by Dr. Roy Cordato
Senior Economist, Emeritas
Over the last several years there have been a great many claims about energy subsidies and which sources get more, renewables or traditional sources like coal or oil. Representatives of the renewable energy industry and environmental groups often cite total dollar amounts without reference to the amount of energy being generated. Free market analysts typically examine the amount of government subsidies going to renewables versus traditional energy weighted by the amount of energy that they produce. The analysis on both sides of the debate focuses on gross subsidies. What is economically more relevant is net subsidies, which includes not only policies that subsidize the relevant industries but also the value of policies that penalize those industries. The real reason for doing this is to gain a better understanding of the extent to which government policy is influencing the course of one industry’s development relative to the other. Subsidies include not only tax breaks and direct payments, but renewable portfolio standards, CWIP regulations, and special favors like the Price Anderson Act. Penalties include land use restrictions on mining and drilling or the siting of wind turbines, energy efficiency standards, and emission control standards. From the perspective of economics, and liberty, the important question is – how are coercive policies distorting supply and demand relative to a free market that reflects actual scarcities, production costs, and consumer preferences?
Spotlight 446 Energy Subsidies: How comparisons should be calculated but aren’t