Renewable Energy Incentives Historically and Economically Justified
I recently read comments by Forrest Lucas, the owner of Lucas Oil (which has its name on the stadium where the Indianapolis Colts play), opposing the construction of a biomass generating facility in Crawford County, Indiana. The article in the Louisville Courier-Journal by Grace Schneider quotes Mr. Lucas as saying, apropos of government-sponsored grants, property tax abatements, state incentives and federal tax credits for such facilities:
If these guys come in with their own money, it's one thing. This is about America wasting huges sums of money. . . This is not just about Crawford County or the state of Indiana. It's not a good thing for the country.
which made me wonder if government (public) support for those developing industries is such a good thing. Afterall I strongly believe, as the country at large does, that free market capitalism is best way to create national wealth and raise the standards of living for the greatest number of people. I take from his comments that Mr. Lucas believes that, too.
But after thinking about it I concluded that public programs designed to support and encourage the development of alternative and renewable energy sources is a good thing. There are three basic reasons for this conclusion:
- Public support for new technologies and industries, whether through tax policies or direct subsidies, have been utilized from the country's beginning to create a economic growth;
- Considering the significant public subsidies to fossil fuels, alternative and renewable energy sources suffer, at least partially, from an artificially created competitive disadvantage;
- Based on our ongoing need to develop clean energy and foster energy independence, no source of energy should be eliminated from the portfolio yet.
GOVERNMENT SUBSIDIES TO NEW INDUSTRY AND INFRASTRUCTURE HAS HISTORICALLY BEEN THE CATALYST FOR ECONOMIC GROWTH
Anyone with a smidgen of knowledge about the economic history of this country knows that free markets are aided and sustained by government rules and regulations, government investments, and government tax policies. Certainly the Father of free market capitalism as practiced in the United States, Alexander Hamilton, understood that. Just read Hamilton's First and Second Reports on Public Credit and his Report on Manufactures. Likewise, the tariffs of 1816 and 1828 were taxes designed to protect and spur the growth of particular economic sectors. That has been the case throughout the country's history. In his book Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now, the investment bankerFelix Rohatyn eloquently describes some of the government programs upon which our free market economy is built:
- The Erie Canal
- The Transcontinental Railroad
- The Rural Electrification Administration
- The Interstate Highway System
There are other, but you get the idea.
RENEWABLE ENERGY SOURCES COULD COMPETE BETTER ECONOMICALLY BUT FOR THE GOVERNMENT SUBSIDIES TO FOSSIL FUELS.
Fast forward to today and consider the debate on government tax policies and other incentives that are designed to spur the development of alternative and renewable forms of energy. Opponents of these forms of energy often say that they are too expensive, that the generating capacity of wind, solar, biomass and other forms of renewable energy would not exist without government subsidies. That is undoubtedly true. But here is another truth: those forms of generation are at a greater competitive disadvantage than they would be if not for government subsidies to fossil fuels.
According to a study by the Environmental Law Institute, titled Estimating U.S. Govenrment Subsidies to Energy Sources: 2002-2008, federal government subsidies for fossil fuels were nearely 2.5 times greater ($72 billion) than for renewable energy sources ($29 billion) over that time period. Here is a list of just some of the government largesse for fossil fuels:
- Oil and Gas Exploration & Development Expensing -- Internal Revenue Code (IRC) Section 617: $14 billion, a deduction for wages, costs of machinery, etc. for oil and gas exploration and development. So, if you are exploring for or developing oil and gas, then the tax payers are funding that up to $14 billion for wages, equipment, etc.
- Exclusion of Alternative Fuels from Fuel Excise Tax -- IRC Section 6426(d): $343 million, applies to liquified petroleum gas, compressed natural gas, liquified natural gas, liquid coal, and liquid hydrocarbon from biomass. If you are developing these fuels, there is another big sum courtesy of the tax payers.
- Credit for Clean Coal Investment -- IRC Section 48A and 48B: $186 million. A worthy goal, clean coal, but keep in mind that it is the tax payers who are making it possible.
There are many other subsidies listed in the ELI report. The point here is not that these subsidies are meritorious or unmeritorious. The point is that opponents of government subsidies to renewable energy development -- whether from favorable tax treatment or direct government grants -- as being too expensive, or not a free market model, or is "wasting huge sums of money," or is "just not a good thing for the country," should keep if mind that our current fossil fuel based economy is itself supported by government subsidies.
NO SOURCE OF ENERGY SHOULD BE ELIMINATED FROM THE PORTFOLIO: At this point in the energy debate, and for the forseeable future, all options for energy production should be fairly and honestly explored, whether biomass, clean coal, nuclear, wind, or solar. It may not be correct to say that electric energy generation from coal or other fossil fuels is cheaper than generation from renewable resources when the price of coal is artificially lowered by government subsidies (e.g. Other-Fuel Excess of Percentage over Cost Depletion -- IRC Section 179A: $209 million, a 10 percent deduction of gross income from coal production). If the goal is to reduce greenhouse gas emissions and promote energy independence, then perhaps tax payer subsidies to fossil fuels, a fully developed and mature industry, should be ended. Let fossil fuel compete on its own, and recognize the hidden cost in its use. On the other hand, continued and enhanced assistance to infant renewable energy industries with the goal of generating clean energy, new jobs, products that can be manufactured in the United States and exported abroad, would be true to the forms of government assistance to free market capitalism envisioned by Hamilton.
HOW CAN ARKANSAS ENCOURAGE DEVELOPMENT OF RENEWABLE ENERGY?
- Adopt a Renewable Portfolio Standard: According to the U.S. Energy Information Administration report of April 2009, thirty-five states have RPS's or mandates. Arkansas is not among them. A RPS in Arkansas could go a long way to spurring private investment in developing our renewable energy resources such as biomass.
- Greater Participation in the APSC's Sustainable Energy Resources Docket. A broader spectrum of business, industry, landowners, municipalities and other governmental units should participate in this docket to explore more ideas for the development of sustainable energy resources.
