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Wind Subsidies vs. Oil Subsidies

Posted By David Kreutzer, Ph.D. On February 28, 2012 @ 10:30 am In Energy | Comments Disabled

In sharp contrast to wind turbines, the wind lobby is spinning at 100 percent capacity—in order to keep the industry in the taxpayers’ pockets. Their dizzying logic makes you wonder if they have been riding the blades instead of examining the facts.

First, they make two contradictory assertions: (1) Wind is the cheapest source of electricity [1] (tied with natural gas); and (2) without substantial subsidies, the industry will suffer a severe recession [2]. If it were the cheapest, it would not need subsidies to compete in the marketplace.

Second (perhaps in an attempt to square this inconsistency), they claim that their subsidies are equivalent to the subsidies received by the fossil fuel industry.

Perhaps because their recent profits have been so high, oil companies are frequently the example suggested by green energy subsidy seekers. So then, how do the subsidies compare?

The wind lobby is seeking an extension on the production tax credit that they and several other select renewable energy sources receive. Adjusted for inflation, the subsidy for wind energy is 2.2 cents per kilowatt-hour. That may not seem like much, but for all of 2011 the wholesale price of electricity was about 5 cents per kilowatt-hour. So the subsidy amounts to 40 percent or more of the wholesale price. (It should be noted that wholesale prices so far this year are tracking below those of last year.)

If crude oil were subsidized at that same rate as wind energy, the oil companies would receive $50 for every barrel of oil produced (given Brent Crude’s current price of $125 per barrel). How does that compare to the actual subsidies received by the oil industry?

The most repeated number is $4 billion per year. But, Heritage’s Nick Loris and Curtis Dubay make clear that this number is way bigger [3] than the actual subsidy. However, even that overstated number works out to only $0.60 per barrel, or barely 1 percent of what wind receives relative to market prices. A more honest estimate of the oil subsidies would be closer to a nickel per barrel, which is one-thousandth the subsidy given to wind.

If wind industry lobbyists want a subsidy comparable to oil’s nickel per barrel, they should get 0.0022 cents ($0.000022) per kilowatt-hour instead of the 1,000-times-larger subsidy they get now.

A much better idea is to get rid of all the subsidies. But what makes no sense is to say, “Since they get a nickel, we should get $50.”


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

URL to article: http://blog.heritage.org/2012/02/28/wind-subsidies-vs-oil-subsidies/

URLs in this post:

[1] cheapest source of electricity: http://www.awea.org/_cs_upload/events/7205_1.pdf

[2] without substantial subsidies, the industry will suffer a severe recession: http://www.awea.org/_cs_upload/issues/federal_policy/14169_1.pdf

[3] make clear that this number is way bigger: http://www.heritage.org/research/reports/2011/05/whats-an-oil-subsidy

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