from masterresource
Bill Peacock
“If Americans want to keep their gasoline-powered cars and large refrigerators…and be able to afford travel across state lines and countries…and avoid Europe and California-style energy poverty, their only hope is to convince politicians to end their commitment to renewables and energy of subsidies.
It's common for renewable energy advocates to complain about fossil fuel subsidies. “We heard testimony about the threat climate change poses to entire sectors of our economy,” said U.S. Senator Sheldon Whitehouse.
So, what are our federal governments doing to protect against these threats? In fact, we are subsidizing this danger. As we will hear today, the United States uses taxpayer dollars to subsidize the fossil fuel industry.
Along with Senator Whitehouse, organizations such as the International Monetary Fund, The Future is Electric, and the Natural Resources Defense Council have also joined the ranks.
exaggerate
The amount of fossil fuel subsidies is grossly exaggerated. The White House claims that U.S. subsidies will reach $20 billion in 2022 alone. The International Monetary Fund previously estimated this amount at $660 billion (2020). As shown by the multi-year total Figure 1these statements are not accurate.
Sources: Bennett et al.; Joint Committee on Taxation 2019 and 2023; U.S. Environmental Impact Assessment; Congressional Budget Office
Perhaps these claims are an attempt to distract from the massive renewable energy subsidies that are driving the “energy transition” from fossil fuels to renewable energy. As mentioned above, renewable energy received $74 billion in funding from the US government from 2010-19. It is expected to increase to US$244 billion from 2020 to 2029.
Subsidies are the only reason wind and solar power exist at commercial scale on the U.S. grid. This is a major contributor to the increasingly unsustainable levels of unreliability in the U.S. power grid. The subsidies also represent the federal government's takeover of the U.S. power grid, following takeovers on Wall Street, health care and education.
If Americans want to keep their gas-powered cars and big refrigerators, if they want to be able to afford travel across states and countries, if they want to avoid Europe and California-style energy poverty, their only hope is to convince politicians End subsidies for renewables and all other forms of energy.
Renewable energy subsidies grow rapidly
U.S. government energy subsidies come in three forms: tax expenditures, direct expenditures, and R&D expenditures. Although the proportions vary by energy type, the vast majority of federal energy subsidies are in the form of tax payments or tax credits.
The U.S. Energy Information Administration calculated each form of subsidy for each fuel source from 2016 to 2022. Figure 2 It shows that over the seven-year period covered by the EIA report, renewable energy subsidies were more than three times the size of fossil fuel subsidies: $83.8 billion to $25.8 billion. This relationship between subsidies in EIA reports is also reflected in our study.
Source: U.S. Energy Information Administration
as seen Figure 1Bennett et al. The study found that from 2010 to 2019, renewable energy subsidies were more than double those for fossil fuels, ranging from $74.1 billion to $37.9 billion. Today, this gap is widening. From 2020 to 2029, renewable energy subsidies are expected to be $244.9 billion, compared with $22.5 billion for fossil fuel subsidies. Federal subsidies for fossil fuels were reduced by 40%, while renewable energy subsidies increased by 230%.
Source: Congressional Budget Office and Joint Committee on Taxation
While renewable energy subsidies increased from 2010 to 2022, their growth exploded after the passage of the Inflation Reduction Act, signed by President Joe Biden on August 16, 2022. Figure 3 It shows that subsidies for wind and solar generation from 2023 to 2029 are expected to total $66 billion before the IRA becomes law. Excluding IRAs, the total is expected to be $174.8 billion. But this may underestimate the level of subsidies. It turns out that our initial estimates of CBO use in 2028-29 significantly underestimated actual costs. The increase in renewable energy subsidies contrasts with the estimated decline in fossil fuel subsidies over the same period (Figure 1).
Taking over the U.S. power grid
The IRA's push to increase renewable energy subsidies may mark the final phase of the U.S. government's 30-year effort to take over the U.S. power grid. The impact of subsidies on investor decisions in energy markets highlights the government's success. The premise of this success is that renewable energy subsidies are not only higher than thermal power generation subsidies in absolute terms, but also have greater subsidies per unit of power generation (Figure 4).
Source: Bennett et al.
