IER Senior Fellow Targets Wasteful Energy Subsidies

Posted March 13, 2013 | folder icon Print this page

WASHINGTON D.C. — IER Distinguished Senior Fellow Mary Hutzler will testify today before the before the House Science and Technology Subcommittee on Energy. Hutzler will discuss the market distortions and other problems caused by federal energy subsidies. The transcript of her introductory remarks follow:

Today’s hearing touches upon one of the nation’s more important policy questions: What is the federal government’s authority to ensure a stable, affordable, and reliable energy future, power our economy, create jobs and strengthen our global position?

Tied to this question are concerns about our nation’s fiscal strain, the need for new revenues, and Congress’s responsibility to eliminate wasteful spending and bring federal budget outlays under control.

Similarly, Congress and federal regulators must be careful to encourage – rather than discourage – the responsible development of America’s vast energy resources, the majority of which are currently being produced on non-federal lands.

Recent years have seen a dramatic increase in federal energy subsidies, with the largest increases going to renewable and end-use subsidies. In the three-year period between 2007 and 2010, total federal energy subsidies increased from almost $18 billion to over $37 billion.

Renewable energy subsidies have increased by 186 percent, with wind energy receiving a 10-fold increase and solar increasing by a factor of 6.

Biofuel subsidies increased by 66 percent, and conservation subsidies increased from $369 million in 2007 to more than $6.5 billion in 2010.

Fossil fuels, also, have seen increased federal support – with coal subsidies increasing to $1.3 billion and oil and natural gas subsidies increasing to $2.8 billion.

Nuclear energy subsidies increased 46 percent from $1.7 billion to $2.5 billion.

Clearly, Washington has been on a spending spree. The largest single contributor to this spending was the American Recovery and Reinvestment Act of 2009 – also known as the ‘stimulus’ bill.

By itself, this legislation accounted for 40 percent of the total subsidy value in 2010, and 77 percent of the increase in subsidies from FY2007.

To put these increases in the proper perspective, it is critical for Congress to consider the “return on investment” that the American people have received. In other words, how have the subsidies for different fuels and technologies compared with production levels?

Fossil fuels received 19 percent of the subsidies in 2010, yet these sources provided 77 percent of the production.

Conversely, renewable fuels received 69 percent of the subsidies, but produced only 11 percent of the country’s energy.

These numbers prove more disconcerting when we look at federal spending on subsidies for electricity generation.

In this sector, renewable energy received 55 percent of the subsidies, but generated about 10 percent of the electricity, mostly from hydroelectric power. Wind was the largest subsidy recipient, with 42 percent of the subsidy. Yet wind provided only 2.3 percent of our electricity needs in 2010.

Clearly, the fuels and technologies that receive the overwhelming share of federal subsidies are not producing the largest portion of our energy needs. It is unlikely that this trend will change in the foreseeable future, yet the political support for renewables continue.

IER calculated the federal subsidies and support per unit of electricity production from government data.

According to our calculations, solar received over 1100 times the subsidies coal, oil, and natural gas received, while wind was subsidized over 80 times more than these conventional fuels.

Proponents of increased federal energy subsidies continue to claim that solar and wind are “infant technologies”. Yet these technologies are not new. Wind, for example, has been used to generate electricity for more than 125 years.

Proponents have also used jobs numbers to demand a continuation of subsidies for renewables, with the wind industry winning another year and more than $12 billion through expansion of the Production Tax Credit.

Simply put, the lion’s share of taxpayer dollars are spent on less reliable energy sources that provide negligible benefit to consumers, present increased challenges for our electricity grid, do little to diminish our reliance on base-load fuels, and fail to support the American jobs they purport to create.

To date, over 50 firms receiving taxpayer dollars are either bankrupt or failing financially. Many of these companies had – or currently have – political connections in Washington.

Even more appalling is the fact that the subsidies used to support green energy ventures serve only to make high-income consumers pay marginally less for expensive, luxury items such as electric vehicles – and do nothing to help millions of Americans struggling to pay higher energy costs on lower take-home pay.

The history of subsidies is clear – Washington has a terrible track record of picking winners and losers.

Subsidies take money from taxpayers, do not create the jobs that are claimed, and foster industry dependence on government by removing the market incentive for companies to make their technologies cost-competitive.

Subsidies offset private sector financing, and waste taxpayer money on projects that would never make it off the ground if not for political connections and the funding that these green energy projects receive. If a technology is truly competitive, it would make it in the market place on its own, without massive government support.

Thank you for the opportunity to testify.

 

To read the full testimony, click here.

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Author:
IER