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Cut All Energy Subsidies



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Private-equity investor Jeffery Leonard writes in today’s Washington Post:

To save the planet and the budget, cut energy off the dole

President Obama promised in the fall that a top priority of his legislative program for 2011 would be an energy policy “that helps us grow at the same time as it deals with climate change in a serious way.” With global warming deniers now in charge of the House of Representatives, there would seem to be little hope for major legislation on clean energy or climate in this Congress. Even a member of his own party, West Virginia’s new senator, Joe Manchin, has boasted of extracting “a deep commitment and personal commitment” from Senate Majority Leader Harry Reid “that cap-and-trade is dead.”

But all is not lost. If Obama wants to set us on a path to a sustainable-energy future – and a green one, too – he should propose a very simple solution to the current mess: eliminate all energy subsidies. Yes, all of them – oil, coal, gas, nuclear, ethanol, and wind and solar. Energy subsidies are the sordid legacy of more than 60 years of politics as usual in Washington. It would be better for national security, the balance of payments, the budget deficit and even, yes, the environment if we simply wiped the slate clean and let all energy sources compete for the future.

And with anti-pork Tea Partyers loose in Washington and deficit-cutting in the air, it’s not as politically inconceivable as one might think.

As an investor in clean and green energy, I don’t make this suggestion lightly. But as environmentalists are realizing, the energy providers of the last century (oil and coal), and a few politically wired new energy interests (such as corn-based ethanol and nuclear), always seem to come out the big winners in the $20 billion annual energy subsidy game. As long as current energy subsidies stay in place, and K Street lobbyists have sway over what interests deserve congressional favoritism, American tax dollars will continue to retard the market forces that are pushing the United States toward energy independence and a greener future.

The rest here.

David Roberts of the enviro-mag Grist responds to Leonard’s proposal. An excerpt:

Can government get out of the energy game?

The intuitive appeal of a subsidy-free market is that energy technologies would compete in a pure meritocracy — a “level playing field,” as pols are fond of saying. Success would be determined by the aggregate distributed decisionmaking of market actors rather than the whims of bureaucrats. A proper market at last, hallelu.

But you don’t have to tug on that string very long before you end up with a whole armful of yarn. Leonard cites $20 billion a year in U.S. energy subsidies, but there is heated disagreement about that figure, mainly because no two people agree exactly what qualifies as a market-distorting subsidy. Obviously cash. Tax breaks, credits, and write-offs, sure. After that it gets a bit fuzzy.

What about military deployments to (among other things) secure foreign oil supplies? Should that count as a subsidy? If so, $20 billion gets a lot closer to $650 billion and that’s a different conversation.

What about unpriced market externalities? An industry that pollutes without paying for it is effectively subsidized by the taxpayers who pick up the bill for the negative health and employment effects.

In the case of greenhouse gases, that’s a large subsidy indeed. Obama’s original budget contained a program to auction carbon permits, beginning at a relatively low price, that was going to raise $80 billion a year. Even at a fraction of the true price of carbon pollution, that’s quadruple the subsidies Leonard cites. That’s to say nothing of the external costs of mercury, smog, and acid rain, which include sick people, reduced productivity, missed work days, lost jobs, and higher health-care costs. EPA regulations go some way toward mitigating those costs, but don’t come close to eliminating them.

What about sunk infrastructure costs — highways, train tracks, and electrical wires? They have been designed to support private automobiles and large, remote power plants. Do they count as subsidies to oil and coal companies?

What about the quasi-semi-monopolistic regulatory structure of U.S. electrical utilities, which encourages profligacy, waste, and gigantism? Is that a subsidy to coal?

One could go on. The point is, there is no disentangling governments from energy markets. The best way to think of the relationship is as coevolutionary: Governments evolve in symbiosis with energy sources, technologies, and markets. Energy is too central to modern life for it to be otherwise.

Just off the top of my head, I would think solar, ethanol, and wind lose in the no-subsidy world. And as John Stossel and Cato have pointed out in the past, nuclear is a loser, too.



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