This shows that renewable energy subsidies have a significant impact on the profits of renewable energy generators. IBISWorld estimates that U.S. wind turbines will generate $49.7 billion in revenue this year, with another $19.5 billion going to solar generators. Totaling $69.2 billion, that means an expected $21 billion in federal wind and solar subsidies through 2024 would give generators a 30% higher return on investment than revenue from electricity sales. Texas is the nation's leading generator of renewable energy, and generators in the state have experienced similar growth. In 2018, federal and state subsidies for renewable energy totaled $2.5 billion. This makes Texas' renewable energy generation profits an additional 28.8% higher than sales revenue.
These taxpayer-funded, government-guaranteed returns are why renewable energy generation is flooding the U.S. grid and pushing aside investments in reliable thermal generation. Renewable energy investment grew from $29.4 billion in 2010 to $55.4 billion in 2019 as investors chased subsidized profits. It is foreseeable that the amount of renewable energy power generation will increase accordingly. In 2014, total renewable energy power generation was 279,242 GWh, accounting for only 6.8% of total power generation. As of last year, renewable energy generation increased by 135% to 653,663 GWh. This is equivalent to 15.6% of total power generation. At the same time, non-renewable energy generation fell by 7.6%.
Texas is also experiencing a renewable energy takeover. ERCOT, which manages about 90% of Texas' power grid, predicts that renewable energy generation will add 58,654 megawatts by 2029 (wind will add 3,628 megawatts, solar will add 36,868 megawatts, and batteries will also receive billions of dollars in subsidies, adding 18,158 megawatts). However, thermal resources increased by only 1,074 MW. It is expected that within the next five years, renewable energy will account for 98.2% of the Texas power grid’s new generation power generation.
Ohio is another state undergoing an energy transition. The Solar Energy Industries Association reports that Ohio commercial solar facilities have installed 2,822 megawatts, an increase of 1,300 megawatts from last year. Ohio ranks 15th in the nation in solar power installation capacity, up from 32nd in 2023. Wind and solar energy currently account for 45.6% of the state's electricity generation, far ahead of thermal power generation which accounts for 33.6%. Most of the rest comes from hydroelectric power.
The cost of the energy transition
The shift to renewable energy comes at a huge cost to Americans. For example, wholesale electricity prices in California last year were $67 per megawatt hour, the highest in the country. California also has the highest residential prices, at 34.3 cents per kilowatt-hour, more than double the national average of 16.4 cents. Texas is not far behind. Home prices are up 27% since 2021, but still lag far behind California's 14.7 cents.
But wholesale prices are another story. Last year's wholesale price was $65, trailing only California. If Texas continues this momentum, home prices will rise along with it. In Ohio, the cost of installing solar has reached $3.7 billion, a steep price for a power generation facility that operates for less than half a day. Ohio home prices have increased 40% over the past decade to 16.6 cents on the dollar. The high cost of renewable energy affects all Americans. Renewable subsidies are expected to cost taxpayers $318 billion from 2010 to 2029 (see Figure 1). The average annual cost from 2023 to 2029 is approximately US$30 billion.
The increase in electricity costs is not limited to rising prices and taxes. The reliability of the U.S. power grid has also taken a hit. It is well known that the reliability value of renewable energy sources decreases as their grid penetration increases. This is not surprising considering that renewable energy can only generate electricity when the sun is shining or the wind is blowing. This “intermittent” nature of renewable energy places a huge burden on grid reliability. Texas is the current model for how renewable energy can improve grid reliability due to blackouts from Winter Storm Uri, but California is no stranger to this. However, reliability costs far exceed the economic costs of outages (costs in Uri, Texas are estimated at $80 billion to $130 billion). Over the past decade, Texas politicians and regulators have forced consumers and taxpayers to pay an average of about $5.8 billion per year to incentivize new natural gas generation to be connected to the grid when renewable energy sources fail. Reliability issues caused by reliance on renewable energy are responsible for high electricity prices in California.
in conclusion
When politicians take over markets, bad things happen. Costs rise, consumer choice is hampered, and well-connected corporations enrich themselves from taxpayers. We're seeing all of these things happening in the U.S.'s energy transition from fossil fuels to renewable energy. The only way to eliminate these and other harms is to let the market work and eliminate all energy subsidies (federal and state) in the United States.
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Bill Peacock is policy director at the Energy Alliance. The Energy Alliance (www.theenergyalliance.com) is a program of the Texas Business Alliance that raises awareness of the energy market issues that matter most to consumers: reliability, affordability and efficiency.
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