Tag Archives: subsidies

Policies Concerning Subsidies for Wind versus Fossil Fuels

Recently, a Bloomberg New Energy Finance report stated that wind energy in Australia is now cheaper than fossil fuels by a significant amount.  The price of electricity from an Australian wind farm is $84 per megawatt hour, while it costs natural gas and coal $119 and $147 per megawatt hour, respectively (1).  The article cites higher financing costs and natural gas prices as reasons why fossil fuel driven electricity prices have been driven up, while lower equipment expenses for wind generation have turned prices in its favor.  However, this large difference also is partly due to the government’s carbon emissions tax imposed last year.  The tax charges $23 per metric ton of carbon emissions produced, meaning that electricity produced by fossil fuels will be hit hardest.  The article, unfortunately, neglects to mention what the relative electricity prices would be without these new taxes, a point that would have been useful for the reader to make comparisons. 

Still, this seems to be a trend for much of the civilized world.  While richer nations believe they can afford to tax their energy in the name of the environment, the third world is making large strides in energy production, in the process creating emissions that would horrify the most steely of EPA regulatory commissions.  Countries like China have to keep up with their population’s demand for energy, and as a result, emission concerns take a back seat unless they are hosting the Olympics.  Nevertheless, western countries continue to impose taxes and regulations on our energy providers, at enormous expense to them and, as costs are passed to the consumer, us. 

The cost of keeping pace with seemingly arbitrary restrictions dished out by the EPA is prohibitively expensive.  Power plants that must buy new scrubbers to comply with updated regulations can find themselves resorting to buying additional power or building new electricity producing plant components that don’t have as many emissions.  In the case of a KY power plant, the cost of complying with these new regulations comes at the measly cost of $1,000,000,000, or one billion dollars if the eye gets tired halfway through all the zeroes, just to buy a scrubber system (2).  Is this number fantastical?  Is the price tag an anomaly?  Unfortunately no, and this power plant is now shockingly investigating other alternatives.  The average electric bill would have increased by $31 per month – hardly a trivial amount to the average residential electricity consumer.  Industries and sectors that make large profits are always branded with the word “Big” by those who find the idea of companies making money for delivering a service unsavory.  Thank God that Big Coal has money.  If it didn’t, it would cease to be “Big” and become “nonexistent” when regulations finally overwhelm its ability to provide electricity to the consumers at a reasonable price.  Where would our electricity and energy come from then?  Perhaps we can slowly regulate the fossil fuel industry out of existence at the same rate that the government subsidizes and props up the renewable energy sector. 

While some power plants try to upgrade to meet environmental guidelines, entrepreneurs try to wrap their minds around the initial cost of building one.  The regulations and hoops to jump through can be prohibitive enough to banish the thought of building a power plant.  Lucky for the people in the wind and solar energy fields, not only do they not get regulated to the point where they can barely hold onto their jobs, but they receive subsidies that make all other energy subsidies insignificant in comparison on an energy produced basis.  It is somewhat difficult to pinpoint how large the gap is because different sources use different ways of defining subsidies.  One website, devoted to a “vision for a sustainable world”, says that in 2009 renewable energy subsidies were between 1.7 and 15 cents per kilowatt-hour, and fossil fuel subsidies were between 0.1 and 0.7 cents per kWh (3).  These quoted estimates seem to be pretty consistent with numerous other sources, where subsidies for renewables per kWh can be one to two orders of magnitude higher than subsidies for fossil fuels.  Subsidies for solar energy are positively through the roof when taken on an energy produced basis, helped by the fact that many have gone bankrupt and taken tens to hundreds of millions of the tax payer’s dollars with them to their sunless graves.  Wind gets substantially less subsidies, but even then it is $52.48 per MWh compared to $3.10 for nuclear, $0.84 for hydro, $0.64 for coal, and $0.63 for natural gas (4).  That means that wind, which receives far less subsidies than solar, takes more than 80 times the amount of money per MWh produced when compared to coal or natural gas.  I have seen another number that puts wind subsidies per MWh at 25 times the combined total of all other electricity producers (5).  In addition, wind also gets land perks and additional state tax breaks.  This same line of action is why the title of the article proclaims “Australian wind energy now cheaper than coal, gas, bnef”.  It is… if you decide to dissociate the concept of money and the word “cheap” being related altogether.  It is this line of action that allows wind producers to be able to pay people to take their electricity yet still make a profit, an occurrence that happens 8% of the time or more per year in West Texas (4).  How can other energy producers survive when their competition can afford to pay people to take their product yet still stay profitable?  In no other business anywhere else in America would this ever be allowed to happen.  Let’s say that an Abercrombie and Fitch (A&F) clothing store is sitting side by side with an American Eagle (AE) clothing store.  If A&F can pay their customers to buy their clothes and still make a profit, how can American Eagle compete with that, when AE actually has to operate under the novel market concept that people have to pay for their clothes?  Everybody would skip the AE store and go straight to the A&F store to get some money to stuff into the pockets of their free pants.  In the energy world, I’m guessing the coal fired electricity plants don’t much like this type of “negative pricing”.

