Officials from the U.S., U.K., France, Germany, Italy, Japan, Canada and the European Union set a 2025 deadline for ending most fossil fuel subsidies. But why wait nine more years? Subsidies for any kind of energy, whether wind, solar or fossil fuel, hide the cost of energy.
Government support for the energy industry forces consumers to pay for energy twice – first in higher prices for more expensive sources of electricity and a second time in higher taxes to fund the support.
Subsidies for energy sources are unseen costs of generating electricity that drive up the actual cost. Consumers may only see the price on their bill, but they also pay a second time in their taxes that fund energy industry favorites. Fossil fuels receive billions in subsidies from governments. The International Energy Agency estimated that in 2014 alone, fossil fuel consumption subsidies totaled about $493 billion. All of these government programs for fossil fuels are eventually paid for by taxpayers and ending them is a good start towards a better energy market.
About two weeks ago, the Center for American Progress highlighted just nine programs where the U.S. government serves oil and gas interests instead of the welfare of the average citizen. Largely citing figures from the Joint Committee on Taxation, the Center estimates that ending just those nine subsidies “would, at minimum, save the U.S. Treasury $37.7 billion over 10 years.”
But these policies of government favoritism are endemic in the energy industry. Everyone gets something, not just fossil fuels. Wind and solar farms in the United States, for example, are often only profitable because of the subsidies they collect. For wind, that is the production tax credit (PTC), which provides about a $23 per megawatt-hour subsidy to producers of wind energy. Each time renewing the PTC is up for debate in Congress, the number of planned wind projects plummets. As even the American Wind Energy Association, a group paid to represent the interests of the wind industry, noted in 2013, the most dramatic decline was from 2012 to 2013, when there was a 92 percent drop in installations of wind turbines.
Unfortunately, solar energy isn’t any different. The Government Accountability Office lists 345 programs available to solar energy producers and the influence of these subsidies is immense. In 2017, for example, the Solar Energy Industries Association expects a 57 percent decrease in installed solar capacity if the Investment Tax Credit, just one of the many programs available, is not renewed by Congress.
Even though European countries are often pointed to as evidence that renewable sources can provide the electricity consumers need, just as often the additional cost of those sources is unmentioned. It’s true that European countries generally use more electricity generated from renewable sources, but government mandates, not consumer choice, are often the cause. Still, European consumers bear the brunt of the costs, paying higher prices in addition to funding the subsidies and tax breaks that energy corporations collect.
Germany is a great example of subsidy-driven renewable energy. Its recent record-setting day where renewables delivered 95 percent of the country’s electricity from renewable sources deserves a litany of qualifiers along with any praise. First, it was a notably windy and sunny day, so the usually sporadic nature of renewable energy sources was mitigated. Second, since it was Sunday, many large, industrial power users were not consuming much power, meaning there was less demand overall. Finally, Germany’s renewable market is driven by a feed-in tariff that guarantees favorable prices for electricity generated with renewables. As Umair Irfan, a reporter for ClimateWire, concludes, the costs of the tariff and the renewable energy are ultimately “borne by German utility ratepayers.”
It’s difficult to understate the importance of Irfan’s statement. Subsidies for energy sources burden taxpayers and electricity consumers with extra costs. If you pay for it, you can get the kind of results seen in Germany on Sunday, but don’t think that subsidies actually make energy sources cheaper; they just change who pays the price. Policymakers shouldn’t only end fossil fuel subsidies, they should stop all government support for the energy industry and let consumers choose for themselves.
Ryan Yonk, Ph.D., is an assistant research professor at Utah State University. Smith is a policy analyst at Strata, a research center in Logan, Utah.
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