The subsidy tease, part I

Congress needs to stop flirting with the renewable energy industry

Posted by Joseph Romm (Guest Contributor) at 3:33 PM on 13 Feb 2008

This post is by ClimateProgress guest blogger Bill Becker, executive director of the Presidential Climate Action Project.

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When it comes to relationships, Congress is a big tease. Or so it must seem to the energy efficiency and renewable energy industries. Just when they think they're about to go to the altar with the federal government, Congress becomes the runaway bride.

turbines Everyone who's anyone acknowledges that energy efficiency and renewable energy are indispensable to America's future. They promise greater energy independence, clean air, steady prices, infinite supplies, a lower trade deficit, and a way to begin minimizing the suffering that will result from global climate change.

Due to the urgency of global warming, the future must start now with rapid diffusion of the clean energy technologies that are ready for market. We must also expedite the development of new efficient and renewable energy technologies and the industries that make, sell, and service them.

To compete on the same playing field as oil, gas and coal -- our entrenched and heavily subsidized carbon fuels -- the clean energy technologies need federal help, including subsidies. For example, to help embryonic renewable energy industries reach viability, Congress implemented a Production Tax Credit (PTC) as part of the Energy Policy Act of 1992 and scheduled it to expire in 1999, seven years later. Since 1999, Congress has extended the credit for one to two years at a time and has allowed it to expire three times. It currently is scheduled to expire at the end of this year, along with a bundle of other tax benefits to encourage the use of more efficient windows, furnaces, and building insulation.

The result of this on-again, off-again subsidy has been boom-bust cycles for wind energy and the other technologies covered by the credit. Each time the PTC is renewed, renewable energy projects begin to blossom. Then, months before the next expiration date, investment stops because of uncertainty. In an analysis of the PTC's impact on the wind industry, researchers at Lawrence Berkeley National Laboratory concluded:

Due to the series of one- to two-year PTC extensions, growing demand for wind power has been compressed into tight and frenzied windows of development. This has led to boom-and-bust cycles in renewable energy development, underinvestment in wind turbine manufacturing capacity in the U.S., and variability in equipment and supply costs, making the PTC less effective in stimulating low-cost wind development (PDF) than might be the case if a longer-term and more-stable policy were established.

LBNL found that a longer extension of the PTC -- 10 years, for example -- would bring the installed cost of wind power down by up to 15 percent compared to off-again, on-again credits in place today, and would create more local economic development and jobs. The cost of a 10-year extension is estimated at $5.75 billion, a pittance compared to current tax breaks for the fossil and nuclear industries. By way of comparison, subsidy expert Doug Koplow at Earth Track estimates (PDF) that federal energy subsidies totaled nearly $50 million for fossil fuels in 2006, while nuclear energy received $9 billion.

The congressional tease may be the result of some paternalistic micromanagerial impulse on the Hill. Or it may be the members' way of keeping these young industries on a short leash so they have to court Congress again every two years. Or it may be that Congress just doesn't understand business.

For a new industry to get a foothold in the marketplace, it must attract capital to build its plant, buy its equipment, establish its supply chains and so on. To attract that capital, it needs a stable and sustained market for its products. It needs "patient capital" to get across the "Valley of Death" (PDF) -- that period in which a new technology is market-ready but not yet market-competitive, in part because it hasn't achieved economies of manufacturing scale.

In some cases in the past, Congress has forced an incentive to expire so quickly that it was only available for a few months by the time the government's rulemaking process was done. In other cases, Congress' sunset date has simply been unrealistic. For example, the Energy Policy Act of 2005 contained a credit for new energy-efficient commercial buildings. But to qualify, the buildings had to be designed, financed, and built to the stringent specifications of the credit within two years. As a result, few buildings were able to take advantage of the credit (PDF).

Some people argue the federal government should not be in the energy subsidy business at all. When it comes to federal subsidies for the production and consumption of oil, coal, gas, and nuclear power, I agree. Mature industries are parasitic industries when they continue taking taxpayer money they don't need. Public subsidies are particularly bad when they encourage bad behaviors -- for example, continued dependence on disappearing resources or continued emissions that threaten permanent damage to the Earth's ecosystems. Today, we taxpayers are subsidizing greenhouse-gas emissions.

However, when an industry is in its infancy and its maturation is clearly in the nation's interest -- as most renewable energy and energy efficiency technologies clearly are -- it is sound public policy to help it rise to its feet and traverse the Valley of Death. To mix metaphors, the nation can benefit from a marriage between the government and critical new industries. What an emerging industry does not need is a runaway bride.

Congress has had a long affair with oil, gas, and coal. It's time to break it off, stop flirting, and settle down for a long-term relationship with the energy efficiency and renewable energy industries.

This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.

For story: The subsidy tease, part I
7 Comments | Post a Comment

Minor detail correction

Today, we taxpayers are subsidizing greenhouse-gas emissions.

Today, tax takers are subsidized by royalties and consumption taxes on greenhouse-gas-emitting fuels. Their hope, when they subsidize renewable energies, is that these will produce token amounts of energy and so take token amounts of money from their pockets, while preventing you-know-what from taking much more. So far it's working pretty well.

