By Jonathan Lesser
Like the game show Jeopardy!, green energy subsidies were Congress's answer to every energy policy question. The first OPEC oil embargo of 1973-74 was the catalyst for decades of energy policy, including the creation of the Department of Energy. Subsidies for wind, solar, and hydropower began in earnest with the Public Utilities Regulatory Policy Act of 1978. Likewise, subsidies for corn ethanol were introduced as part of the National Energy Conservation Policy Act of 1978. Both were intended to reduce the country's dependence on Middle Eastern oil.
The PURPA subsidies sparked a race by independent developers to build small power plants whose electricity utilities had to buy at government-set prices. In some cases, the subsidies were independent of how much electricity the plants actually produced, earning them the nickname “PURPA machines” because their real purpose was to extort subsidies; electricity production was secondary.
The Energy Policy Act of 1992 modified these subsidies by creating a “temporary” production tax credit for wind power and certain types of biomass production. Congress also passed an investment tax credit, initially for solar power but later extended to all renewable energy, which could choose between the ITC and PTC. Although the PTC was set to expire in 1999, it has been repeatedly extended and expanded, most recently in the Inflation Reduction Act. The PTC now covers all zero-emission energy generation, including new nuclear power plants. Under the IRA, the ITC was increased so that qualified green energy investments can claim a credit of up to 60% of their construction costs.
In addition, the IRA extends the PTC and ITC restrictions until greenhouse gas emissions from electricity generation fall to just 25 percent of 2005 levels, after which they will be phased out. According to the U.S. Energy Information Administration, this goal is expected to be achieved in 2048.
The IRA also offers subsidies for “green” hydrogen, i.e. hydrogen produced from zero-emissions electricity, for battery storage systems and for systems that capture carbon and bury it underground.
Ethanol subsidies have also been expanded and increased. For example, various types of biofuels are being subsidized by the government and many states have introduced clean fuel standards that, similar to renewable energy standards, require that an increasing share of transportation fuels be biofuels.
Congress is not the only institution taking green energy subsidies into its hands. Many states have provided their own subsidies, most notably the Mid-Atlantic states, which force their customers to buy power from offshore wind projects at a much higher price than the market. States have also enacted renewable energy standards that force utilities to increase the share of power from renewable sources that would otherwise never be built.
This hodgepodge of subsidies is intended to reduce greenhouse gas emissions by promoting new clean energy technologies and to stimulate economic growth by creating new “green” industries and well-paying jobs.
There is little evidence for the former. Energy-related greenhouse gas emissions in the United States have fallen by nearly 20 percent since 2005, largely because natural gas has replaced coal as the primary fuel for electricity generation. Between 2005 and 2023, electricity generation from natural gas was six times higher than that from wind and solar combined. In 2023 alone, electricity generation from natural gas was three times higher than that from wind and solar.
In addition, the growth of subsidized electricity generation from wind and solar has distorted wholesale electricity markets and made subsidies necessary to keep existing nuclear plants running so that their owners do not close them and eliminate thousands of high-paying jobs. Implementing subsidies necessary to offset the distortions caused by other subsidies is surely a definition of economic insanity.
In terms of fostering new industries and economic growth, the U.S. solar industry is currently at rock bottom. Almost 90 percent of solar panels installed in the U.S. are now manufactured in China. All but one of the offshore wind projects under construction or planned for construction are owned by European companies controlled by their respective governments.
The economic cost of these subsidies is borne by taxpayers who have to finance the additional deficit spending; by electricity customers whose electricity prices have soared despite claims that renewable energy sources are cheaper than conventional energy sources; and by motorists who pay more for petrol and diesel because refineries have closed or switched to producing subsidised biofuels.
These higher costs for electricity and fuel drive up the costs of producing and distributing almost all other goods. This impacts the entire economy, reducing economic growth and destroying jobs.
As for green energy subsidies that spur the development of new, cheaper clean technologies, it's nothing new that wind and solar power generation gets the lion's share of subsidies. After nearly half a century, both energy sources are no longer competitive, especially when you factor in the additional costs of fixing their inherent intermittency – costs that others must bear. And new technologies like direct air capture of carbon dioxide will only be commercially viable if the U.S. imposes a carbon tax of several hundred dollars per ton, something few politicians will be willing to do.
The vast majority of green energy subsidies benefit influential political groups and corporations whose primary goal is not to build better energy mousetraps, but only those that qualify for the highest subsidies.
Instead, the government could focus its subsidies exclusively on genuine research and development efforts in new clean energy technologies, such as modern small modular nuclear reactors.
Given the country's high debt, wasting hundreds of billions of dollars on green energy subsidies, as the Inflation Mitigation Act proposes, is an idea whose time has long passed. Green Energy – Jeopardy! may be a lucrative game for the lucky recipients, but in the end, everyone loses.
Jonathan Lesser is a senior fellow at the National Center for Energy Analytics and president of Continental Economics.
This article was originally published by RealClearEnergy and made available through RealClearWire.
Like this:
Load…
Comments are closed.