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

Energy Subsidies Prove Unsustainable

Posted By Kelsey Huber On August 5, 2010 @ 3:30 pm In Energy | Comments Disabled

[1]

There is nothing like economic hardship to make a country step back and take a fresh look at its priorities. When faced with a need for drastic budget cuts and job creation, countries such as Spain [2], the United Kingdom [3], Germany [4], France [5], and the Czech Republic [6] have all made the decision to reduce subsidies for green energy programs such as wind and solar energy.

These nations could not have made a better choice for either the economy or the environment unless they removed subsidies all together. After all, greening the world requires innovation, and innovation prospers best in a free economy where the market price system provides the most accurate information and incentives.

Cuts in subsidies should come as especially good news for Spain where, according to a study by Dr. Gabriel Calzada [7] (PDF), each subsidy-sponsored “green job” comes at the hefty cost of 2.2 jobs lost economy-wide. Spain, with its 18 percent unemployment, can ill-afford policies such as these, and the new budget will reduce spending on wind energy by 35 percent [8] over the next three years .

Yet “greener” countries such as Spain have long been touted by politicians as global leaders in green energy initiatives. For instance, just last year, President Obama urged the United States to follow the example of Spain, Germany, and Japan:

They’re surging ahead of us, poised to take the lead in this new industry. This isn’t because they’re smarter than us, or work harder than us, or are more innovative than we are. It’s because their governments have harnessed their people’s hard work and ingenuity with bold investments—investments that are paying off in good, high-wage jobs—jobs they won’t lose to other countries.

The question is, what will happen to these green jobs, now that subsidies are disappearing? Unfortunately, these subsidies can not be described as investments—they are a lifeline for an industry that has yet to sustain itself at competitive levels. For example, according to an article in [3]The New York Times [3], budget cuts on solar panel investments in Germany led to “a serious risk of major job losses in the industry as China, in particular, proved to be a cheaper and very willing supplier.”

As the subsidies are removed from these green energy industries, they collapse because they were developed in a bubble where market demand and price signals were softened. This inevitable confrontation with reality demonstrated that the industry doesn’t have the tools to survive unaided. But removing the subsidies enables those resources to be put to better use.

Let’s hope that the inverse of Dr. Calzada’s research is true: for every subsidized job that goes away, 2.2 economically sustainable jobs are created. The United States should learn from Europe’s failed green subsidy policy and refrain from following in its footsteps.

Instead, the United States should take the only sustainable path to a greener world and encourage free-market innovation. Free economies are the best innovators, and innovation is the key to good stewardship.

Kelsey Huber is currently a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm [9]


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

URL to article: http://blog.heritage.org/2010/08/05/energy-subsidies-prove-unsustainable/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/cropped-windfarm.jpg

[2] Spain: http://www.smh.com.au/business/spain-cuts-solar-subsidies-20100802-113ee.html

[3] United Kingdom: http://www.nytimes.com/cwire/2010/07/29/29climatewire-europe-slashes-low-carbon-energy-subsidies-a-61653.html

[4] Germany: http://www.bloomberg.com/news/2010-07-09/german-solar-power-subsidy-reductions-passed-by-upper-house-of-parliament.html

[5] France: http://www.euractiv.com/en/energy/germany-france-cut-support-solar-power/article-189131

[6] Czech Republic: http://www.reuters.com/article/idUSTRE61B2SJ20100212

[7] a study by Dr. Gabriel Calzada: http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf

[8] reduce spending on wind energy by 35 percent: http://www.environmentalleader.com/2010/07/30/europe-cuts-energy-subsidies-calls-for-tougher-emission-reductions/

[9] http://www.heritage.org/about/departments/ylp.cfm: http://www.heritage.org/about/departments/ylp.cfm

Copyright © 2011 The Heritage Foundation. All rights reserved.