Jonathan Lesser
like Jeopardy! On game shows, green energy subsidies have been Congress’s answer to every energy policy issue. The first OPEC oil embargo in 1973-74 spurred decades of energy policy, including the composition of the Department of Energy. Subsidies for wind, solar and hydroelectric power were formally implemented with the Public Utility Regulatory Policy Act of 1978. Reduce the country's dependence on Middle Eastern oil.
PURPA subsidies set off a race by independent developers to build small power plants, requiring utilities to buy the power they output at administrative pricing. In some cases, subsidies are unrelated to the amount of actual electricity produced by the power plant, and are therefore called “PURPA machines” because their real purpose is to obtain subsidies; electricity generation is secondary.
The Energy Policy Act of 1992 modified these subsidies, creating a “temporary” production tax credit for wind power and certain types of biomass power generation. Congress also enacted an investment tax credit, initially for solar but later expanded to all renewable energy sources, with a choice between an ITC and a PTC. Although the PTC was originally supposed to expire in 1999, it has been extended and expanded multiple times, most recently in the Inflation Reduction Act. The PTC now includes all zero-emission electricity generation, including new nuclear power plants. Under the IRA, the ITC has been increased and qualified green energy investments can apply for a credit of up to 60% of their construction cost.
In addition, the IRA also extended the PTC and ITC until greenhouse gas emissions from power generation fall to 25% of 2005 levels, after which they will gradually decrease. According to the U.S. Energy Information Administration, the expected date for achieving this goal is 2048.
The IRA also provides subsidies for “green” hydrogen, i.e. hydrogen produced from emission-free electricity, battery storage facilities and facilities that capture carbon and bury it underground.
Ethanol subsidies have similarly been expanded and increased, governments now subsidize various types of biofuels, and many states have enacted clean fuel standards that, like renewable portfolio standards, require an increased share of biofuels in transportation fuels.
Congress isn't the only one pushing green energy subsidies. Many states, particularly those in the mid-Atlantic, offer their own subsidies, forcing ratepayers to buy power from offshore wind projects at prices many times higher than market prices. From renewable resources that would otherwise never be built.
This subsidy aims to reduce greenhouse gas emissions by promoting new clean energy technologies. It should also accelerate economic growth by creating new “green” industries and high-paying jobs.
There is little evidence for the former. U.S. energy-related greenhouse gas emissions are down nearly 20% from 2005 levels, primarily because natural gas replaced coal as the primary fuel for electricity generation. Between 2005 and 2023, natural gas will produce six times more electricity than wind and solar combined. In 2023 alone, natural gas will produce three times more electricity than wind and solar.
In addition, the growth of subsidies for wind and solar power has distorted wholesale electricity markets, resulting in the need for subsidies to ensure that existing nuclear power plants continue to operate, lest their owners close them and eliminate thousands of high-paying jobs. Creating subsidies to offset distortions caused by other subsidies is certainly one of the definitions of economic madness.
As for stimulating new industry and economic growth, today, U.S. solar manufacturing is moribund, and almost 90% of the solar panels installed in the country are produced in China. All but one offshore wind project under construction or planned are owned by European companies controlled by their respective governments.
The economic cost of these subsidies is borne by ratepayers, who must fund additional deficit spending; electricity ratepayers' electricity bills have soared despite claims that renewable energy is cheaper than traditional generation resources; as refineries have been closed or converted to produce Subsidized biofuels, they pay more for gasoline and diesel.
Rising costs for electricity and transportation fuels raise the cost of producing and distributing nearly every other product, which ripples through the economy, reducing growth and destroying jobs.
As for green energy subsidies spurring the development of new, low-cost clean technologies, wind and solar power, which receive the majority of subsidies, is nothing new. Nearly half a century later, neither is cost-competitive, especially when the additional costs of addressing their inherent intermittency (costs that others must pay) are factored in. And new technologies like direct air capture will only be commercially viable if the U.S. imposes a carbon tax of hundreds of dollars per ton, something few politicians are willing to do.
The vast majority of green energy subsidies are awarded to politically powerful constituencies and businesses, and their primary purpose is not to build better energy mousetraps, but to build only those energy mousetraps that qualify for the maximum subsidies.
Instead, governments could provide subsidies only for genuine R&D efforts in new clean energy technologies, such as advanced and small modular nuclear reactors.
With the country deeply in debt, the idea of wasting hundreds of billions of dollars on green energy subsidies, as required by the Inflation Reduction Act, is long out of date. green energy Jeopardy! It can be a profitable game for the lucky recipient, but in the end everyone loses.
Jonathan Lesser is a senior fellow at the National Center for Energy Analysis and president of Continental Economics.
This article was originally published by RealClearEnergy and provided via RealClearWire.
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