimates for renewables in FY 2010 than would have occurred had they continued to rely on the existing production tax credit program, which does not front-load subsidy costs. Focusing on a single year’s data also does not capture the imbedded effects of subsidies that may have occurred over many years across all energy fuels and technologies.”

    • JR – Thanks for reading and commenting. I am sorry for my delayed response; my ISP was down yesterday and I was unable to access my site.

      In response to your comments, I do recognize that there are other factors to consider when analyzing the magnitude and effect of any subsidies to the energy industry; however, this does not change the reality of the numbers. My point is that the subsidies we do offer to wind and solar energy are not at all miniscule, and in fact are proportionately very large. As I indicated, I am not a fan of any government subsidies, and would be very open to getting rid of all of them.

      Unfortunately, when presenting performance & economic analyses of wind turbine and solar energy projects that demonstrate the general inability of these technologies to produce enough energy to be meaningful or economically viable (without taxpayer funding offsetting the investment losses and/or power purchase agreement that allow selling the electricity to the public at an inflated rate) I often hear from “green” energy proponents who seem to feel it is acceptable to ignore all economic and performance reality. Frequently I will get responses that sound something like – ”Well………we give billions and billions of dollars to the dirty evil oil guys……”; without any recognition of the proportions of the real situation. Again, my point is that the subsidies to wind and solar are not negligible, they do rival and even exceed the subsidies provided to other forms of energy production, and it is fair to analyze solar & wind on their economic merits compared to other forms of energy production.

      BTW – As I have indicated in other places, I am not against support for R&D efforts. With further effort we can mitigate or eliminate some of the problems with natural gas, and move away from coal while at the same time continuing to produce inexpensive and abundant electricity; which may help us to move away from petroleum for home heating and transportation fuel. There are huge advances showing great promise in the development of nuclear fission, and ultimately the “holy grail” of fusion. Geothermal systems (like the HVAC in my home) hold promise; and we can make larger strides at conservation and efficiency in our use and in our distribution system (the “grid”) If there is R&D into improving wind and solar technology to make it less expensive and more effective, that is fine, and worthy of support.

      What I am against is the headlong rush to spend ourselves into oblivion buying the currently available wind turbines and solar panels, which are demonstrably ineffective at both generating electricity and reducing the CO2 emissions that concern most people. This is not R&D; this is pumping taxpayer money into the pockets of certain favored people for political reasons.

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