Not all subsidies are created equal
I oppose all energy subsidies, including those that go to fossil fuel producers. I’m one of those cranks who believe that market dynamics, local circumstances and consumer choice should determine the right energy mix and portfolio for a company, a state or a nation – not clueless politicos or green extremists. But if you are going to subsidize some part of the energy sector, against my wishes, doesn’t it make sense to subsidize those energy answers that deliver the most bang – meaning the most btus – for the buck?
I think it does, so I’m grateful for this blog post by American Enterprise Institute scholar Steven Hayward, which sheds light on the issue by calculating how much actual, usable energy Americans are getting for each tax dollar they spend on energy subsidies, based on a recent Congressional Budget Office report showing that the lion’s share of these payments go to so-called renewables.
Here’s what Hayward wrote:
“Last week’s energy fact looked at a new CBO report which showed that non-hydro renewable energy now receives two-thirds of all federal government tax preferences, while fossil fuels only receive about 15 percent. But the situation is really much worse than it looks if you calculate how much energy is produced per dollar of tax subsidy. While the CBO report didn’t make this calculation, we did, and the results are in the chart below, which displays how much energy is produced for every dollar of tax preference. Every dollar of tax preference for non-hydro renewables produces 407,000 BTUs of energy, while every dollar of tax preference for fossil fuel delivers 66 times as much, 27 million BTUs of energy. Nuclear power subsidies—only 4 percent of total tax preferences—produce almost 26 times more energy per dollar than renewables. This is the reason renewable subsidies are both necessary to the industry, and unsustainable, at least at any scale that the taxpayer would be willing to pay. For renewables to match the output of fossil fuels at the current tax preference rate, the total tax preference would need to be $897 billion. That’s probably real money even to Obama.”
Here’s a graph that helps underscores the point:
All energy subsidies are objectionable, because they waste public resources, distort incentives and markets and empower politicos and regulators to pick winners and losers. But it’s clear from this analysis that some subsidies are even more objectionable, and even more stupid, than others.