The argument that subsidy rates for renewable energies are economically draining is severely flawed. Articles, such as “The Energy Subsidy Tally”, published by the Wall Street Journal, fail to evaluate the performance of renewable energies relative to the oil, gas and coal industries in their nascence. The economic reality of renewables is therefore distorted, often in favor of a political agenda.
Early Energy Subsidies Were Higher Than They Are Now
Adjusting for inflation, the earliest subsidies for the oil, gas and coal industries were significantly higher than the subsidies supporting renewable energies today. In fact, research by Nancy Pfund and Ben Healey at Yale University found that the government spent an inflation-adjusted $1.8 billion annually on oil and gas subsidies in early years, while current subsidies for renewable energies amount to approximately $400 million, annually[i]. Accounting for 5 percent of the Federal budget, subsidy dollars for “traditional” energy sources poured significant capital into early research and development, leading to innovation and eventually to reduced costs in these industries.
What’s more, renewable energy subsidies have generated greater economic growth than earlier subsidies for oil and gas did. To this point, Pfund and Healey found that the per-dollar increase in energy generation is ten times higher for current renewable energy subsidies than it was for early oil subsidies. [ii]
Renewables Drive Real Growth
The fact that renewable energy is driving more growth for the U.S. economy than oil and gas did in earlier years should be applauded. However, commonly used metrics do not take into account the significant investment required to integrate such a new, sophisticated industry into the U.S. market. Failure to effectively communicate progress in renewable energies therefore leads to misconceptions about the industry’s economic sustainability.
Policy makers should evaluate the renewable energies sector relative to traditional energies at similar periods in their development. Decisions should be made based on the industry’s proven potential given the benchmarks it has surpassed, despite serious headwinds and lackluster support. If we’re already generating more power, per subsidy dollar, than our competitors did during their formative years, think of how far innovation in the renewable energy sector could take America.
i,ii Pfund, Nancy and Ben Healey. “Should the Government Subsidize Alternative Energy?” Yale School of Management. http://qn.som.yale.edu/content/should-government-subsidize-alternative-energy