Arnold Kling  

Energy Subsidies

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Tim Carney writes,

Environmental policy is not driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens. Instead, it flows from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet.

This is a most depressing topic. The latest issue of Technology Review has a cover story on the editors' selection of the 50 most innovative companies. It is heavily weighted toward firms involved in green energy, and these are in turn heavily weighted toward companies that enjoy subsidies and loan guarantees from the taxpayers.

In reality, much of the increase in energy demand over the next ten years will be met by natural gas, which is cheap, abundant, and relatively "clean" in terms of carbon emissions. The subsidized forms of energy will be a net drain on the economy.

Yet TR' energy blogger, Kevin Bullis, writes,

Obama, with his proposed multi-billion dollar increases for renewable energy research has the right idea, although this could go further (more research into cleaner hydrofracking technology for natural gas, for example, would likely prove a wise investment). Cheap, clean energy that doesn't come from oppressive dictators and enemies of the United States should have strong bipartisan support.

Of course, nobody is opposed to cheap, clean, domestically-produced energy. But the political attempt to provide it will only result in expensive energy, with unseen environmental costs (biofuels), and increases in budget deficits that will harm, rather than enhance, America's strategic position.

The Department of Energy was established during the Carter Administration. As far as I know, no one has ever suggested that we have benefited from its existence. The other night, Ron Bailey pointed out that its original goal was "synfuels," which not only were ridiculously expensive but would have greatly increased the carbon emissions of our transportation system.

Still, if you suggest that America should not have an energy policy, everybody other than a hardcore libertarian will dismiss you as a crackpot. Energy policy is a triumph of faith over experience.

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COMMENTS (15 to date)
John Thacker writes:
Energy policy is a triumph of faith over experience.

Indeed. I find that pointing out all the failed energy boondoggles of the past is invariably met with the cry of "But this time it's different." You see, synfuels, or corn ethanol, etc., may have been a mistake, but the planners have learned from that.

John Voorheis writes:
Still, if you suggest that America should not have an energy policy, everybody other than a hardcore libertarian will dismiss you as a crackpot. Energy policy is a triumph of faith over experience.

This is ridiculous. There is no such thing as "no energy policy." Hardcore libertarians, I presume, want the free market to handle the allocation decisions, and probably oppose any intervention to correct for environmental externalities. But that's a policy! Its even one that systematically favors some firms at the expense of others.

Thomas DeMeo writes:

I would second what John Voorheis said.

I'd go further by pointing out just how risky the current system is geopolitically. Much depends on some very shaky political circumstances. What if civil war breaks out in Saudi Arabia, for instance?

Daublin writes:

In such a case, Thomas, oil prices would simply rise until people start finding ways to use less oil. It would suck for Saudi Arabia, but for the rest of the world it would just be dollars and cents.

Of course, some Americans would like that, because it would encourage them to use less oil. That further calls into question just what the DOE is doing, though. Does it even have a clear policy goal regarding oil availability to Americans? Does it want to supply is with more or wean us off it?

It all comes back to Arnold's question. What exactly is this behemoth even theoretically doing for us?

Thomas DeMeo writes:

Daublin-There are limits to how much markets can adjust before bad things start to happen.

I agree that the DOE has been useless, but our country has gone to great lengths to set up and maintain a geopolitical framework which allows markets to provide cheap energy, and while that holds, it is very difficult to persuade anyone that we should do otherwise.

The problem is that this status quo will not likely hold while the petroleum age gently fades into history.

Tracy W writes:

Thomas DeMeo, why do you think that real-world governments can do better than markets under those situations where bad things happen? There are only two things to be done about a failing energy source - use less and invest in alternatives, and prices, particularly forward markets with lots of speculators, provide ample incentive to do both. What could a real-world government or other non-market institution do better?

Maniel writes:

@voorheis and DeMeo
The problem is that there are always special circumstances which require government "help" for the market.