I’m not even saying that subsidies for renewables are such a terrible thing – they’re so commonplace that it becomes hard to draw a firm line in the sand.  However in an ideal case, the case of the free market, there would be no subsidies, and companies and research would be funded privately.  People tend to forget that the money given out in subsidies and handouts by the government came from its citizens in the first place.  Once you start out on the road of giving out subsidies it’s hard to stop, and problems arise when the government favors certain recipients more than their competitors.  Physical and quantifiable things like technology and cost effectiveness no longer lead the way forward; rather, the road is paved with the ideals of government, the cobblestones of their dictates piled on top of industries and technologies that the government deems unfit.  Instead, things like wind and solar energy are being propped up despite their inability to survive on their own amidst competition in the free market.  When John F. Kennedy announced to the world in 1961 that the United States would put a man onto the moon before the end of the decade, our country had only 3 weeks earlier put a man into space, though we lacked the skill to allow him to orbit the Earth even just once.  Eight years and $24 billion later, the Apollo 11 mission sent two men a couple hundred thousand miles through space to land on the moon, from which they returned safely (6).  Subsidies for wind energy alone since 1992 has cost, conservatively, the same amount of money spent on the Apollo program, but at least we got a man to the moon and mounds of technological advances with the NASA program – $24 billion later, wind energy is still not a viable alternative energy (4).  Let’s hope that the additional tens of billions of dollars that the taxpayers will be subsidizing wind energy over the next decade will bring more promising results.               

 

(1)    http://www.bloomberg.com/news/2013-02-06/australia-wind-energy-cheaper-than-coal-natural-gas-bnef-says.html

(2)    http://www.courierpress.com/news/2012/may/30/utility-pulls-plug-costly-louisville-power-plant-u/

(3)    http://www.worldwatch.org/fossil-fuel-and-renewable-energy-subsidies-rise

(4)    http://online.wsj.com/article/SB10001424127887324481204578179373031924936.html

(5)    http://www.masterresource.org/2011/05/big-wind-sen-alexander/

(6)    http://en.wikipedia.org/wiki/Apollo_program

 

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“Green” Jobs

With all of the talk about developing and promoting new green technologies, it becomes a logical assumption that as this industry grows it will create new jobs.  Since the unemployment rate is around 10% for all of the U.S. as of Feb. 2010, an influx of new jobs would be ideal.  Also, there is a positive perception of these new jobs with the general public because they are “green,” which means they are helping reduce our consumption of carbon emitting fossil fuels, and helping improve the environment.  The problem is that currently a lot of the green technologies are not being adopted by consumers because they are too expensive.

One way to overcome that is for the government to create subsidies and mandates that would help reduce the costs and require implementation.  For example, this past week in Colorado the local government approved an increase in the required Renewable Energy Standard from 20% to 30% by 2020.  According to Environment Colorado’s study this bill would generate 23,450 jobs in the solar industry over the next decade.  Although the majority of these jobs would not be long-term, only 152 of the new jobs would last for two or more years.  Therefore, this influx of jobs would not necessarily have a lasting effect on the unemployment rate.  In addition, it is believed that to make the technologies affordable there would have to be up to 50% government subsidies on the upfront costs.

Another government program that is being proposed currently is Home Star, a rebate program that would offer homeowners a $1,500 rebate for individual home upgrades, and a $3000 rebate for an entire home retrofitting .  President Obama has been trying to push this through Congress, and for these green technologies to grow and create jobs, having the support of President Obama is crucial.  Programs like Home Star would create an extra incentive for homeowners, to invest in energy efficient improvements which would create more jobs for installations of these technologies.

Overall, it seems that as long as the costs of green technologies remain prohibitively high for adoption by the public at large, there will have to be subsidies and mandates that will lower costs and require implementation in order to create new jobs.  Also, these government policies will have to be increasingly more aggressive because the bulk of new jobs that are created involve installation and construction.  Since these are short term jobs the amount of green technologies being installed will have to be continually increasing in order to maintain these jobs.  On the whole, I believe that these policies are on the right track because they promote job creation and energy independence, but they need to be more aggressive if we want to turn around our economic and energy crisis in the near future.

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