Don’t call it a subsidy
David Roberts’ recent post compelled some ideas that have been germinating for awhile, but are too long for just a comment on his post. Namely: we should stop talking about the need to subsidize green technologies, and instead frame the debate as a need to level the playing field.
It is a strange feature of energy policy that it is easier to create subsidy than it is to remove one. Thus, whenever energy bills get drafted, they are layered with pork that include very little actual structural reform. Renewables get a subsidy here, nukes get insurance liability waivers there … but very little actually gets done to ensure the operation of unfettered market forces.
The reason why is a simple — but unfortunate — reality: there is no constituency for efficiency, be it of the economic or environmental flavor. Every interest group (including but not limited to businesses) lobbies hard to get more money for their interest, but none stand up and ask for rules that will make the world easier for new market entrants (a hallmark of a truly competitive market). And since no one asks for efficiency, no one gets it. Calvin Coolidge said famously that the business of America is Business, but somewhere along the line the universal, capital-B business got replaced with the specific, lowercase-b business, and the price has come in the form of economic efficiency.
So how does this relate to subsidies? Most politicians I have met will concede all of the above points, and further that it is very hard to get anything done in Washington if you don’t have a dedicated interest group lobbying for it (and all the more so if you do have an interest group lobbying against it). Therefore we frame much of our energy discussion as “Can we afford to change?” rather than “Can we afford to stay the course?” (The question here relates solely to fiscal appropriations, and while we could frame the latter question in terms of environmental consequences, the fiscal framing resonates with a much larger group of legislators.)
The libertarian end of the political spectrum argues that all subsidies should be taken away, and therefore opposes most clean energy policy — as presently framed. At the opposing end of the spectrum, we simply have a debate about whose subsidies are better that doesn’t even pretend to be about economics. (Witness the recent senate debate that pitted RPS against oil and gas tax breaks). And while this end agrees on the need for subsidy, the ability to get your favorite one passed depends largely on who won the most recent election, rather than any more politically persistent philosophy.
However, if you agree with me so far, then you would have to also concede that there are likely to be massive subsidies to the existing status quo. And indeed there are. Consider just a few:
- Much of the money we spend to secure oil reserves in the Persian Gulf is paid for out of income taxes rather than at the pump. Thus, the true cost is not reflected at the level that would drive consumers to vote with their proverbial wallets, and the onset of alternatives to petroleum is delayed.
- If a regulated utility builds a dirty, inefficient coal plant connected through miles of transmission to the load, they get the whole investment bankrolled by the public. Utility commissions need only declare the investment to be prudent to ensure that the utility has guaranteed rate recovery — which in turn enables them to get extremely cheap debt to finance the projects. By contrast, if someone wants to build a plant that is more efficient and cheaper at the point of consumption (be it a solar panel or a CHP plant, or anything in between), they must put up all the capital at risk and run the ongoing risk that the plant will cease taking their power before they have paid off the debt. Thus, we subsidize the dirty at the expense of the clean.
- Ontario recently calculated that the health costs of coal plants amount to a whopping 8 cents per kilowatt-hour, measured in the increase in premature fatality and asthma downwind of same. Those same plants are presently making money at 4 cents/kWh — again, because the true costs are paid for out of income taxes.
This is a partial list, but the volume just of the above three is huge. (Consider the total capital invested by regulated utilities and assume that they saved a percentage point on interest payments per item 2 above to get a massively large number.) Instead of asking for subsidies, let’s reframe the debate and just ask for a leveling of the playing field. A good politician ought to be able to frame this in a way that resonates with both sides of the aisle. Consider:
“I support tax breaks and economic efficiency. Therefore, I’m dropping marginal income taxes by an amount equal to what we spent in the Persian Gulf last year, and keeping my bill revenue neutral by replacing that with an equal tax on gasoline.”
No one’s ever said this, but I would suggest that this could just as likely be framed by an environmentally conscious politician on the left as an economically conscious politician on the right. Any volunteers?
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