Sunday, May 27, 2007

The Alternative Energy Boom: Subsidy Driven?

Daniel Gross of the New York Times revisits the question of subsidies for clean alternative energy sources in an article on the hot market for financing ethanol and other renewable energy projects.

“There’s a huge boom going on in alternative renewable and new technologies, and it wouldn’t be happening without the bouillabaisse of incentives, mandates, subsidies and the related group of ingredients,” said Daniel Yergin, the chairman of Cambridge Energy Research Associates.

True. On the other hand, many of those subsidies have been in place for years. What is different now is that most of the world (and most Americans) realize that global warming is neither a hoax nor a topic of real debate in the scientific community. Smart companies and smart financiers can see the writing on the wall.

“We think a reliance on market forces is the best way to satisfy any growing fuel requirements, and that any policies should provide a level playing field for all options,” said Rayola Dougher, senior economic analyst at the American Petroleum Institute in Washington, who adds that many of the trade association’s members are responding to government incentives by investing in projects to harness solar, wind and other forms of alternative energy. “We just don’t think at this point that the government should pick winners and losers.”

Well, that's easy to say, when you are representing a fossil fuel industry that enjoys much of its prosperity due to the fact that the environmental costs of global warming, drilling for fuel, oil spills, etc., are not monetized in market prices. In addition to this substantial hidden subsidy, there is another: the U.S. spends billions each year to ensure that the sea lanes to the Persian Gulf are kept open. In other words, we are picking winners every day, and the winners are the large and influential fossil fuels industries that emit global warming pollutants.

The main criticism of alternative energy is that, even with government assistance, it is still more expensive than many traditional sources of energy.

This is lumping many energy sources with different costs and economics together. Wind power, for example, is generally competitive with other options for new electricity generation when its federal incentive is included, and would be still more competitive if environmental costs were reflected in market prices.

Increasingly, however, businesses and consumers are finding that alternative energy and new energy-efficiency technologies can pay real economic dividends.

True. And this holds not just for electricity bills (where, e.g., compact fluorescent bulbs pay for themselves rapidly), but with respect to the new manufacturing jobs that alternative energy industries create.

Finally, anyone who is interested in learning more about the billions of dollars we spend each year on subsidies, not just to new energy sources, but to energy industries that are well established and should have no need of them, should check out the detailed analyses available from EarthTrack.


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