The Dumb Ways We Subsidize Renewable Energy

AGORA moderator's picture

JEFFREY BALL: Subsidies for renewable-energy sources have been pretty dumb. That’s not to say subsidizing renewable energy is misguided; essentially every energy source is subsidized, and if the world wants to scale up renewable energy, subsidizing it makes sense. But renewable-energy subsidies have tended to be structured in ways that are sloppy and wasteful.

Two principles should guide energy subsidies — whether for renewable energy, or for coal, or for oil or gas. First, subsidize actual energy production, not merely energy-project investment. Second, subsidize research and development that seeks to cut the costs of producing the kind of juice society wants.

Renewable-energy subsidizes often have been crafted to reward capital investment rather than energy output. One of the primary U.S. subsidies for solar power, for instance, is the so-called investment tax credit, which gives solar-project developers a tax break according to the amount of money they spend on building the solar farm. That tax break isn’t pegged to the amount of electricity that the solar farm produces. So a higher-priced, inefficient solar farm can get more subsidy than a lower-priced, efficient one. China and various European countries also have rolled out subsidies that encourage big spending over big energy production. That’s wonderful for renewable-energy lobbies, but it’s lousy for the taxpayers or electricity-bill payers who foot the subsidy bills.

Beyond smartly structuring whatever subsidies go to today’s renewable-energy technologies, it’s worth subsidizing research and development into new technologies that could produce renewable energy far more cheaply in the future. This is politically hard, because, at least in the minds of politicians, voters tend to feel better about government money that goes to creating local manufacturing jobs today than about government money that goes to lab work that might or might not create local manufacturing jobs tomorrow.

Yet the only way renewable energy is going to create a meaningful environmental difference is if technologies are developed that slash its cost.

SOURCE: Jeffrey Ball, Wall Street Journal Blogs, September 29th 2014: