Study Attacks Government Subsidy of Renewable Energies

The market share of green power is not likely to increase in the near future without a significant increase in government subsidies or mandates, and the rationale for such subsidies is without sound economic foundation, according to a U.S. group.

WASHINGTON, DC (US) 2002-01-29 [] “Without policy privileges, the renewable energy industry would cease to exist,” say Jerry Taylor of the Cato Institute and Peter VanDoren, editor of Regulation magazine in the paper, ‘Evaluating the case for renewable energy: Is Government Support Warranted?’ Their paper addresses the industry that generates electricity for the grid, and does not concern space conditioning or off-grid applications. Supporters of renewable energy understand that the industry is kept alive only by government support, and now are promoting direct use of government authority to mandate the use of renewable sources, they write. “Such policies use the power of government to impose the consumption preferences of advocates of renewables on others without any legitimate philosophical or economic basis.” Polls show strong public support for renewable energy in the United States, but less than 1.5 percent of consumers in any state have signed up for such programs, they note. “Clearly, there is a difference between what people tell pollsters about their willingness to pay for environmental quality and their actual willingness to pay in the marketplace.” Solar, wind, geothermal and biomass energy are used for generate 2 percent of total U.S. electricity, and will account for only 2.8 percent by 2020. The cost of renewable energy is greater than its main competitor, combined-cycle natural gas, and few analysts believe that this will change any time soon, they add. Renewable energy facilities are capital intensive compared with cogeneration and, in deregulated markets, “investors lack any guarantee that capital costs will be recovered from customers,” so they favour technologies that have higher marginal but lower capital costs. The study says the threat of global warming is speculative, and such warming is not necessarily deleterious from an economic perspective. Even if restrictions in greenhouse gas emissions were necessary, replacing conventional energy would be more costly and less efficient than other emission abatement strategies. Restricting the emissions of greenhouse gases in the U.S. to comply with the Kyoto Protocol “would provide economic help for renewable energy” but the measures would boost the share of renewables to only 7 percent, while increasing electricity prices by 43 percent, “in return for benefits that are still very uncertain.” Basing the price of conventionally-generated electricity to reflect its environmental damage would boost the demand for renewable energy, concede the authors, but “a reasonable interpretation of the evidence suggests that the additional cost of further pollution reduction would exceed the additional health benefits.” “Even if current regulatory costs are insufficiently reflective of true environmental costs, ‘getting prices right’ will not significantly affect consumer choices of fuel,” and they estimate that reducing emissions of nitrogen oxides and sulfur dioxide by 75 percent would increase electricity prices by only 1 percent, “too little to trigger a shift from coal or natural gas to renewable energy.” The paper quotes Department of Energy data to show that the levelized cost of wind is 5 to 6.4¢/kWh, while biomass is 7.3–8.7 and geothermal is 10.9. Solar thermal/parabolic trough is 17.3, residential PV is 37.0, utility PV is 51.7 and solar thermal/dish engine is 134.3. On capital costs, it quotes the Energy Information Administration that gas/oil cogeneration is $445 per installed kW, while advanced cogen is $576. Wind is $983, coal is $1,092, geothermal is $1,708, biomass is $1,732, fuel cells are $2,041 and advanced nuclear is $2,188, while solar thermal is $2,946 and solar PV is $4,252/kW. The Cato Institute was formed in 1977 as a public policy research foundation, named after Cato’s Letters, a series of libertarian pamphlets from the time of the American Revolution. The Institute’s mission is to expand public policy debates to include “traditional American” principles of limited government, individual liberty and free markets. It accepts no government funding or endowments, but has a budget of $13 million and a staff of 90. Its website says it is not a “conservative” group because that term indicates an unwillingness to change, it is not “classical liberal” because the word classical indicates a backward-looking philosophy, nor is it “liberal” because that meaning has been corrupted by contemporary American liberals. It asks that it be called “libertarian” or “market liberal.”
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