Debt Deal Pits Fossil Fuels, Green Energy
Voters ultimate judge
Reaching a deal to extend the debt limit turned into a classic political battle. As the discussion continues to evolve, it is certain to become a clash between those who think the older but more proven energy forms should lead and those who espouse the growth of newer and cleaner fuels.
Indeed, the bargain reached this week allows the $14 trillion debt ceiling to be lifted by $2.4 trillion in exchange for about a $2.7 trillion in budget cuts over the next decade. And while those reductions have not yet been defined, concern is brewing in environmental corners that they will come out of the monies given to the green sector and the regulatory agencies set up to limit pollution levels.
To be clear, the agreement calls for $917 billion to come from discretionary programs. A bipartisan committee will suggest the remaining cuts of $1.5 trillion, part of which will begin in 2013. If that group is too divided to agree where the cuts are to occur, then the ax will fall on the U.S. Department of Defense -- a cornerstone of the conservative philosophy, and therefore a reason for all parties to come to terms.
The conventional thinking is that some of the funds provided to wind, solar and fuel cell technologies will get sliced. To be fair, that would then need to be accompanied by a relative reduction in subsidies given to oil, coal, natural gas and nuclear, or perhaps the raising of their taxes.
Many experts agree that it is much easier to close the existing loopholes provided to the mature fossil fuel industries than to raise their taxes, especially if the only other remaining choice is to trim defense spending. According to the White House Office of Management and Budget, oil and gas companies are to get $46 billion in subsidies during the next 10 years.
“We can't help balance the budget through disproportionate cuts in the critical pollution control, clean energy and public lands programs that together make up less than 1.2 percent of federal spending and yet provide manifest benefits to Americans everywhere,” says Frances Beinecke, head of the Natural Resource Defense Council, in her blog.
Question of Fairness
When lawmakers talk of billions and trillions, the discussion can come across as amorphous. But to the programs touched, the money is real.
Some proposals are bigger -- and more expensive -- than any one company, or industry. They therefore require the added resources of the public sector, assuming that they would be deemed to be cutting-edge. The energy sector, of course, is accustomed to such arrangements as government is working with it to develop everything from carbon capture and sequestration to energy storage that can harness wind and solar power.
In a review of the literature released by the U.S. Energy Information Administration, the renewable sector got more than any other energy classification at nearly $5 billion in 2007. But when added together, the coal, natural gas and nuclear sectors topped that amount by $1 billion.
By contrast, 10 years earlier, coal, natural gas and nuclear got about $3 billion in federal subsidies. Renewables received half that amount. For the record, total payouts for all energy forms equaled about $16.5 billion in 2007 and about $8.2 billion in 1997.
“Government should generally steer clear of picking and choosing technologies for the market,” says Ken Green, a scholar at the American Enterprise Institute. “Government has a decent record (and legitimate role in) basic research and development, but it has a very bad track record at picking technologies that succeed. The only thing that can tell us what works best in energy markets are consumer choices made in a functioning, and minimally-distorted market.”
That is certainly a prominent sentiment. If the nation is to develop tomorrow’s technologies, though, then it must invest in them today. This is what the Asian nations are doing and why their clean tech sectors seem to be burgeoning.
According to a report just released by the Brookings Institution, the “clean economy” -- broadly defined to include all industries that provide environmental benefits -- now makes up 2.7 million jobs. Wind and solar are a small percentage of that but comprise the fastest growing segment. It also says fuel cells and the smart grid are promising.
Cuts are coming. And so the big questions are whether they will be fairly distributed across all energy fields and whether the regulators will have the resources they need to do their jobs. The electorate will be the final judge, suggesting that any imprudence will be penalized.
EnergyBiz Insider has been named Honorable Mention for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.
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Comments
Selective Outrage
Most of the tax incentives available to the oil, gas, col and nuclear industries are also available to almost all US businesses. Ending those incentives to one industry group while retaining them for the rest of industry would likely be challenged in the courts; and, it would likely be found unconstitutional, as well it should be.
The tax incentives for the energy industries are trivial when expressed as $/MWh generated or $/MMBTU of energy delivered. That cannot be said of the current incentives for solar and wind.
When evaluating the many externalities associated with energy production and use, it is important to recognize that not all externalities are costs; many externalities are benefits. One need only imagine our society without reliable low cost electricity, natural gas, propane, gasoline, etc. There are numerous societies in this world which do not have those positive externalities. All would choose to have them, if given the opportunity.
health and environmental costs
If the cost of health care were to be added to the cost of oil, coal, and natural gas how much extra would that add to our monthly bills? We pay these costs but not in our monthly bill. I'm asking to take that figure out of where it is paid and add it to the energy bill. What about the cost of the BP oil disaster? What about the cost of the coal mine explosions just recently? How much did these cost taxpayers? If we added it to the our monthly energy bill how much extrad would be pay?
