Monday, May 12, 2008

WSJ on Energy Subsidies (Surprise! They Don't Like Them)

The WSJ has a rather slippery editorial today on the level of subsidies for various electricity and fuel technologies per unit of energy produced.
Some clarity comes from the U.S. Energy Information Administration (EIA), an independent federal agency that tried to quantify government spending on energy production in 2007. The agency reports that the total taxpayer bill was $16.6 billion in direct subsidies, tax breaks, loan guarantees and the like. That's double in real dollars from eight years earlier, as you'd expect given all the money Congress is throwing at "renewables." Even more subsidies are set to pass this year.

An even better way to tell the story is by how much taxpayer money is dispensed per unit of energy, so the costs are standardized. For electricity generation, the EIA concludes that solar energy is subsidized to the tune of $24.34 per megawatt hour, wind $23.37 and "clean coal" $29.81. By contrast, normal coal receives 44 cents, natural gas a mere quarter, hydroelectric about 67 cents and nuclear power $1.59.

The wind and solar lobbies are currently moaning that they don't get their fair share of the subsidy pie. They also argue that subsidies per unit of energy are always higher at an early stage of development, before innovation makes large-scale production possible. But wind and solar have been on the subsidy take for years, and they still account for less than 1% of total net electricity generation. Would it make any difference if the federal subsidy for wind were $50 per megawatt hour, or even $100? Almost certainly not without a technological breakthrough.

By contrast, nuclear power provides 20% of U.S. base electricity production, yet it is subsidized about 15 times less than wind. We prefer an energy policy that lets markets determine which energy source dominates. But if you believe in subsidies, then nuclear power gets a lot more power for the buck than other "alternatives."
Well, yes, the wind and solar lobbies are actually correct when they state that subsidies per unit of energy are always higher at an early stage of development.

Here's the EIA study from which the WSJ derived their findings. (What, the editors don't know how to link things?)

The WSJ seems to be saying that they'd prefer that the market allocated dollars to these technologies, without really acknowledging that subsidies are useful for things to which the market won't allocate money. I suppose you can argue that wind and solar aren't worth pouring money into, but that seems to be a pretty silly argument.

Their other argument is that nuclear isn't being subsidized at nearly the same rate as wind and solar, even while it produces well more than 20 times the amount of energy. There are two problems with this argument. First, nukes are a fairly mature technology that doesn't need nearly the same level of subsidy. (Although I'd love to see some money poured into gen 5 technologies like pebble-beds.)

Second, and more important, subsidies tend to follow new deployments. There aren't any new nuclear deployments, because the licensing and risk management picture for nukes is so grim. If you want to help the nuclear power industry, you don't need to subsidize it directly. You need to get the licensing and NIMBY problems out of the way, and you need to subsidize their insurance.

Final (unrelated) point: Look at Table ES1 in the executive summary (PDF). The ratio of direct expenditures, tax credits, and R&D expenditures is very odd--and instructive--in this table. R&D expenditures make up only 15% of renewables support. Conservation has R&D expenditure at all. Meanwhile, nuclear's R&D expenditure is 73% of its total subsidy. This kinda makes sense, given that they can't deploy anything new.

These tables are worth careful study. This is where the rubber meets the road on our energy policy.

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