Saturday, July 1, 2017

Energy Subsidies:

What is Fair?

In the past few weeks, I have been seeing a variety of articles on the issue of subsidies for energy sources.  The first one I saw was a call for the end of subsidies for nuclear power plant operation.  This article particularly criticized the recent initiatives by several states to provide support to assure the continued operation of nuclear power plants.  Nowhere did that article address the existence of other subsidies, such as those for renewable energy sources.  The other article was a much more comprehensive analysis by James Conca, writing in Forbes, that pointed out that there are a variety of different kinds of "subsidies" for energy sources, and analyzed their characteristics and their impacts.

Seeing the two articles almost at the same time brought to a head some thoughts I've been struggling with for some time as I have heard vastly contradictory accounts of which energy sources are being favored, and as I've tried to square these viewpoints with what is good for the public and good for the country.

First, as Conca makes clear, tax and other incentives may reduce the cost for the user or the provider, but they do not change the total costs.  The taxpayers absorb the difference, effectively redistributing the costs.  This is largely invisible to most people, of course.  And it makes it much harder to understand the true costs, or the true consequences of the measures when they are applied in a complex, interacting environment.

For example, tax and other incentives to use renewable energy sources are designed to incentivize behaviors that are considered good for the country.  Thus, the various kinds of incentives outlined by Conca in the Forbes article are intended to encourage the use of forms of energy that reduce air pollution and carbon emissions.

But when such incentives are written narrowly, they may exclude other sources of energy that can achieve the same end.  In this case, most of the measures designed to incentivize the use of solar and wind energy do not offer the same, or similar, benefits for nuclear energy, even though nuclear energy offers equivalent environmental benefits.

Some might point to other considerations, such as the radioactive waste from nuclear power plants, as a reason to treat nuclear power differently.  However, all sources have other potential issues--land use, materials requirements, and yes, waste products, and each needs to be dealt with in an appropriate and equitable manner.  Trying to use a clean-air measure to address other issues selectively is ultimately not the best approach. 

To add even further to the complexity of the situation, since solar and wind energy are intermittent, some backup power is needed, and recent developments in the production of natural gas have led to abundant, and cheap, supplies of gas.  This is a relatively recent development and may not have been anticipated when some of the measures for renewables were developed.

The problem is that natural gas, while it is cleaner than coal, still has more emissions than nuclear plants.  So, if the result of the tax incentives for renewable energy sources and the sudden abundance of cheap natural gas is to end up causing nuclear power plants to shut down prematurely, then the tax and other incentives for renewables are, in a sense, helping undermine a part of the reason these measures were developed in the first place.

Ideally, one might say that the incentives for renewables should just be eliminated.  However, this is too simplistic.  In the first place, many individuals and companies have now made decisions based on the existence of those incentives, and cutting off the incentives might be unfair to those people.  Secondly, cutting incentives might not have the desired effect anyway, since natural gas prices are still cheap.  In fact, such a measure might even accelerate the dependence on natural gas--and increase the emissions as gas plants replace closing nuclear plants.

Furthermore, for many reasons, it is desirable to maintain a mix of energy sources.  This helps mitigate sudden disruptions in supply and helps mitigate any negative environmental impacts of one source.  Therefore, while natural gas is much cleaner than coal, there are downsides to allowing current costs alone to dictate the future energy mix.

Thus, some state governments are gravitating toward considering incentives to keep nuclear power plants in operation.  I don't think anyone views having more incentives as the ideal approach, but the states are dealing with a complex and evolving reality.  This type of measure effectively helps level the playing field for all energy sources that have low carbon and other emissions without pulling the rug out from under those who have invested in solar and wind systems based on government tax and other programs. 


1 comment:

  1. While I was on vacation, I received several comments on this blog, 2 via LinkedIn, and one via my personal e-mail. I'd like to share all these comments here. I include the names of those who responded on LinkedIn, but will respect the privacy of my friend who responded to my personal e-mail address.

    On July 1, from Robert Margolis:

    One problem is that we have so many fundamental disagreements on energy and how to generate it. Our fights over subsidies are another battlefield in the energy culture war.

    On July 1, from C. Robert Pearsall:

    Nuclear fission is going to be an essential part of the base power generation capacity for the near- and medium-term future. Government incentives can help to maintain capacity and safe operation of all modes of power generation, and to grow future technical capability by supporting research and development. It is a balancing act.

    On July 4, from Anonymous:

    An important aspect of energy subsidies which you did not touch upon below is that many (all?) energy subsidies which target individual behaviors, noteworthy being solar power and electric automobiles, are received directly by high income individuals and thus constitute a regressive tax. Not quite as egregious a regressive tax as say the lottery, but still very regressive.

    On July 7, further from Anonymous:

    My major frustration is that government loves regressive taxes but will/can never admit it. Thus we have mortgage interest and charitable gift tax deductions, carried interest taxed at capital gains rates, $7,500 discounts for electric automobiles, college savings plans, etc., etc., etc. Many of these nominally sold as social engineering sold to the public as a way to encourage "proper/responsible/ethical behavior" yet really just a benefit to the wealthy at the expense of the poor.

    What me, political???

    From me: Thanks to all for taking the time to provide these thoughts, and sorry for the delay in posting them.