The government has been picking energy winners and losers for a long time already. (Photo by Shutterstock.)
Now that renewables are receiving some of the same incentives that fossil fuels have enjoyed for nearly 100 years, we’re suddenly being inundated with calls for a purely “free-market” approach to energy development from politicians on the right and companies concerned about the growth of clean energy.
Their arguments make for good sound bites. But if we take a look at the history of energy development in the U.S., it’s very clear that we’ve never had a truly “free” market. In fact, all of the technologies that dominate our energy system today were given special incentives by the government in order to get them to commercial scale.
According to a recent report from the venture capital firm DBL Investors, the U.S. coal, oil, gas, and nuclear industries have cumulatively taken in more than $630 billion in tax credits, land grants, research and development (R&D) programs, and direct investments from the government. That far surpasses the roughly $50 billion in government renewable energy investments (wind, solar PV, solar thermal, geothermal, biofuels) through these same mechanisms over the decades, according to the report.
But when renewable energy is given similar incentives — helping double the penetration of non-hydro renewable electricity since 2008 — the energy free-marketeers come out of hiding and lament how we’re supposedly “picking winners and losers.”
The Republican Party’s platform released this week is a perfect example:
Unlike the current Administration, we will not pick winners and losers in the energy market-place. Instead, we will let the free market and the public’s preferences determine the industry out-comes. In assessing the various sources of potential energy, Republicans advocate an all-of-the-above diversified approach, taking advantage of all our American God-given resources. That is the best way to advance North American energy independence.
Sounds pretty straightforward. However, the RNC’s platform is very bullish on maintaining use of coal, a resource that is declining in the U.S. because of … current market forces.
According to the Energy Information Administration (EIA), we’ve seen a 20 percent drop in coal generation over the last year. That decline has been “primarily driven by the increasing relative cost advantages of natural gas over coal for power generation in some regions,” wrote EIA.
But when market forces move in the wrong direction for coal supporters, that is apparently when it’s okay for government to intervene. According to the RNC’s platform, the party wants to use the strength of government to “encourage the increased safe development in all regions of the nation’s coal resources.”
So there you have it. When the government encourages renewable energy, that’s called picking winners and losers. But when the government encourages coal — an increasingly expensive resource that has become an environmental nightmare — that’s “the best way to advance North American energy independence.”
And the picture becomes even more complicated when looking at the forces behind the boom in gas production. In fact, the fracking technologies people love to hold up as a miracle of the free market were made possible through years of government investment.
A 2011 investigation from the Breakthrough Institute showed that the natural gas industry was able to commercialize fracking technologies only after decades of tax credits, government R&D programs, government assistance with mapping, and partnership with companies entering commercial scale.
A geologist from Mitchell Energy, a leading company that pioneered fracking, put it this way: “I’m conservative as hell. But the “[Department of Energy] did a hell of a lot of work, and I can’t give them enough credit for that.”
The examples of government assistance to help commercialize energy technologies goes on and on.
And most people only know about the ones that are easy to track. There are other embedded subsidies — things like land giveaways to coal companies or tax exemptions — that are hidden below the surface. Here are a few examples, as illustrated by this subsidies iceberg infographic from Earth Track:
Click to embiggen.
This long history of assistance to energy technologies is completely lost in the current debate.
The latest political dust-up is over support for wind through the production tax credit (PTC), a performance-based incentive crafted by Sen. Chuck Grassley (R-Iowa) that provides wind farm owners with a credit of 2.2 cents for every kilowatt-hour of electricity produced.
The credit is set to expire at the end of the year. Since it was introduced, the U.S. wind industry has been able to drop costs by 90 percent [PDF]. However, because of suppressed natural gas prices (again, helped by decades of tax credits, commercialization partnerships, and R&D programs), the wind industry says it needs the tax credit for a couple more years in order to give investors certainty. If the credit expires at the end of the year, the industry could shed up to 37,000 jobs [PDF], according to a report from Navigant Consulting.
Extending the credit has very strong bipartisan support. After all, 81 percent of wind is installed in Republican districts nationwide. But there has been growing resistance from a band of free-marketeers who claim that the tax credit distorts the market, thus preventing Congress from extending the incentive for a year or two more. (Ironically, many of these same critics consistently vote to preserve permanent tax credits worth billions of dollars for the most profitable oil companies in the world).
At the same time, companies like the nuclear-heavy utility Exelon are pushing Congress to abandon the tax credit. Here’s what the company’s CEO said in a recent statement:
These groups agree that it is now time for federal government to stop picking energy technology winners and losers through subsidies like the PTC and to allow market forces and state and local renewable portfolio standards to work.
Exelon has a pretty substantial wind portfolio worth 900 megawatts of capacity. However, most of its portfolio — 93 percent — is made up of nuclear power plants. But if it were not for the immense support for nuclear through loan guarantees, government-backed insurance, waste containment programs, and cost-recovery allowances for cost overruns over the last five decades, we wouldn’t have much of a nuclear industry in this country.
But here’s something more remarkable: Even while warning about “picking winners and losers,” Exelon executives have gone to the government to request loan guarantees and tax credits for its other operations.
In 2007, Exelon President Christopher Crane testified to Congress in favor of new loan guarantees for the nuclear industry. Of course, without these loan guarantees and government-backed insurance programs, no private investor would finance a nuclear plant in this country.
And just this year — two days after saying the production tax credit for wind should be ended — it was reported [sub req’d] that Exelon would receive tax credits for two hydropower projects it had under development.
We desperately need an honest conversation about energy incentives.
In order to smooth out this complicated picture, there are some analysts and political leaders who say we should get rid of all subsidies to all technologies and let the free market hash it out. That’s an appealing argument to many. But it completely ignores the embedded impact of a century of support to fossil fuels and 50 years of support to nuclear.
It also ignores a more fundamental problem: Our climate is reaching a tipping point and we don’t have time to waste in transitioning away from carbon-based fuels. Period.
Most supporters of clean energy agree there will be a time to phase out incentives that are currently helping boost the industry. There are a lot of disagreements about exactly how and when it should be done, but that conversation is well underway as the cost of renewables continues to fall.
As we drudge through this political season and listen to the calls from selective free-marketeers on “picking winners and losers,” let’s remember how we got to where we are in the first place.
And more importantly, let’s remember where we’re trying to go.
