Debate 2: How Should Government be Involved?

Myth:  The government should stop subsidizing clean energy and let the ”free market” work
Reality:  The government is deeply involved in all forms of energy; there is no free market in energy 

People that make this comment – and there are many – are either woefully naïve or intentionally deceitful.  Let me start by saying I am a huge advocate of free markets and small government.  I strongly believe that in areas of the economy where price signals are relatively accurate this is by far the best way to allocate capital.   

So what is the problem?  Free markets work well when pricing is accurate, and in energy, it is not.  Fossil fuel prices are subsidized to a massive extent through tax breaks, insurance guarantees, direct subsidies and the like.  The environmental impacts of various fossil fuels are not accounted for in many cases.  This is not just carbon dioxide, but other emissions such as mercury, nitrogen oxides and sulfur dioxides.  And there are other costs, such as maintaining US military presence in various parts of the oil-producing world, that are not accounted for at all in the price we pay.  So the comment that renewables are only cost effective with subsidies is a hollow critique. 

So subsidies and government intervention are part of the energy industry.  But all of these subsidies are legislation massively favor renewables correct?  The answer is a resounding no and was probably the most disappointing non-response from President Obama in Debate #1.  While the data can be cut in many ways, the subsidies to fossil and nuclear industries are a multiple of renewables.  See “The Real Deal on US Subsidies: Fossil’s $72b, Renewable Energy’s $12b” by Greentech Media for some sources and analysis. As a former coal analyst, I find the shock by some at the amount of subsidies to the renewable industry entertaining given what has gone to such industries as coal.  See Time Magazine’s 2006 report, “A Magic Way to Make Billions” detailing the synfuel credit given to coal as an example.   

I had a reporter once ask me, “If this is true, then why are people often shocked to hear such statistics?”  I believe there are two reasons.  One, the incumbent energy industry has gotten subsidies for so long, and often in such a non-transparent manner, that they are no longer felt or noticed.  Second, perhaps more importantly, the renewable industry has marketed their subsidies very poorly.  Perhaps they should take a lesson from the gasoline industry when credit cards were first introduced.  At first, there was a surcharge for using a card and usage was stagnant and customers were irritated.  Then marketing changed the message and had cash users pay a discount, which, in effect, was the same thing, but people felt a lot better about it.   Perhaps renewables should be marketed as a discount to the full price of traditional power versus a premium to the false price we see.   Difficult in practice for sure – but the marketing of these so-called subsidies could be much better. 

While government intervention and regulation in the energy industry is a constant presence that does not mean that all regulation is a good thing.  I would still strongly advocate for as little as possible.  And for that which remains, I’d rather see the government try to promote consistent pricing for which all technologies can compete versus direct subsidies to certain companies. The right type of government involvement should be debated, not the false question of whether renewables should be supported.  As an example of a creative solution, see Jeffrey Leonard’s article, “To Save Energy and the Planet, Cut Energy off the Dole."