Boron: A Better Energy Carrier than Hydrogen?

by GRLCowan at 7:21 PM on 13 Feb 2008

Nuclear

Their hope, when they subsidize renewable energies, is that these will produce token amounts of energy and so take token amounts of money from their pockets, while preventing you-know-what from taking much more.

Nuclear on the other hand gets more subsidies than the entire rest of the electricity sector combined ;D

-David Ahlport

by GreyFlcn at 8:29 PM on 13 Feb 2008
[ Parent ]

where is the data?

The nuclear subsidy number is pulled out of thin air with no references. Show us an itemized list of the subsidy costs of commercial nuclear power to the tax payer.

Things Everybody Should Know About Energy

by BILL HANNAHAN at 8:41 PM on 13 Feb 2008

Subsidies

Subsidies for renewables is not contributing to lowering costs. Indeed the cost of installed wind generators is nearly double what it was 5 years ago. This is lamentable because wind generators are horribly inefficient, and the investment in wind, dollar for dollar, produces far less carbon free electricity than investments in nuclear power do. Why then do people build these monumentally expensive, inefficient, noisy and ugly machines? For the subsidy! You take the subsidy away, and no one will build them.

Charles Barton

by Charles Barton at 7:19 AM on 14 Feb 2008

By all means

The nuclear subsidy number is pulled out of thin air with no references. Show us an itemized list of the subsidy costs of commercial nuclear power to the tax payer.

This should be fun :P

Office of Nuclear Energy ($1.4 billion)
National Nuclear Security Administration ($9.1 billion)
Office of Environmental Management ($5.5 billion)
Office of Civilian Radioactive Waste Management ($494.7 million)
Office of Legacy Management ($186 million)
Total that up, thats around $16.7 billion dollars.
Call it an even $16B if you shrug off the other waste management projects.

http://www.energy.gov/news/5920.htm

By comparison, we're looking at:
$156 million : Solar
$52 million : Wind
$30 million : GeoThermal
$3 million : Hydropower
$242 million : TOTAL
http://gristmill.grist.org/story/2008/2/5/162252/0067

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Gimme a while and I could give an even more detailed itemized list by going through these.
http://www.cfo.doe.gov/budget/09budget/Start.htm

-David Ahlport

by GreyFlcn at 2:08 PM on 14 Feb 2008

The commercial nuclear power subsidy

Call it an even $16B

Actually if you took the time to read your link you would see that most of those programs are defense related.

National Nuclear Security Administration ($9.1 billion)

The FY 2009 National Nuclear Security Administration (NNSA) budget requests $9.1 billion, an increase of $287 million above the FY 2008 enacted level, to promote national security by maintaining the nation's nuclear weapons stockpile and promoting nuclear nonproliferation and threat reduction to address the realities of the 21st century. The NNSA budget requests $6.6 billion, a $320.6 million increase over the FY 2008 appropriation, for its weapons program to meet the immediate national security requirements of the stockpile, and continue progress toward transforming the nuclear weapons complex to a much smaller size by 2030.

Office of Environmental Management ($5.5 billion)

The FY 2009 Environmental Management (EM) budget requests $5.5 billion to clean up Cold War era legacy waste at sites across the country.

So the budget request for commercial nuclear power is about $2 billion.

Nuclear power produces about 20% of our electricity, so lets eliminate that huge $2 billion of pork and make nuclear power stand or fall on its own merits.

While were at it lets give back the $5 billion in taxes collected by local state and federal government agencies on the sale of nuclear power.

And nuclear power is one of our cheapest sources of electricity, O&M cost 2 cents / kWh.

http://www.eia.doe.gov/cneaf/electricity/epa/epat8p2.html ...

So lets add two cents / kWh of nuclear power sold, to be used for nuclear power R&D and to back loan guarantees in support of new nuclear plants construction.

That would be $15.8 billion / year.

P.S. Don't try this approach with so called "renewables", the cash flow would be pitiful.

Authors of The Grand Solar Plan

http://www.sciam.com/article.cfm?id=a-solar-grand-plan

think that by 2020 solar might cost as little as 10 - 15 cents per kWh in today's money.

http://science-community.sciam.com/topic/Solar-Grand-Plan ...

If we guaranteed nuclear power that rate a new 1.5 GW nuclear plant could pay for itself in 5 years and pay for another new plant every five years.

Things Everybody Should Know About Energy

by BILL HANNAHAN at 10:21 PM on 14 Feb 2008

Way too much BILL

Nuclear deserves nothing, since the 50 billion (at least, who knows how much for sure, 100 billion?) wasted at Yucca Mountain is taxpater cash too.

And nuclear operators need to buy insurance, congress gave them a pass on liability. That's a subsidy worth 50 billion per year? Who knows? No insurance company would write the policy at any price.

Take 25 billion from the defense budget, which is being used now in Iraq to destroy our security and boost oil prices (for bushco crony oil companies?).

And 25 billion from oil, coal, nuke, and agribizz subsidies. Then use the 50 billion to fund direct subsidy payments for renewable kwh and conservation.

Checks right to homeowners, farmers, and businesses that make clean energy and save energy. 10 cents per kwh ought to do it, and 5 cents per kwh equivalent saved with conservation investment.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

by amazingdrx at 10:52 PM on 14 Feb 2008

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