Assistance to Energy Companies Should be Temporary

“A LEADING CANDIDATE FOR CANCELLATION”

by Dr. Jay Lehr & Tom Harris, ©2020

https://www.congress.gov/bill/116th-congress/senate-bill/4041/all-info?r=2&s=1

(Jun. 26, 2020) — Friends of the Earth (FOE) and other environmental groups have ramped up their opposition to subsidies for the fossil fuel industry during our recovery from COVID-19. In their June 24 news release, FOE attacked the SAVE Jobs Act proposed by Senator John Cornyn (R-TX) which aimed, according to FOE, “to further subsidize the oil and gas industry.”

FOE are both right and wrong.

They are right in that fossil fuels are a mature industry and so subsides to them should have ended long ago, leaving them to stand or fall on their own in a competitive marketplace. America no longer needs energy subsidies when it is already the richest energy-producing nation on Earth.

But environmentalists are misguided in that they do not advocate an end to subsidies on so-called ‘green’ energy sources such as solar and wind power. After all, as Michael Moore demonstrated in his important new film, Planet of the Humans, solar and wind power are among the dirtiest energy sources on Earth when you consider how they are made, erected, operated and decommissioned. And, of course, industrial wind turbines kill countless birds and bats across the world—6–18 million each year in Spain alone, according to the Spanish Ornithological Society.

Anti-fossil fuel activists are also wrong because, while subsidies should be unnecessary, and indeed are undesirable, in an economy left to operate naturally in a truly free market, the government have grossly distorted the market by mandating the temporary shutdown of otherwise successful energy companies. This has pushed many to the point of bankruptcy, laying off thousands of workers. Short-term government assistance makes sense in this case to compensate for the disruption in the market caused by the government itself.

But as soon as companies can stand on their own again, all government subsidies and financial assistance to the energy sector should be cancelled. They suck billions of dollars each year from the public purse that could be used to help society recover from the highest unemployment rate since 1939.

The quagmire of outdated energy subsidies in the U.S. were built up over a century of programs once intended to help develop innovative ideas for energy development.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 merely perpetuating the flow of money to companies and individuals no longer deserving to feed at the government trough.

Assuming governments don’t do something foolish, no one alive today will ever see energy shortages in America again. New technologies have allowed the nation to transition from worrying about oil shortages to no longer having sufficient space to store all the oil and gas it is capable of producing.

Subsidies granted to the fossil fuel industry were designed to lower the cost of production and incentivize new domestic energy sources. Despite the fact that many of these subsidies are outdated, they remain embedded in the tax code, in part because subsidies to oil, coal and natural gas industries are not obvious. While regulations that unnecessarily hamper fossil fuel development should continue to be cancelled, subsidies aid an industry that is mature and well-established, with abundant private financing. Phasing out subsidies for the fossil fuel industry should be a priority for federal policy-makers as soon as companies have recovered from the immediate crisis.

Industry representatives argue that renewable energy gets orders of magnitude more in subsidies and in support per kilowatt-hour generated. This is true: solar and wind power get 326 and 69 times more in subsidies than coal, oil and natural gas per amount of energy generated. For years now, the Energy Information Agency 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.

Free-Photos, Pixabay, License

The U.S. states are especially 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 cost. And 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 conventional power plants 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, wind turbine blades must be feathered or they will break).

Without 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.

This is all a colossal waste of taxpayer monies. Like fossil fuels, wind and solar power are mature enough that subsidies to them should have ended long ago, leaving them to stand or fall on their own in an open and free competitive marketplace.

During the months, perhaps years to recover from the COVID-19-induced shutdown, governments will be looking to eliminate non-essential expenditures. Energy subsidies should be a leading candidate for cancellation.

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Dr. Jay Lehr is Senior Policy Advisor with the International Climate Science Coalition (ICSC) and the former Science Director of the Illinois-based Heartland Institute. Tom Harris is Executive Director of ICSC.

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