Tough times call for tough decisions
Ken
Read your piece on how the budget deal might affect green or clean tech funding. A few reactions for what they are worth. Long before this financial crisis, my opinion as a consumer advocate has been that we should not force more expensive and most often, less reliable, forms of energy on consumers. I wholeheartedly agree with Mr. Green from the AEP, that the Government is best to underwrite research and development but stay out of the marketplace. Ideally there would not be any subsidies anywhere, but as one of my long time staff used to say, they (subsidies) take many forms and difficult to fully quantify. However to the degree there are subsidies for the traditional forms such as coal and natural gas versus renewables like wind and solar, dollars should not be the only benchmark. They are apples and oranges sources, coal, natural gas and nuclear all are base load sources that do not present intermittency challenges, so from a value standpoint subsidies we send that way buy us more output.
I think energy is a perfect example of the larger federal deficit problem, where we no longer can afford to spend dollars on uneconomic or wasteful activity. Perhaps in more flush times we could send resources in these directions, but not any longer. I am not anti-renewable but I believe price and useable quantity of a commodity should dictate its use as much as possible. However, there is much progress that can be made towards a greener, clean tech future through the realization of a smarter grid. A major upside of smart grid is introducing true economic pricing that along with automation across the board can wean out a lot of waste in the system. Simplistically if we at least have a fully automated and price sensitive grid platform in place we then have the proper foundation to go forward and through population wide consumer choice our energy mix will increasingly include newer forms of supply over time. Today, one reason that smart grid investments are difficult for regulators to support is that there already is a substantial imbedded cost in consumer bills for traditional energy efficiency and renewables, so it is daunting to add the cost of implementing smart grid infrastructure. Regulators and utility executives realize there isn’t a lot “head room” in the consumer bill for the “next thing”.
So whether it is because of the larger federal budget challenge or within the population of utility customers, the bottom line is choices need to be made because there is not enough dollars to go around.
My musings on a Friday morning. Thanks to EnergyBiz there are always interesting issues and topics to ponder.
Best
Dave
David J. O'Brien, Director of Regulatory Strategy & Compliance
BRIDGE Energy Group Inc.
Again, one needs to put this into context
I really wish persons preparing articles and/or contributing to the articles by way of statements and assertions would put the material into context. Renewables and other green technologies are getting grants and production tax credits which are payouts of taxpayer monies handed out by the federal government. Many of the "subsidies" to oil and gas are tax exemptions or tax breaks to encourage exploration rather than money taken from other taxpayers and given to the industry.
Also missing is the context of how much benefit is being given relative to how much energy is supplied by the particular technology.
Without the context the article is deceptive. It is kind of like a discussion I watched and listened to on TV. The liberal in the discussion was dissing big oil's huge profits and calling for heavier taxation of energy companies specifically. She was less strident about increasing taxes on electronics industries. Even when the conservatives pointed out that the oil companies had an average profit of 8.62% whereas the one of the big players in computers had a profit margin of 26%, she continued to rag on big oil rather than the electronics industry because of all the money big oil makes as profit. Well, a little bit of a huge number is quite frequently still a huge number. Wonder how she would feel if the talk programs decided to cut the money they pay for people to appear on their shows? She might decide there was not enough profit in appearing on the particular program that cut the appearance payment.
Subsidies
This is unbelievable. The article below illustrates what the so-called green energy movement has created. All the while, China is gobbling up those green jobs. We have huge resources of energy that we are not using in oil, natural gas, hydro, etc. and this is what we get! Point: get rid of the subsidies that are pure waste and consider those that actually create jobs.
“The Boondoggle of Boondoggles”
Cascade Policy Institute | August 2, 2011
By Nick Sibilla
Oregon is a pioneer in green power. But we’re also a pioneer in wasting other people’s money. Right now, Oregon is home to one of the largest energy boondoggles in the nation: Shepherds Flat wind farm.
Currently under construction in Gilliam and Morrow counties, Shepherds Flat soon will have the largest wind farm in the world. Since wind power is expensive, Shepherds Flat has received over $1.2 billion in federal, state and local subsidies. Apologists say these subsidies will create jobs. But according to The Oregonian, this wind farm will create only 35 permanent jobs. In other words, each job created will cost American taxpayers over $34 million.
Meanwhile, Caithness Energy, the developer of Shepherds Flat, will bear only 10% of the cost. But Caithness will earn a 30% return on investment. In addition, this wind farm will not even power Oregon. All of the subsidized output will go to Southern California Edison, which provides electricity to places like Orange County. This project is nothing more than a triad of corporate welfare, government subsidies and exorbitantly expensive jobs. So is it any wonder residents in Shepherds Flat are calling this project the “boondoggle of boondoggles?”
Nick Sibilla is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.
Boondoggle of boondoggles
And for that $34M per job, we will create fairly expensive electricity (think non-competative manufacturing), that needs another power plant as backup for when the wind doesn't blow. Repeating myself - it makes me want to cry.
Political Lobbies
Which lobby do you think has more money and power? Oil and gas, coal or wind and solar? What is your answer? Which sector do you think will take the hardest hit to its budget? Money talks.