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Reject All Energy Subsidies, Not Just the Ones for Fossil Fuels

Posted By Nicolas Loris On June 29, 2010 @ 11:00 am In Energy | Comments Disabled

Wind generators [1]

For a country that is still heavily dependent on coal power, news of a more efficient (read: lower-carbon-emitting) coal plant should be greeted with roaring applause from the environmental community. Unfortunately, under the Obama Administration, the U.S. Export-Import bank can’t see past the black and white idea that coal and other fossil fuels are the enemies of the environment, and only renewables can save it. This mentality creates double standards, as when White House denied a $250 million Ex-Imp Bank loan to a coal power plant [2]in India equipped with exceptional carbon-cutting technology.

President Obama was right to reject the subsidy but he did so for the wrong reasons. The Obama administration should get out of the loan guarantee business altogether. These credit subsidies are little more than financing mechanisms [3]that allow Washington to pick energy winners and losers. Instead, energy projects should compete for capital on their own merit. If the plant cannot be built without the subsidy, it should not be built.

Instead, the decision demonstrates the hypocrisy of this administration. The truth is that the administration has advocated for massive energy loan guarantee [4]increases to fund low carbon energy projects. That’s why denying the Indian project makes no sense from an policy standpoint.

It is not about reducing carbon dioxide emissions or creating jobs; it is about hand-picking who get to supply our energy.

Although the coal-fired plant would have been built in India, funding from the project would have been directed toward an American mining company, Bucyrus. It is estimated the loan would have created over 1,000 jobs for Bucyrus and its suppliers [2]. The plant would have used more efficient supercritical technology, which would still emit carbon dioxide but far less than a conventional coal plant. This sounds like the green stimulus President Obama has been touting since before he took office. (These are not legitimate reasons to subsidize energy, but they are the ones the president uses.)

So why the rejection of the loan?

Because it’s not the clean energy the president prefers. Make no mistake, subsidies for fossil fuels are no better than subsidies for wind and solar. You may get more bang for your buck in terms of energy produced, but only in the short term.

Subsidies create complacency within the industry and reduce the incentive to innovate. In most cases, subsidies either transfer part of the cost for a market viable investment to the public or direct investment away from more efficient projects. Either way, they distort the market and cost the many for the benefit of the few. Ending subsidies for fossil fuels is a good idea but it should be coupled with policy that eliminates subsidies provided to all energy sources. Piling subsidies on top of each other is like buying a new rug instead of mopping the floor. It makes more sense to clean up what is already rooted in place. And if one’s policy is to reduce CO2 emissions by subsidizing low carbon technologies, it makes no sense to award clean energy subsidies to some technologies but not others.

Eliminating subsidies for fossil fuels only to relocate the money in green energy industries is the wrong path. Wind, solar, and ethanol are not new ideas – the government’s effort to subsidize or mandate chosen winners is bad policy that has persisted since the 1970s. Ethanol, for example, has been subsidized since 1978, originally with the promise that the industry would become viable within a few years, go off the dole and compete in the marketplace. But this has never happened. Instead, Congress passed a huge expansion of the ethanol mandate [5], essentially forcing Americans to use more of it even as it continues to be heavily subsidized. The government is taking a similar approach with wind and solar, even though experience in other countries warns we shouldn’t go down that path.

The bottom line is that energy industries should be freed from all government subsidies. This would allow companies to rely on innovation and efficiency, not taxpayer handouts, to remain competitive. However, so long as the President is using of public funds to prop up non-competitive projects in the name of reducing CO2, it is blatantly hypocritical for him to reject subsidies for technologies like highly efficient coal plants, when they are so readily available than other preferred technologies.

Kelsey Huber co-authored this post.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/06/29/reject-all-energy-subsidies-not-just-the-ones-for-fossil-fuels/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/100210wind-turbines.jpg

[2] as when White House denied a $250 million Ex-Imp Bank loan to a coal power plant : http://www.jsonline.com/business/97225544.html

[3] are little more than financing mechanisms : http://www.heritage.org/Research/Reports/2009/02/The-Problem-with-Increasing-Energy-Loan-Guarantees

[4] has advocated for massive energy loan guarantee : http://www.mcclatchydc.com/2010/02/16/85452/obama-grants-loan-guarantee-to.html

[5] Congress passed a huge expansion of the ethanol mandate: http://www.heritage.org/Research/Reports/2008/05/Time-to-Repeal-the-Ethanol-Mandate

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