With an annual budget of $5 Billion, alternative energy sits high on Congress's list of spending allocations (How much does the Federal Government spend on energy-specific subsidies and support?). Subsidization, or special government funding, of alternative energy has been a three decade long program run by the government and paid for by the tax payers. The U.S. isn't alone in subsidy spending, as even now, our neighbor Canada is spending millions on wind energy without profit (Stock, Peter). Sadly when looking at the subsidization of alternative energy in our country, one can see repeated failure and waste. The evidence will illustrate several conclusions. First, alternative energy is neither necessary, nor marketability competitive. Second, government subsidies, as compared to the free market, will continue to fail in their efforts to develop alternative energy. And third, the best policy to adopt would be to cut alternative energy subsidies, and return that money to private energy investors.
When hearing people are searching for an “alternative” form of energy, one must assume there exists a problem with the current source of energy. In the case of the current energy source, fossil fuels, the primary argument against them is their contribution to the theory of global warming. As Ronald Bailey, a journalist for Reason Magazine, so aptly put it, “If climate change were not a concern, humanity could easily power its economic development using abundant coal and natural gas supplies for decades to come.” Yet when one looks at the facts, fewer and fewer Americans actually believe in the theory of global warming. Tara Laskowski points out that according to the George Mason University's 2010 study, only 50% of Americans are somewhat or very worried about global warming, and even less believe humans are responsible for the purported crisis. Fewer still are the people who are willing to actually put their money behind their words and pay for “green energy”. When eight independent energy utilities offered “green energy packages” to customers, costing between 0.4 and 20 cents per Kilowatt more than fossil fuel generated electricity, only 1.5% of the customers were willing to shift to green energy (Van Doren, Peter and Taylor, Jerry. 2002). If it's not global warming one would assume it had something to do with pollution. However, alternative energy sources are garnering as much environmental opposition as the currently used fossil fuels. As the Cato institute's Robert Bradley points out, “Every major renewable energy source has drawn criticism from leading environmental groups: hydro for river habitat destruction, wind for avian mortality, solar for desert over-development, biomass for air emissions, and geothermal for depletion and toxic discharges.”
If supposed environmental concerns aren't important enough to compel the public to buy into alternative energy forms, then in alternative energy would have to be competitive on the energy market. Competitiveness of an alternative product, be the product a new form of energy or a new car, is necessary to insure people will purchase the alternative, verses the established product. To illustrate this point, take for example a car. If a car running on gasoline can drive 17 miles with one gallon of gas, and only cost a customer $2.40, then that car possess a certain level of value. In comparison, if another car runs on Ethanol and is only able to drive fifteen miles with one gallon of ethanol, and costs you $4.00, the ethanol car possess less competitive value. In the energy market, the primary concern is how much energy you can obtain at the lowest possible cost. As was illustrated with the electric energy sector, fossil fuel's are still cheaper, even with $5 Billion of subsidies pouring into alternative energy to make the alternative cheaper. This principle is again established when one looks at ethanol's current subsidized prices. As Jerry Taylor points out in 2008, ethanol has been subsidized for nearly thirty years and still it's $1.40 per gallon more than gasoline, even after adjusting for the fact that ethanol is a weaker fuel. The message is clear, alternative energy is simply not competitive.
Having established that alternative energy is neither necessary nor competitive, one must then ask if government subsidies can artificially jump start alternative energy sources into being competitive. The argument offered in favor of alternative energy subsidies is that infant technologies are expensive and thus require certain amounts of infrastructure to become cheap. It is argued that just like the automobile was very expensive when it was first invented, alternative energy just needs to become more wide spread. The problem with this argument is two fold.
First, subsidization of alternative energy has been going on for over thirty years. Now, after all that time and money, ethanol companies are on the verge of collapsing even with the government subsidies. As Ronald Bailey points out, the second largest ethanol producer filed for bankruptcy in October of 2009, and behind them 40 more major ethanol producers are potentially facing bankruptcy as well..
Secondly, the government simply does not have the ability to predict which form of energy will be most successful. This is clearly illustrated by the wasteful legacy left by the government subsidy programs. Clean coal, and alternative energy process for burning coal with out pollution, was the subject of the government's subsidies for sometime. When the Government Accountability Office audited the government's two decade long subsidization program, they found that of the 13 examined programs, 8 of them had serious financial problems or delays, 6 were behind schedule by up to seven years, and 2 of the programs went bankrupt (Van Doren, Peter and Taylor, Jerry. 2008). These kind of results are seen across the board. The government simply does not have the ability to omnipotently choose a specific type of energy and force it to be successful. Robet Bradley put it best when he said, “The lesson has been learned the hard way that government invariably picks losers, the market picks winners, and "infant industries" requiring government favor have trouble growing up.”
