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Opinion: making the case for renewable energy subsidies

By Wayne Lee | March 01, 2012

Like the close of most years recently, the end of 2011 marked the sunset of several important programs and subsidies for alternative fuels. The difference now, however, is that these short-term incentives have not been renewed. Since renewable fuels do not enjoy the longer-term subsidies and programs of oil, we are back asking Congress and the administration for some stability. As we enter into this election year, we see what appears to be continued Congressional gridlock. What does this mean for renewables?

First, we must understand that, oftentimes, renewable energy advances cut into the profit margins of conventional energy sources. When that happens, we are reminded of the power of lobbyists who come out in force to protect those margins. But, if we are to move forward together as a country, we all must set our sights together and move quickly. 

It is imperative that we all understand the importance of moving the renewable energy industries forward in a meaningfully way—sooner rather than later. The big picture for all renewables is to ultimately be on a level playing field with conventional (oil/gas) energy sources. It does appear that the American voters have finally realized that they cannot simply ignore alternative fuels every time gas prices fall. Voters seem to better understand that wild price fluctuations may not be purely accidental. When we see significant oil price fluctuation, such as the drop from $145 to $30 per barrel in 2008, we now ask questions instead of just being happy that the prices drop. It does appear that the “sleeping giant of American voters” has awakened and these folks clearly understand that a U.S. reliance on foreign oil is bad—economically, environmentally and from a national security prospective. It also appears that they want something done about it and are demanding answers from their elected officials.    

In the current environment, “subsidy” has become somewhat of a dirty word—often with good reason. Subsidies are simply monies that are given by a government to help support an industry that the government believes offer some long-term positive potential. The main goal of most subsidies is to help fledgling industries to maturity so they can become competitive with established industries upon which we do not want long-term reliance. When we use subsidies to increase production, the result is lower prices. The petroleum industry has been continually subsidized and favored by U.S. defense policy for many years. However, petroleum has been a fully mature industry for quite some time, and it now encompasses some of the most profitable companies in the world. Conversely, alternative energy has a history of very sporadic subsidies, often on a year-to-year basis, and in comparatively miniscule amounts.

As we watch the political candidates across the nation, we often see good sound bites, but quite often what we hear does not match what we see. There often appears to be a lack of any meaningful, long-term commitment to alternative fuels. Thus, we end up with a system that clearly favors petroleum and delays the meaningful commercial development of alternative fuels. Just after the wild fluctuation of oil prices in 2008, economists warned us that when oil prices reached $125 a barrel again, OPEC would control half of the world’s wealth. Not to sound like a total alarmist, but while writing this oil is at $123 per barrel.

The bottom line is quite simple. We must remove many of the challenges of alternative energy by fast-tracking and subsidizing the things we believe can succeed.

Once alternative energy industries are fully mature, they must be able compete on their own, but as they go through their initial growth, it is very important that we remember that without meaningful, long-term government policy these industries can never mature and become competitive with an already mature and well-financed petroleum industry.

The growth of alternative fuels is good for America—and quite frankly it is good for the petroleum industry. It keeps us all environmentally sound and nationally secure. As we enter the 2012 election season, however, it is important that focus on the driving issue at hand. We must stay mindful of the impact that oil prices have on our economy and our lives. It is not enough to ask our elected officials to embrace alternative fuels—we must demand it. 

 

 

6 Responses

  1. Wayne Lee

    2012-03-13

    1

    "A tax subsidy is not an expenditure, but a selective tax reduction, as distinct from some general or uniform reduction. The principal tax subsidies for the oil industry are as follows: a “domestic manufacturing deduction” that allows oil and gas companies to deduct an extra 6 percent of their taxable income; a deduction for “intangible costs,” which are costs for investments in oil exploration or production that have no salvage value, such as clearing land to enable an oil well to be drilled—the oil companies are not required to amortize these costs over the entire expected life of the oil well—and last the companies are permitted to deduct royalties they pay to foreign government, on the ground that royalties paid to a government are really a tax. The aggregate values of these subsidies to the U.S. oil industry is approximately $5 billion a year, almost as much as the industry pays in federal income tax ($5.7 billion). The industry's total profits exceed $30 billion, so it would not be facing a crushing burden if the subsidies were to be eliminated".

  2. bill

    2012-03-06

    2

    How about a mandate for the small micro brewers,so they can compete. I know that is silly too. What "subsidy" do the oil companies get ? I have done research and can't find any. How long will US taxpayers have to keep squandering our money and keep giving it to BIG-AG giants like ADM, Cargill etc.

  3. Eric B.

    2012-03-07

    3

    bill wrote: "What "subsidy" do the oil companies get ? I have done research and can't find any." From 2002-08: Tax breaks=53.9 billion, direct spending:=16.3 billion http://www.eli.org/pdf/Energy_Subsidies_Black_Not_Green.pdf You will find different numbers from different sources - and of course it's political.

  4. lbill

    2012-03-08

    4

    A tax " break " is not a subsidy.

  5. Douglas Hvistendahl

    2012-03-01

    5

    Some things can be done by families at a low cost. We have fans blowing summer air through the basement and into the house for cheap cooling. In addition, we no longer have any problems with frozen pipes in winter cold snaps. At present, the soil under the house is rising and average of 2.6 degF per year. There is a small but visible improvement of the heating bill also. If you try this, use a dehumidifier, condensation can be fierce the first few years. Our back yard garden is paying off well also.

  6. brother kenny

    2012-03-02

    6

    Require a 5% national standard (particularly for biodiesel or fisher tropsch from biomass). This should be enough to get investment in the plants that would produce at quantity and yet not change the price significantly. The size of the plants should be large enough to get economies of scale and allow us to accurately assess whether these fuels will every be truely economically viable. The problem with leaving this to markets is that the Saudi's and others are know for intentionally manipulating price to kill big investments in alternatives. However, by making it a standard, and not a specific technology there is at least competion amongst the alternatives.

  7.  

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