It's Time to Kill Permanent Energy Subsidies

Removing subsidies for both dirty and clean energy would force everyone to compete on their own merits.

oil gas pumpsThe federal government should get rid of permanent energy subsidies for all energy sources, including fossil fuels, nuclear, solar, wind, biofuels. This would force everyone to innovate, compete and win--or lose--on their own merits.

On April 25th, even Republican of the House John Boehner admitted that he thought that during a budget crisis such as the one America is facing now, oil companies "ought to be paying their fair share" of tax revenues. President Obama quickly pounced, sending a letter to Congressional leaders in both parties urging them to "eliminate unwarranted tax breaks for the oil and gas industry, and to use those dollars to invest in clean energy to reduce our dependence on foreign oil."

Boehner no doubt wishes he could stuff that genie back in the bottle.

Energy subsidies--both for oil and clean energy--never fail to raise hackles on both sides of the debate. Proponents of subsidies for oil and gas production argue that eliminating them is a euphemism for raising taxes (and raising the price of gas), which would be a job killer at a time when America needs jobs. Proponents of subsidies for clean energy say that without subsidies, renewables have no hope of besting the entrenched oil and gas industries. To both, I say, "Nonsense."

Permanent subsidies don’t create jobs and sharpen the competitive edges of new companies. Instead, they distort markets and kill innovation. How? For starters, subsidies for oil and gas production have long been considered a way to ensure increased production and stable gasoline prices. Given the price of gasoline in your neighborhood today, how would you say that is working for you? Oil is a global commodity; my sense is that the $120 per barrel price is incentive enough to encourage investors to the space.

Subsidies also have long been considered a way to give "infant industries" such as wind and solar a chance to grow and mature before they have to stand on their own--just like parents pay for their kids' educations, clothes, and piano lessons until they are old enough to get a job. Incubation subsidies make sense, but at some point you have to push them out of the house. Maybe that’s why mature renewables remain uncompetitive--they are like kids who keep returning to live with their parents when the real world gets tough.

The truth is that permanent energy subsidies do more harm than good. They don’t encourage established energy providers to innovate ("Why bother when we get free money from the government?") and they don’t force new providers to rapidly scale their innovations. Permanent subsidies are just plain bad for business--and history has shown us time and time again, solutions to big problems that are bad for business have no hope of success.

Phasing out all permanent energy subsidies will give birth to competition for energy on a level playing field. May the best solutions win.

[Photo from Flickr user ecksunderscore]

Jigar Shah is CEO of the Carbon War Room, a nonprofit that harnesses the power of entrepreneurs to implement market-driven solutions to climate change and create a post-carbon economy. 

 

Add New Comment

6 Comments

  • Mohammed Alam

    Jigar: I agree, but it is not as simple as it seems. Let's make sure the country have an energy policy first.

  • Dan Fonseca

    One of the reasons why oil has maintained such a grip on the energy market is due in part to the subsidies it gets from the government. Imagine if we flipped the table and gave the cleaner energy the advantage? I am all for getting rid of subsidies but imagine if the clean energy industry got that helping hand? We would all driving hybrids and generating our own energy on our house roofs by now. Middle Eastern tense would drop dramatically as well...

    -Dan

    www.whoisdanfonseca.com

  • Dan Brantley

    Regarding Mr. Leitten's comment: "Consider some short-term, non-permanent subsidies for the clean energy businesses to let them achieve some scale so the field is indeed level."

    According to an article in the Wall Street Journal from last Saturday:

    "[t]he [ethanol] subsidy has been out there since the 1970s… [i]f they can’t make themselves into a viable economic model in 40 years, haven’t we demonstrated that this is an industry that shouldn’t exist?"

    Congress has an abysmal record when it comes to choosing, backing or subsidizing an industry. Leaving the option of subsidies out there only leaves the option of lobbyists skewing policy to their own ends. For example one of the largest recipients of ethanol subsidies is Archer Daniels Midland - a multi-billion dollar international business. If, with their resources, they can't make ethanol a viable business without subsidies, then Congress should get a clue and end the charade.

  • Keith Bromberg

    There is no way to stop all the money we spend (on soldiers and war) to make the middle east safe for the oil companies to continue pumping and shipping oil. If even a tiny fraction of that amount was spent on renewable energy the cost would plummet both from the subsidy and the discoveries from additional research.

  • Brian Leitten

    There, there. A level playing field -- I think not. Consider some short-term, non-permanent subsidies for the clean energy businesses to let them achieve some scale so the field is indeed level.

  • Trey Connell

    Here here! It's about time someone extended the idea of killing permanent energy subsidies to all energy sources and not just oil and gas companies.