Q. Subsidies are in the news. Greens are going after oil subsidies, Republicans (and some Democrats) in Congress are going after clean energy subsidies. Are subsidies worth the ideological battle?
A. The issue of subsidies is really, really important, but it needs to be properly thought through. There’s this stuff going on in the U.S. now over $4 billion in subsidies to oil and gas, yet oil and gas is also a huge producer of tax revenue around the world, particularly in Europe, where taxes on oil and gas are much higher. On the enviro left, you have people focusing on one tax break without looking at the big picture of what oil and gas does to an economy. Cheap oil and gas is actually quite good in terms of enabling growth and economic activity.
But on the other hand, you have this enormous focus on clean energy subsidies, which are really very small in the grand scheme of things. It’s what we’ve always done. Fracking technology — whether it was horizontal drilling, fracking itself, reservoir mapping — was developed with cash from the DOE. In many cases there were also direct subsidies, as with coal — as there were for television, aviation, and space travel. It’s absolutely disingenuous to say that every major high-tech industry has benefited from explicit or implicit industrial policy, but now we expect this one to achieve those same things without one.
Q. What do you make of the popular notion that government is poor at “picking winners”?
A. When it extends to individual companies, I absolutely agree with that. But on the other hand, the government has a huge role in funding early-stage technology, simply because corporates won’t do it. Nuclear fusion, second-generation bio-based technologies, all that stuff, companies can’t do that. Their shareholders don’t have 10-, 15-, 20-year horizons.
What government should do is pick broad technology directions, solution areas. What they shouldn’t do is then get into the business of picking individual companies. But it’s hard. Say we’re interested in low-energy nuclear reactions — there’s only NASA and MIT and [Lawrence Livermore National Laboratory]. You’ve got to pick somebody to do the work. You do it smartly and with proper review processes.
Part of the militarization of this debate is, you’ve got the Democrats saying, “This is so obviously a good thing to do. It’s so obviously worth diversifying our energy technologies, being more distributed; there’s so many co-benefits, even before you get into the climate discussion. Why won’t Republicans play nice? Why won’t they be bipartisan?”
When Obama came in with the stimulus program, what he did is ring-fence a whole bunch of it for the green stimulus and then dole it out, literally on a company-by-company basis, often to people who were Democratic supporters and sympathizers. Without having to argue corruption, you can just say that what he did is create a client industry. To now turn around and say, oh, this industry exists, and it’s all very well-disposed toward the Democrats, why wouldn’t the Republicans embrace it?
Q. Then again, if you draw at random from the pool of clean-energy entrepreneurs, you’re statistically likely to get a Democrat.
A. Then you’ve got to be doubly careful about launching a vast subsidy program targeted at people with a skewed demographic, if you then want to play the “let’s be bipartisan” card. You can’t then be surprised that it’s regarded as a client industry.
You should absolutely be supporting green industry, but not over-subsidizing it (which is the debate we have in the U.K. about solar) and not subsidizing it for the wrong reasons. The whole debate about green jobs is utterly daft. The point about energy is to provide energy.
The Rand Corporation did a study [PDF] in 2010 about how much America could save if it didn’t have to patrol the Gulf of Persia. Imagine it had no strategic interest in the region, didn’t have to protect the Straits of Hormuz. The figure was $83 billion a year — not to abandon the region, but to treat it as a normal region of influence. That is paid by Americans, but it’s paid in the DOD appropriation, not at the gas pump. $83 billion is more than the entire global subsidy for clean energy, which is $66 billion.
And that’s just protecting one waterway — a waterway that is not mainly used by the U.S. at all, because most of your oil, particularly with the increase in production, comes from Canada, U.S., Mexico, Venezuela. The tankers actually benefiting from that protection are European, Chinese, Japanese, and South Korean. American taxpayers are spending $83 billion a year — $0.25 per gallon of gasoline — to protect the supply chains of its strategic rivals. It’s just staggering.
Same with coal. With the health costs of coal, it actually costs $0.14 or $0.15 per kilowatt hour, not $0.03 to $0.08, which is what people think.
So the real discussions are not being had because there’s a militarized discussion about relatively small subsidies, $4 billion for oil or the Production Tax Credit for wind. I hate to say it, but [the PTC] is just not a big number compared to the co-benefits it delivers.
The clean energy industry as a whole is spending $35 million on lobbying and the oil/gas/coal industry is spending $330 million, and has the benefit of unquantified super-PAC spending. Nobody [in clean energy] is spending money on the slick communications campaigns and pulling aside potentially sympathetic people and giving them briefings and soundbites to use. The clean energy industry is basically fragmented and impoverished compared to [fossil-fuel industries], which are sending stronger messages.
What it benefits from is an activist community, but the activist community is much less sophisticated on these issues. They don’t tend to do good economics and they don’t tend to draft pilot legislation that can then be rolled out state-by-state. There are [Natural Resources Defense Council] and [Environmental Defense Fund] and people like that who do unbelievably good work, but they’re not funded for the same scale.