The Conservative Case Against Energy Subsidies

Posted on Mon 01/11/2016 by

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Nick LorisBy Nicolas Loris ~

It’s hard to take seriously an article with a contradictory title such as “The Conservative Case for Solar Subsidies.”

The words “subsidies” and “conservative” do not belong in the same sentence together when discussing energy policy, unless “eliminate” is in the mix.

Here are some of the major problems concerning Ben Ho’s—who was the lead energy economist for the George W. Bush administration—New York Times article.

Ho makes the argument that “Solar energy prices have continued to fall rapidly, twice as many Americans work in the solar industry as in coal mining, and last year one-third of new electricity generation came from solar power.”

If solar prices continue to fall, making it more competitive with conventional energy sources, then there’s no need to subsidize solar. (Photo: PhotoPQR/Sud Ouest)

If solar prices continue to fall, making it more competitive with conventional energy sources, then there’s no need to subsidize solar. (Photo: PhotoPQR/Sud Ouest)

That’s fine, but if solar prices continue to fall, making it more competitive with conventional energy sources, then there’s no need to subsidize solar. If solar is too expensive, taxpayers should not be subsidizing an uncompetitive technology. Either way, subsidies make no sense.

The fact that twice as many Americans work in the solar industry as in coal mining must be put into the right context. Many of those solar jobs would not exist without the generous subsidies the industry receives. But the subsidies shift labor and capital to the industries politicians want to succeed.

On the other hand, many coal mining jobs would still exist if not for the government’s heavy-handed regulatory fist crushing the industry for little to no environmental benefit.

Ho argues that people want choice and points to a heavily-regulated utility where consumers have no choice over their electricity supply. But the key to more choices at competitive prices is breaking down government-imposed barriers to competition, not forcing someone else to pay it.

Another argument Ho makes is that because other energy sources and technologies receive preferential treatment from the government, solar should too. He says, “Ideally, we would let markets decide the winners on their own, but so long as government is intervening in markets, it should do so in an evenhanded way.”

If that’s the ideal scenario, we should be pushing policymakers to eliminate handouts for everyone, not pile one on top of the other in an attempt to create fair treatment.

The federal government has used a number of mechanisms to pick winners and losers in energy policy. The right conservative policy is to remove all of those market distortions to create that ideal scenario that protects taxpayers, rewards competition and innovations and ultimately benefits families and businesses the most.

Another common excuse for subsidizing green technologies, also used by Ho, is negative and positive externalities. Externalities are the costs or benefits imposed on a third party that was not part of the market transaction, such as pollution.

He writes, “And there’s nothing in free-market economic theory that precludes government support. Markets tend to underproduce what economists call positive externalities—that is, the broad social benefits, like a cleaner environment, that aren’t captured on a company’s balance sheet.”

The existence of externalities is a common justification for policy action and in some instances, such as reduction certain criterion pollutants, can lead to desired outcomes. However, Ho’s argument strays from conservative, free-market logic in several ways.

He ignores that the cost of the proposed government solution could be larger than the externality itself and assumes that solar is a pollution-free technology, which is far from the case. Further, the intermittency of solar forces baseload conventional power to rev up and down, causing the power plants to run less efficiently.

Congress should find market alternatives such as tradable permits for air emissions and water discharges or establishing enforceable private property rights, as opposed to taxpayer-funded handouts.

Furthermore, government bureaucrats and politicians are people too. Their actions are in their own self-interest, such as getting re-elected, not necessarily improving the environment or economic welfare. In many instances, the policy becomes a mechanism to benefit the politically connected few and everyone else pays for the costs—such as solar subsidies.

True conservatives shouldn’t be into the business of making the case for any type of energy source or technology. They should make the case for free markets. Any support for a subsidy is antithetical to that approach.

Nicolas Loris is an economist, and he focuses on energy, environmental and regulatory issues as the Herbert and Joyce Morgan Fellow at  The Heritage Foundation . http://www.heritage.org/

Read more informative articles at The Daily Signal    http://dailysignal.com/