The only alternative to government subsidies, is private producers responding to consumer's needs. This system of private producers driven by consumer's needs is referred to as a free market. A market not distorted by government subsidies and regulations is free to allow producers to produce what consumers desire to consume. The reason the free market is successful is due to competition. If Exxon oil and gas does not provide cheap quality gas to car driving consumers, then Shell oil and gas will step in and offer cheap quality gas. If Shell steps in, then Exxon either competes with Shell or Exxon goes out of business. As the continued existence of both of these companies shows, companies prefer to compete rather than go out of business. Consumers need fuel which that is cheap, meaning the fuel source has to be sustainable. Consumers need a fuel that produces enough energy per gallon, meaning the fuel has to be powerful. Consumers also need a fuel that is not going to seriously damage the environment, meaning there has to be a cleaning process, or clean type of energy. Which ever private producer offers the best energy on the criteria just mentioned, they will get the most business. In the case of government subsidies, the government eliminates competition by spending tax money making expensive low quality products artificially cheap.
Say for example ethanol costs $4.00 a gallon, and makes your car drive 15 miles with each gallon. Then the government's subsidies pay for half the price, and makes it $2.00 a gallon to drive 15 miles. The normal gas costs $2.50 and gets your car 17 miles, so with government subsidy the ethanol is cheaper. However, the reality is all the government is doing is making an expensive low quality product cheap, and they are using tax money to do so. Currently there is a huge disparity between the amount of subsidies put into alternative energy, and their contribution to the economy (Bezdek, Roger H., Wendling, Robert M.). If the subsidies were cut, the best fuel would become popular and the fuels that don't work wouldn't become popular. As the Cato institute's Peter Van Doren and Jerry Taylor put it, “If alternative energy makes economic sense, market actors will quickly figure that out from the price signals they receive and invest accordingly.” If the alternative is competitive, it will become the popular fuel without the government's subsidies.
It is clear that alternative energy is neither necessary, nor marketability competitive. It is also evident that a free market, rather than government subsidies, will produce alternative forms of energy at the time they become necessary. The only question left pertains to what policy should be adopted for the future. Abolition of subsidies is obvious, but the question of what to do with the extra money still stands. If this money was to be given back to tax payers by cutting fuel taxes, it would mean gasoline would be cheaper, and the superior fuel type would be more clear in the market. Currently, an average of between 45 and 50 cents per gallon of gas price is due to government tax (Motor Fuel Taxes). If subsidies and taxes were cut, it would mean instead of paying $2.50 per gallon, one would pay $2.00 per gallon. The less money private producers are spending on gas, means the more money they have to spend on business and investments. Examples of the private industry's success in developing and investing in technology can be seen in the inventions throughout history. The automobile needed no government assistance to be developed, neither did the light bulb, nor the airplane. Even fossil fuels were discovered and developed by private citizens. History shows few, if any, examples of how government subsidies have been responsible for developing commercially successful technologies. To expect that the government is suddenly going to be necessary to invent an alternative form of energy is to ignore all of history.
Looking back, three points are made clear throughout the evidence. Firstly, alternative energy is neither necessary nor competitive. Secondly, subsidies, as compared to the free market, will continue to be a waste of tax money. And thirdly, returning the subsidies to the private energy sector is the best way to find and develop the best source of energy. Historical precedent shows that private investors in a free market are the people best equipped to invest, research, and develop technology. By cutting subsidies and using that surplus of money to cut fuel taxes, the energy market can be substantially more clear. The clearest road is the surest road to success. Until subsidies are eliminated clarity in the energy market is marginal at best. The best Americans can hope for with the current policy, is that the government might accidentally happen upon the best alternative. The government's track record makes a solid case against this gamble. Again, in the words of Robert Bradley, “The lesson has been learned the hard way that government invariably picks losers, the market picks winners.” If citizens expect to find a clean sustainable alternative energy source, giving government tax money to gamble with is far from the best option. The surest policy is to let producers produce, what consumers will consume.
-Work Cited-
“How much does the Federal Government spend on energy-specific subsidies and support?” U.S. Energy Information Administration. 8 September, 2008. Web. 13 Nov. 2008 .
- Stock, Peter, Report / Newsmagazine (Alberta Edition); 6/24/2002, Vol. 29 Issue 13, p18, 2/3p, 1 Color Photograph
Bailey, Ronald. “It's Alive: Alternative energy subsidies make their biggest comeback since Jimmy Carter.” June, 2009. Reason.com. Web. 13 Nov. 2008.
Laskowski, Tara "American Opinion Cools on Global Warming." Jan. 27, 2010. George Mason University. Web. 21/11/2010
Taylor, Jerry and VanDoren, Peter. “Evaluating the Case for Renewable Energy: Is Government Support Warranted?” January 10, 2002, Policy Analysis No. 422. Web. 21 Nov. 2010
Bradley, Robert “Renewable Energy: Not Cheap, Not Green” August 27, 1997. Cato Policy Analysis No. 280. Web. 21 Nov. 2010
Taylor, Jerry “Oil Subsidies in the Dock” Cato Institute April 2, 2008. Web. November 21, 2010
Van Doren, Peter and Taylor, Jerry “The Case Against Government Support for Alternative Energy.” 24 October. 2008, Cato Institute. Web. 13 Nov. 2008.
Bezdek, Roger H., Wendling, Robert M., “The U.S. Energy Subsidy Scorecard” Issues in Science & Technology, 07485492, Mar2006, Vol. 22, Issue 3
“Motor Fuel Taxes” Energy American Petroleum Institute . October 2010. Summary Report. Web. 21 Nov. 2010