After taking back the House, Republicans say they want to revamp domestic energy policy. Rep. Cathy McMorris Rodgers (R-Wash.), the ranking member of the House Energy and Commerce Committee and its likely chair next year, said the party’s “energy needs to be cleaner, reduce emissions, prioritize energy security, and keep energy costs down.”
Politicians and bureaucrats have been singing this tune for decades. One thing they’re doing wrong is spending billions of dollars on energy subsidies. Instead of fostering innovation, subsidies have unfairly singled out certain energy sources and technologies, causing both economic and environmental inefficiencies.
In 2017, Management Information Services, Inc. consulting firm analyzed federal energy spending from 1950 to 2016. It found that non-hydro renewables, such as solar and wind, were the biggest beneficiaries of such assistance. Solar and wind received $158 billion, or 16 percent, of federal energy subsidies, mostly through tax credits. By contrast, the nuclear industry received less than half of that, mostly for research and development purposes.
My point is not that nuclear should get more public money. None of these industries should receive this money. If tax credits are given to a particular technology, other products may fail because they do not receive enough capital. These programs then use their resources to lobby for expanded subsidy provision. Better to end the distributions and let these companies compete in the market.
In addition to distorting the market in this way, these improvements are often costly and wasteful. Moreover, they are a very inefficient way to reduce carbon emissions. For example, costs for solar photovoltaic subsidies were as high as $2,100 per ton of carbon dioxide. Other popular measures, such as the electric vehicle (EV) tax credit, have historically been extended to affluent consumers who don’t need the credit — while overlapping with various other government incentives for EVs, including state rebates and other federal mandates.
More problems arise when such subsidies are distributed to less profitable sources, especially when the alternatives do not receive the same government support. If subsidies replace clean sources—for example, wind replaces nuclear—greenhouse emissions will remain unchanged.
Targeted subsidies have also artificially increased energy prices. If you increase solar at the expense of geothermal, for example, that increases the value and cost of solar, and geothermal becomes less competitive. As a result, other sources will be devalued and out of competitive markets.
Energy subsidies lead to wasteful energy consumption, government overuse of less efficient energy sources, and reducing America’s energy security. If Congress doesn’t want to end energy subsidies entirely, it could make energy technologies more competitive by simplifying all 44 energy tax provisions. For example, it could offer companies tax credits based on what their emissions are, without requiring them to use any specific technologies to meet those targets. Unlike targeted subsidies, such performance-based provisions have historically led to lower greenhouse emissions.
Energy subsidies are wasteful at best, crony at worst, and they don’t even achieve their stated goals. Policymakers should remove barriers that prevent creative entrepreneurs from developing cheaper alternatives, and should not unfairly favor specific products.