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The Left’s Case for Reforming Energy Subsidies
An original, constructive contribution


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Robert Bryce

If legislators need any more evidence that American energy policy is broken, they need only look at how some of the world’s biggest corporations used “green” energy projects to snatch billions of dollars under section 1603 of the American Recovery and Reinvestment Act (also known as the federal stimulus bill). 

Between 2009 and late 2011, $9.8 billion in cash grants was disbursed under the stimulus bill, and the vast majority of that money — $7.6 billion — was received by the wind-energy sector. An analysis of the 4,256 projects that won grants from the Treasury Department under section 1603 shows that nearly half that sum — $3.25 billion — went to just eight companies, all of which are board members of the American Wind Energy Association. The biggest winners were two foreign companies, the Spanish utility Iberdrola and the German energy giant E.On.

Iberdrola, which has a market capitalization of $27 billion, collected $1 billion in grants; E.On, with a market capitalization of $44 billion, collected $542.5 million.

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U.S.-based General Electric has a starring role in one of the most egregious examples of renewable-energy corporate welfare: the Shepherds Flat wind project in Oregon. The majority of the funding for the $1.9 billion, 845-megawatt project is coming from federal taxpayers. Not only is the Energy Department providing GE and its partners — which include Caithness Energy, Google, and Sumitomo — a $1.06 billion loan guarantee, but as soon as GE’s 338 turbines start turning at Shepherds Flat, the Treasury Department will send the project developers a cash grant of $490 million.

Thankfully, some environmental groups understand that the current system of subsidies desperately needs an overhaul. And that’s why a recent report from the Breakthrough Institute, Brookings Institution, and World Resources Institute is welcome. The three groups recently published a report called “Beyond Boom and Bust,” which says that it’s time to overhaul federal energy subsidies for “green” energy and focus that money on research-and-development projects that could yield long-term benefits.

To be clear, we are in favor of eliminating subsidies. Let’s let all energy sources compete, fair field, no favor. That said, it’s readily apparent that there’s a place for government in energy development — not by subsidizing uncompetitive renewable technologies, but through research into basic energy technologies that may be too speculative for private investors. It is a role the government has often played successfully in other sectors. There’s one fact in the new report that really jumps off the page: The federal government spends about $34 billion per year on R&D for health-related issues, but just $4.7 billion per year on energy-related R&D. Given that Americans spend some $1.3 trillion (about 9 percent of U.S. GDP) per year on energy, it makes sense for the federal government to make investments in developing new energy-related technologies.

Of course, this type of spending is anathema to conservatives and libertarians. And we understand why: It too often falls prey to special-interest manipulation in Congress. It also runs up against the inherent limitations of government expertise. For every success in government-sponsored innovation — and there are quite a few — there are numerous failures or middling results. For all of their clear-headedness on the need to reform the existing subsidy regime and their enthusiasm for a new strategy, the team behind “Beyond Boom and Bust” need to grapple harder with the difficulties that are inherent with any government-led research program.



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