By Andrew Fales
July 26, 2017 at 5:00 am ET
Last week, Morning Consult published an op-ed titled “DOE Study Seeks Answers to Important Energy Questions” in which the author asks several rhetorical questions to introduce an incomplete view that tax subsidies for renewable energy enable “… wind and solar [to] get an advantage … over coal and nuclear power plants.” Intellectual honesty requires acknowledging that coal and nuclear plants are also beneficiaries of government subsidies.
Borrowing from the author’s introductory approach using rhetorical questioning, “Imagine running a business where” certain costs are borne by the general public, but the profits are kept for the shareholders. “On top of that, the federal government provides” special subsidized financing vehicles or and an insurance product that allows for your business to exist since the market is unable to provide it. “Even more frustrating,” shifting customer preferences, led by widely-recognized high tech firms that use incredible amounts of your product, no longer want to buy your product because of how it is made.
“Well, this is how today’s electricity markets function, in which heavily subsidized” coal, nuclear and natural gas-fired electricity are able to “get an advantage over” other forms of electricity generation — but for tax subsidies for renewable energy resources.
Any intellectually honest questions about energy markets require acknowledging that all energy is subsidized. As Ronald Regan said, “facts are stubborn things.” While the questions that United States Secretary of Energy Rick Perry directed the Energy Department to address in his April 14 memorandum are important, he fails to look at the impact that both implicit and explicit government subsidies have on competitive power markets.
As an example of socialized costs with private profits are coal plants that do not bear the full cost of the byproducts related to generating electricity (e.g., emissions, solid waste, cooling water discharge, etc.). Experts can disagree on the cost of these byproducts, but no one disagrees that the profits from these investor-owned coal plants go to the shareholders.
Furthermore, only “mineral or natural resource” businesses such as oil, natural gas and coal (but not wind or solar energy) are able to utilize a government-subsidized financing structuring called a “Master Limited Partnership.” These publically-traded vehicles are not subject to corporate taxation and are extremely tax efficient, which allows those privileged businesses to access investment capital at low rates for large infrastructure projects. This implicit tax subsidy lowers the cost of gas-fired electricity in addition to other implicit subsidies available only to oil and natural gas.
Finally, the nuclear industry is the beneficiary of the Price-Anderson Act, which became law in 1957 (and regularly renewed — most recently in 2005 for 20 years) as an incentive for the private production of nuclear power. In short, because investor-owned utilities are unable to acquire insurance in the marketplace to cover its potential exposure in case of a nuclear disaster, the act covers liability from nuclear incidents above $13.6 billion — with the remaining cost covered by taxpayers. The act is another example of an implicit subsidy and socialized costs, but private profits. In December 2016, the Japanese government estimated the cost of the Fukushima nuclear disaster to be $188.0 billion. Should such a tragedy befall a nuclear facility in the United States, in addition to the untold social and emotional loss, taxpayers would be on the hook for $174.4 billion.
As disagreeable as it may sound, short of eliminating all government energy subsidies, the only way to level the playing field is to provide all forms of energy a subsidy. The production tax credit for wind energy and the investment tax credit for solar face fierce opposition from special interests that derive their wealth primarily from oil and gas, which state their opposition to the PTC and/or ITC because they want “the market, not government, to pick winners and losers.” Yet somehow their concern doesn’t extend to oil and gas subsidies, which are usually buried deep within the tax code — implicit tax subsidies that are at least equal to the tax subsidies for renewable resources.
Our nation’s energy policy is primarily expressed through the tax code and long-held tax incentives for natural gas, oil, and coal mean the playing field is far from level.
The skewed justification to eliminate the PTC and/or ITC is particularly faulty considering the broader context of wind and solar energy in fostering energy independence and a diversified energy portfolio. Wind and solar power reduce air pollution and save water, which is heavily used in other forms of energy production. These societal benefits of wind and solar energy just might be worth incentivizing.
Absent comprehensive tax and other reforms that eliminate all government energy subsidies, the only way to make the playing field somewhat level are to maintain the status quo. Short of that, the government is regressively tilting the playing field toward established fossil fuel and nuclear resources at the expense of important emerging resources, and ignoring free-market principles in the process.
Andrew Fales is an energy investment professional and a senior fellow at Conservatives for Responsible Stewardship.
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