The Green Subsidy Controversy

Historical Context of Green Energy Subsidies

Since the first OPEC oil embargo of 1973-74, Congress has been using green energy subsidies as a solution to every energy policy issue. This led to the creation of the Department of Energy and the initiation of subsidies for wind, solar, and hydropower. These were kick-started by the Public Utilities Regulatory Policy Act of 1978, and subsidies for corn-based ethanol were introduced as part of the National Energy Conservation Policy Act of 1978. Both initiatives aimed to reduce the country's reliance on Middle Eastern oil.

The Emergence of PURPA Machines

The subsidies provided by the Public Utilities Regulatory Policy Act (PURPA) encouraged independent developers to build small power plants. The electricity produced by these plants was purchased by electric utilities at set prices. In some instances, the subsidies were not tied to the amount of electricity produced, leading to the creation of so-called "PURPA machines". These machines were primarily designed to extract subsidies, with electricity production being a secondary concern.

Modifications to Energy Subsidies

The Energy Policy Act of 1992 brought changes to these subsidies. It introduced a "temporary" production tax credit for wind power and certain types of biomass generation. An Investment Tax Credit was also enacted, initially for solar energy, but later extended to all renewables. Despite the production tax credit being set to expire in 1999, it has been repeatedly extended and expanded. The Inflation Reduction Act has increased the Investment Tax Credit, allowing qualifying green energy investments to claim a credit of up to 60% of their construction cost.

Future of Green Energy Subsidies

The Inflation Reduction Act also extends the production tax credit and Investment Tax Credit until greenhouse gas emissions from electric generation fall to 25% of their 2005 levels. The U.S. Energy Information Administration predicts that this goal will be achieved by 2048. Subsidies are also provided for "green" hydrogen, battery storage facilities, and facilities that capture and store carbon underground.

State-Level Green Energy Subsidies

Congress is not the only institution providing subsidies to green energy. Many states have also offered their own subsidies. The mid-Atlantic states, for instance, are compelling ratepayers to purchase electricity from offshore wind projects at prices significantly higher than the market rate. States have also implemented renewable portfolio standards, which mandate electric utilities to source increasing percentages of electricity from renewable sources.

Impact of Green Energy Subsidies

The aim of these subsidies is to reduce greenhouse gas emissions and stimulate economic growth by promoting new clean energy technologies and creating new "green" industries and jobs. However, evidence suggests that U.S. energy-related greenhouse gas emissions have decreased primarily due to natural gas replacing coal as the primary fuel for electricity generation. Furthermore, the growth in subsidized wind and solar generation has distorted wholesale electric markets, necessitating additional subsidies to ensure existing nuclear plants continue operating.

Costs of Green Energy Subsidies

The economic costs of these subsidies are borne by taxpayers, electric ratepayers, and drivers. Despite claims that renewable energy resources are less costly than traditional generating resources, electric rates have increased. The costs of electricity and transportation fuels also raise the costs of producing and distributing almost everything else, which impacts the entire economy, reducing economic growth and eliminating jobs.

Alternatives to Current Green Energy Subsidies

Instead of continuing with the current subsidy system, the government could focus subsidies solely on the research and development of new clean energy technologies, such as advanced and small modular nuclear reactors. With the country deeply in debt, spending hundreds of billions of dollars on green energy subsidies, as proposed by the Inflation Reduction Act, may not be the most efficient use of resources.

Bottom Line

The debate around green energy subsidies is complex and multifaceted. While these subsidies have been instrumental in promoting renewable energy sources, they have also led to economic distortions and increased costs for taxpayers and consumers. It is crucial to consider whether the current subsidy system is the most effective way to achieve our clean energy goals, or whether a different approach may yield better results. What are your thoughts on this issue? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, delivered every day at 6pm.