An excellent report released in September 2011 by private equity firm DBL Investors sheds new light on the history of federal subsidies for various energy sources and technologies. One unique finding was particularly instructive in today’s debate about renewable energy tax credits and other investments in renewables:
The below graph shows investment in various technologies as a percentage of the federal budget in the first 15 years of subsidies for each technology, allowing for a comparison of subsidies for renewables in the first 15 years of renewable subsidies with subsidies for other energy sources in the first 15 years of those subsidies.
As the graph shows, federal energy subsidies for oil & gas were 5 times greater than for renewables and those for nuclear were 10 times greater than for renewables in the first 15 years of each energy source’s history of receiving subsidies.
This analysis directly counters two key arguments employed by opponents of renewable energy subsidies:
1) That renewables have received enough subsidies and are too expensive, and
2) The market should pick winners and losers, not the government.
As the history shows, the government played a much bigger role in developing the oil & gas and nuclear industries than the renewables industry. To compare those mature industries who have benefited from $630 billion in tax-payer dollars over many decades with the relatively nascent renewables industry that has received relatively much smaller support in a much shorter period of time is a logical fallacy. Further, when we consider how dramatically the cost of renewable technology and the resulting power has declined with the support of even modest federal subsidies, the return on society’s investment has been very high. Finally, when we consider how terribly the market mis-prices fossil fuels by externalizing many of the costs onto society, costs that should be reflected in the market price for oil/gas/electricity, it is factually incorrect to claim that fossil fuels are cheaper than renewables. In other words, if the market were working properly to price the costs/benefits as it is supposed to, the market would result in a lot more demand for renewables and not fossil fuels.
These distinctions are key as we continue to approach expiration of the wind Production Tax Credits on January 1, 2013, an expiration that will be devestating to continued growth of a fast-maturing industry.