Blogs / Earth Talk / June 2012 / Making renewable energies competitive

Making renewable energies competitive

Dear EarthTalk: Renewable energy production in the solar and wind markets currently receives about $7 billion in government subsidies annually, but is still not competitive against fossil fuels on a large scale. To what extent should the U.S. continue to prop up these industries as they compete against dirty energy? —Jack Morgan, Richmond, VA

Given the importance of abundant amounts of energy for Americans, the federal government tends to subsidize all forms of energy development, including fossil fuels and renewables. A recently released report by the Congressional Budget Office (CBO) found that in 2011 the federal government spent $16 billion of our tax dollars in subsidies for the development of renewable energy and increased energy efficiency, and only $2.5 billion in subsidies to the fossil fuel industry in the form of tax breaks. But this breakdown in favor of larger subsidies to alternative renewables is a recent product of President Obama’s stated goal of cutting back on subsidies to the hugely profitable oil industry.

Historically the vast majority of energy subsidies have gone to developing fossil fuel resources and reserves. The CBO notes that until 2008 most energy subsidies went to the fossil fuel industry as a way to encourage more domestic energy production. A report by the non-profit Environmental Law Institute (ELI) confirms that, between 2002 and 2008, the federal government provided substantially larger subsidies to fossil fuels than to renewables. “Subsidies to fossil fuels—a mature, developed industry that has enjoyed government support for many years—totaled approximately $72 billion over the study period, representing a direct cost to taxpayers,” reported ELI. “Subsidies for renewable fuels, a relatively young and developing industry, totaled $29 billion over the same period.”

Even though subsidies to the oil industry may be down substantially from what they once were, the Obama administration and many others would like to see any such subsidies to the oil industry stripped completely. This past March the U.S. Senate rejected the so-called “Repeal Big Oil Tax Subsidies” bill that would have eliminated several of the tax breaks still enjoyed by the five largest oil companies—and use some of the proceeds to extend expiring energy tax provisions including tax breaks for renewable energy, electric cars and energy-efficient homes.

A September 2011 report from DBL Investors, a San Francisco-based venture capital fund specializing in renewable energy, backs up environmentalist calls for increased subsidies for renewables by showing how early subsidization of other energy keystone sources helped secure their respective dominant places in the energy marketplace. The report calculates that, in the U.S., nuclear subsidies accounted for more than one percent of the federal budget in their first 15 years, and that oil and gas subsidies made up one-half of one percent of the total federal budget in their first 15 years. Subsidies for renewables, in contrast, have constituted only about one-tenth of a percent, the report concludes.

While the pendulum of energy subsidies may be swinging in favor of renewables in the last year or two, such momentum can be lost easily if lawmakers don’t extend various incentives and credits that have helped drive it.

CONTACTS: CBO; ELI’s “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008,” DBL Investors

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