Third, we agreed to phase out subsidies for fossil fuels so that we can transition to a 21st century energy economy — an historic effort that would ultimately phase out nearly $300 billion in global subsidies. This reform will increase our energy security. It will help transform our economy, so that we’re creating the clean energy jobs of the future. And it will help us combat the threat posed by climate change.”
The President’s remarks point to the fact that many countries provide billions of dollars in subsidies and tax breaks to aid coal, oil, and natural gas companies. The Environmental Law Institute estimates that from 2002-2008, the United States spent $72 billion dollars in subsides to the fossil fuel industries.
Ending subsidies for fossil fuels is a good idea but it should be coupled with policy that eliminates subsidies provided to all energy sources. Subsidies create complacency within the industry and direct money that could be used more efficiently elsewhere. The private sector investment in energy research is actually larger than many might think. True breakthroughs in energy technology take time but the private sector has been generating marginal improvements in efficiency for decades.
Eliminating subsidies for fossil fuels only to relocate the money in green energy industries is the wrong path. Wind, solar, and ethanol are not new ideas – the government’s effort to subsidize or mandate chosen winners is bad policy that has persisted since the 1970s. Ethanol, for example, has been subsidized since 1978, originally with the promise that the industry would become viable within a few years, go off the dole and compete in the marketplace. But this has never happened. Instead, Congress passed a huge expansion of the ethanol mandate, essentially forcing Americans to use more of it even as it continues to be heavily subsidized.
Even after decades of special tax breaks, alternative energy still provides only a small fraction of America’s energy needs. Green energy technology is famously unreliable but it also faces serious technical issues, including the fact that solar farms consume billions of gallons of water every year where water isn’t available. For instance, Solar Millenium announced the construction of two solar farms in Armagosa Valley, Nevada that would consume 1.3 billion gallons of water per year, (20% of the desert valley’s available water). Many people became concerned about the scarcity of water resources and the environmental impact of this massive water consumption on wildlife. More generally, many communities that foster green energy projects are facing water shortage problems.
Maybe the market eventually will pick solar and wind as winners to provide consumers with affordable energy, but when the government does it through mandates and subsidies, it crowds out the possibility for the emergence of breakthroughs that haven’t even been invented yet. Energy industries should be freed from all government subsidies, allowing companies to come up with innovations in technologies that will be viable on their own in the economy. There may be a limited role for government when it comes to basic research and development, but lavish subsidies and mandates create dependence and divert resources away from real solutions.
Katie Brown co-authored this post.