Contents

Introduction

How Subsidies Promote Poor Energy Policy

How Subsidies Promote Poor Economic Policy

How Much Of My Energy Cost Is "Hidden"?

Resources

Links

Introduction

"Subsidies" are traditionally defined as government-provided goods or services which would otherwise have been paid for by the "producer" or the consumer themselves. We expand this definition to include government activities, insurance, or guarantees which reduce the risk of doing business:

Subsidy is a general term for a variey of hidden costs, which we pay to the government, who then gives it to "producers"; this cost is then hidden in the price we pay for goods or services.

Subsidies are important to understand, as they influence our choice of energy sources over the long term, leaving society open to the full range of "side-effects" associated with fossil fuel use in the process. Subsidies artificially lower the cost consumers think they are paying, because a portion of the actual cost is "hidden" in taxes. If such costs given to fossil fuels were not hidden, solar energy and other renewable alternatives could be easily compared on "a level playing field." In general, subsidies for conventional fuels promote poor energy policy as well as poor economic policy.

How Subsidies Promote Poor Energy Policy

ï Social costs (externalities) are paid through taxes instead of energy prices, distorting the true cost of energy.

ï Subsidy spending favors energy supply over energy efficiency by ratio of 35 to 1.

ï Subsidies favor mature, conventional energy sources (such as fossil fuels, fission nuclear & hydro) over emerging sources (like solar and wind) by a ratio of 8 to 1.

ï 58% of energy subsidies go to fossil fuels (20% of fossil fuels for natural gas - the cleanest)
ï 29% of energy subsidies go to nuclear fission

ï Subsidies encourage use of polluting and environmentally risky energy sources (such as fossil fuels and nuclear energy).

ï Years of subsides to conventional sources makes a "level playing field" extra difficult to achieve for renewables, as conventional sources have a huge head start.

How Subsidies Promote Poor Economic Policy

ï Skewed subsidies steer even larger amounts of private investment into capital-intensive but uneconomic projects, forcing up interest rates.

ï Uneconomic energy investments make everyone pay bloated energy bills for decades to come, making American industry less competitive abroad (export fewer goods, import more oil, increasing trade deficit).

ï The increase in renewable energy's annual output alone during 1979-84 exceeded all Arab oil burned in America in 1984.

ï America's energy bills in 1985 were $150 billion per year less than they would have been at 1973 levels of efficiency, yet if we were now as energy-efficient as Western Europe is, that annual bill would fall by an additional $200 billion - enough to balance the federal budget.

How Much Of My Energy Cost Is "Hidden?"

The actual amount of "hidden cost" for an individual ratepayer is nearly impossible to address. Not only is it difficult to total up things like defense of foriegn fuel supplies, but the actual fuel mix used to generate electricity is constantly changing. The best resource I know of for specific cost information is the document "Federal Energy Subsidies: Energy, Environmental and Fiscal Impacts," by the Alliance To Save Energy (see below).

Resources

"State of the World - A Worldwatch Institute Report on Progress Toward a Sustainable Society," Lester R. Brown, Christopher Flavin, Hillary French, et.al.; W.W. Norton & Company, New York & London; 1997. This book is available, or can be ordered, most bookstores.

"Reforming Susidies," Chapter 8, was written by David Mallin Roodman, and provides a very current review of the impact of subsidies on the economy and environment.

"Federal Energy Subsidies: Energy, Environmental and Fiscal Impacts", The Alliance To Save Energy; April 1993.

"Federal Energy Subsidies: Energy, Environmental and Fiscal Impacts," Alliance To Save Energy, Fiscal Policy Publications; May 1993; 100 pages. $20. Item 101.

http://www.ase.org/catalog.htm#also_recommended_buildings

Provides a picture of the nature and extent of federal subsidies to energy supply and energy efficiency. Quantifies all tax expenditures and agency program subsidies, along with several subsidies identified as "other interventions." Published to help promote more informed decisionmaking by providing a framework for analyzing existing policies and new policy proposals.

"The Right Climate for Carbon Taxes: Creating Economic Incentives to Protect the Atmosphere," Published in conjunction with the World Resources Institute.

Argues that a tax pegged to the carbon content of fossil fuels would reduce carbon dioxide emissions and ñ if coupled with lower taxes on income and investment ñ could promote economic growth and development. 34 pages. $12.95 plus $3 shipping and handling.

To order, write: WRI Publications, P.O. Box 4852, Hampden Station, Baltimore, MD 21211. August 1992.

"Hiding The True Costs of Energy Sources", The Wall Street Journal, Sept. 17, 1985, by H. Richard Heede and Amory B. Lovins.

"A preliminary Assessment Of Federal Energy Subsidies In FY1984", Testimony submitted to the Subcommittee On Energy Conservation And Power, Committee On Energy And Commerce, United States House Of Representatives, H. Richard Heede, Research Associate, Rocky Mountain Institute.

Letter to Daniel Wm. Fessler, President, Calif. Public Utilities Commission regarding R.94-04-031 and L.94-04-032 (Orders Instituting Rulemaking and Investigation on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation), from Amory Lovins, Rocky Mountain Institute, August 17, 1994.


"Buildings Campaign Launched in DC", Solar Today, Donald Aitken; July/August 1993.

Aitken, past Chairman of the American Solar Energy Society (ASES) and a participant at a 1993 briefing on Capitol Hill to kick off the "Buildings for a Sustainable America Education Campaign", stated:

"Investments in renewables and energy efficiency yield twice the number of jobs as in energy supply"

Aitken also said that the U.S. is now almost 40 years behind the Japanese in energy efficiency, and that both German and Japanese manufacturing is twice as energy efficient as American. Aitken showed how homes using solar energy can be built almost anywhere in the U.S., save money and improve comfort for homeowners, be profitable for utilities and increase sales for builders.

Links to Subsidy & Externality Resources

These links to subsidy and externality resources will take you to a wide variety of resources available, both on and off the internet.