Mercer writes:

Both parties agree that we use too much imported oil. Most economists think the best why to reduce consumption is to increase the tax on oil. We can't raise the tax on oil because one party believes that taxes should only be cut never raised. To raise any tax is immoral and will destroy the economy. Spending a trillion dollars on wars to keep the Middle East under our military domination and spending money on energy subsidies is sound fiscal policy according the supply side party but raising the gas tax one cent is unthinkable.

Gabriel Herrero-Beaumont writes:

We need just five more years of subsidies to get to a cheap, clean, and domestically produced energy. I think we should keep our liberty principles in the locker with this one. In 2015, solar energy will be competitive by its own!!!

Thomas DeMeo writes:

We are getting confused here. I'm not advocating subsidies for wind farms. The point being made, and not just by me, was that all the policies and activities which promote green energy pale in comparison with the other government policies which artificially prop up oil and coal.

America has consistently signaled it was willing to protect energy interests and prop up questionable regimes, at enormous cost. It also makes little or no attempt to correct for environmental externalities, some of which cost many billions to deal with at taxpayer expense.

When the green energy subsidies amount to one percent of what we spend on propping up oil, I promise to start getting upset about it.

John V writes:

You're Mercer....up to a point. The first sentence throws off your whole argument. I don't care what politicians think. And neither should you. We shouldn't be investing resources to prop up regimes with the idea of protecting oil and we shouldn't be raising taxes on oil either.

If such a reality could ever be achieved, entrepreneurs and investors would think harder about alternative fuels.

Yancey Ward writes:

If one wants alternatives to be developed earlier than when they naturally might have been, then the only policy I would ever trust in the hands of government would be a simple flat tax on fossil fuel use. Every other proposal is too open to rentseeking, and we already know how that turns out (see John Thacker's first comment). Honestly, if this isn't the first and only proposal out of the mouths of green energy proponents for government action, I dismiss them as just another group of rent-seekers.

Tracy W writes:

Thomas DeMeo - given your criticism of American government energy policy, I am even more surprised that you imply that real-world governments can do better than markets at the points where bad things start to happen.

Robert writes:

"You see, synfuels, or corn ethanol, etc., may have been a mistake, but the planners have learned from that."

Have they really? Then why are we still doing it?

" if you suggest that America should not have an energy policy, everybody other than a hardcore libertarian will dismiss you as a crackpot."

Well, let's talk about that. I think we can all agree on what the policy should be. We all want cheap, clean, abundant, domestic energy. Is there anything else to want regarding energy? So, the question is, how do we get there?

There are two options. One is government intervention, and the other is letting the Market handle it. The question comes down to whether the government can do something to effect a better solution than the Market.

That demands that we first analyze what the government can do, what tools it has at its disposal. This doesn't take long, as it comes down to Subsidies and Regulation.

Regulation isn't going to get us cheaper or more abundant energy. It is only going to raise the cost of SOME energy, making others more RELATIVELY cheap. For example, ban new domestic drilling, and it makes foreign oil RELATIVELY cheaper. Put a tax on oil and wind power doesn't get cheaper, only RELATIVELY cheaper. Would it surprise anyone to find people in the solar industry are in support of regulating or taxing oil?

Subsidies don't work, either. Giving some people money for certain behaviors doesn't make the cost of that behavior cheaper, it only shifts the cost to others. If it costs $50k to rig a house for solar energy, and government rebates pay half of it, it STILL costs $50k, it's just that everyone is paying a share of one person's upgrade. The Cost hasn't changed. In fact, it's likely that the Cost will go up since it is being paid by someone with no say in the matter.

Similarly, government subsidies for research don't work as well, either. If I'm asked to put my own money into research, I am far more likely than a government bureaucrat is to try to do so in a way I will at least get the money back. The experience with NASA is instructive. Millions spent on research, and all we got was some rocks, while companies like Texas Instruments got the patents that came out of the research.

So, yeah, let's have an Energy Policy, we want cheaper, cleaner, abundant and preferably domestic Energy, but let's be realistic about the best way to get there, and the best way to get there is for the government to stay out of it.

Thomas DeMeo writes:

Tracy W- I'm not for circumventing the market. I'm for a carbon tax to offset the environmental costs and I'm against using the military to defend our energy interests.

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