Chris Edwards: Time To End All Energy Subsidies

  • Date: 18/12/16
  • Chris Edwards, Downsizing the Federal Government

All energy subsidies should be ended. The shale revolution shows that businesses and markets can generate major innovations and progress with their own resources. Investors and major corporations have stepped up to the plate and pumped billions of dollars into alternative energy technologies. The U.S. energy sector is vast, dynamic, and entrepreneurial, and it does not need subsidies to thrive.

The federal government has subsidized the energy sector for decades. Subsidies originally stemmed from atomic energy research efforts in the 1950s. Further subsidies were added in response to the energy crisis of the 1970s. And in recent decades, concerns about energy conservation and climate change have prompted the government to expand its efforts further.

Today the Department of Energy (DOE) and other federal agencies run an array of spending programs in support of the conventional and renewable energy industries. The government also provides about two dozen special breaks for energy activities under the income tax. This study focuses on the DOE’s spending record, and highlights some of its misguided and mismanaged projects over the years.

Looking at the DOE’s budget of $27 billion for 2016, the largest activity was nuclear weapons research, development, and security, which cost $11 billion.1 The second largest activity was environmental cleanup of nuclear weapons sites, which cost $6 billion. Most of the rest of the DOE budget was for nondefense activities, as follows:

  • Science. $5.4 billion on physics, fusion energy, computing, and other basic research.
  • Renewable Energy. $2.2 billion on solar and wind power and other green activities.
  • Nuclear Energy. $939 million on civilian nuclear programs.
  • Fossil Energy. $640 million on coal, oil, and natural gas programs.
  • Advanced Research Projects. $382 million on various energy technologies.
  • Electricity Delivery. $250 million on electricity transmission programs.

DOE spending on these sorts of subsidy activities has been fraught with failure. Billions of dollars have been wasted on ill-advised and mismanaged projects, as discussed in the nine case studies below. From the Clinch River Breeder Reactor failure in the 1970s to the recent Solyndra scandal, DOE projects have often turned into boondoggles.

DOE subsidy programs and applied research should be ended as an unneeded intrusion into private business activity. American businesses spend billions of dollars a year on research into conventional and renewable energy sources. One problem with subsidies is that they can steer those private resources in the wrong direction, away from the most efficient energy solutions.

Policymakers often support subsidies to further a grand vision, such as creating a “green economy” or making America “energy independent.” But top-down visions ignore marketplace realities and consumer preferences, and the DOE would be incapable of implementing them with competence anyway, as the following sections illustrate. […]

Time To End Energy Subsidies

U.S. energy markets have changed dramatically over the past decade. Technological advances in the oil and natural gas industries—particularly hydraulic fracturing and horizontal drilling—have led to large increases in domestic production. U.S. imports of oil and gas have plunged, while exports have increased. U.S. businesses and consumers have benefited as gasoline and natural gas prices have fallen in recent years.

This energy revolution was driven by private innovation and competitive markets, and it has created environmental as well as economic benefits. Cleaner natural gas is replacing coal as a fuel source in U.S. electricity production.97 Over the past decade, coal fell from 49 percent of electricity production to 33 percent, while natural gas rose from 20 percent to 33 percent.

The share of electricity production from renewables, such as solar and wind, has also increased, which is generally thought to have benefited the environment. However, no source of energy holds the environment harmless. The Ivanpah solar project kills thousands of birds each year. Wind farms kill hundreds of thousands of birds and bats each year. Dams for hydropower create a range of problems, including harm to wetlands and salmon spawning. And subsidized ethanol for vehicle fuel has a dubious environmental record.

This essay has described some of the failures of DOE’s spending over the decades. DOE programs have distorted markets and have suffered from mismanagement, cost overruns, and cronyism. The federal government creates further distortions with an array of special breaks for energy under the income tax.

All of these energy subsidies should be ended. The oil and gas revolution shows that businesses and markets can generate major innovations and progress with their own resources. Furthermore, investors and major corporations have stepped up to the plate and pumped billions of dollars into alternative energy technologies in recent years. The U.S. energy sector is vast, dynamic, and entrepreneurial, and it does not need subsidies to thrive.

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