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Category — Subsidies

Heritage Foundation List of Failing or At-Risk Taxpayer Energy Ventures (34 companies, $7.5 billion, and counting)

The Heritage Foundation (founded 1980) is a think-tank leader in the current debate over energy policy and related environmental issues. Heritage’s energy worldview is stated at their website:

Energy and environmental policy is a national priority. Lawmakers should implement a long-term plan that allows free markets to balance supply and demand, ensures reliable and competitively priced energy for the future, and creates incentives for responsible stewardship of the nation’s resources and environment.

A recent report, “President Obama’s Taxpayer-Based Green Energy Failures,” lists 34 examples of “faltering or bankrupt green-energy companies” (with * denoting companies that have filed for bankruptcy). The at-risk total is approximately $7.5 billion, of which $1.6  billion is in receivership.

The numbers will only get higher. Yesterday, it was reported that the Solyndra loss could be $849 million (not $535 million). And there might be a rush after the election with or without an extension of the Production Tax Credit.

Here is the Heritage Foundation list: [Read more →]

October 23, 2012   5 Comments

‘Gresham’s Law of Green Energy’ (Jonathan Lesser on bad energy driving out good)

[Editors note: this post is a summary/review of the article by Jonathan Lesser, "Gresham's Law of Green Energy: High-Cost Subsidized Renewable Resources Destroy Jobs and Hurt Consumers" (Regulation magazine, Cato Institute).]

“Industries that require never-ending subsidies simply cannot increase overall economic welfare. To conclude otherwise is to believe in ‘free-lunch’ economics of the worst kind. Yet, free-lunch economics are driving the push for renewable energy.”

- Jonathan A. Lesser

Jonathan A. Lesser, of Continental Economics Inc., has written a penetrating essay describing the unmet promises of subsidies to so-called green energy (or politically correct, nonhydro renewables). He looks at the supposed benefits of these subsidies and the associated costs and comes to a familiar conclusion: government-subsidized energy is uneconomic energy.

The arguments for green energy subsidies are numerous; perhaps most used are those pertaining to putting people to work and even creating wholly new industries that will re-invigorate the entire economy (the Obama fantasy). At its core, Lesser’s refutation of these notions provides quite a good lesson in some of the foundational theories of microeconomics (and good common sense).

Lesser begins by exploring the history of electricity markets, and how with the creation of markets for “installed capacity” (backup power to meet peak demand), several states reacted with price-suppression policies. The principle lesson one learns in microeconomics is that markets are intended to get the prices “right”. If extra capacity comes free, that drives down the market clearing price other utilities can receive, thus meaning they exit the market (cannot make a profit). Less competition is never good for consumers.

He refers to this principle as “Gresham’s Law of Green Energy,” an application of a principle that says that bad can drive out good (rather than the other way around) from government interference with consumer preference in an open market. Elsewhere in the piece he uses a more appropriate metaphor: transferring wealth instead of creating it. Subsidies for green energy are taken from taxpayer dollars, meaning that you and I are less well-off while the owners and employees of green energy companies are better off. But factor in ratepayers, all losers, and the wealth transfer is negative and pernicous indeed. [Read more →]

February 1, 2011   2 Comments

Obama’s Proposed Oil and Gas Tax Hike: What Has the Industry Done for Us Lately?

So let me see if I have this right – President Obama’s budget proposes to increase taxes on oil and gas by $36.5 billion over the next ten years, while laying out even larger sums for more politically favored energy sources – especially wind and solar.  And the reason advanced for this is that these “subsidies [sic] are costly to the American taxpayer and do little to incentivize production or reduce energy prices.”

Neither of the claims in this statement is true.  In fact, they are the opposite of truth.  The oil and gas industries are major sources of revenues for governments at all levels in the US, and production incentives have contributed to a stunning turnaround in the country’s natural gas supplies – with higher production and lower costs a major feature.

Let’s take a look at these two myths individually.

Myth 1: The oil and gas business receives significant subsidies from the federal government.

Fact:  Oil and gas production are major contributors of tax and royalty payments to all levels of government. Fortunately, for those interested in facts, the federal government publishes a lot of them, and they tell a stubborn truth.  The oil and gas production business pays about $140 billion annually in royalties and corporate income taxes to the US government.

In comparison, far from being a beneficiary of government subsidies, oil and gas producers receive little–about $2.2 billion in 2008. [Read more →]

February 24, 2010   13 Comments

Radioactive Corporate Welfare

A good default proposition regarding the government’s role in the economy would state that the government should not loan money to an enterprise if the enterprise in question cannot find one single market actor anywhere in the universe to loan said enterprise a single red cent.  It might suggest – I don’t know – that the investment is rather … dubious.

Alas, like all good propositions regarding the government’s role in the economy, this one is being left by the roadside by the Obama administration.  Unfortunately, the only complaint being made by a not insubstantial segment of the political Right – frequently, the political crowd that is busy decrying “Bailout Nation” – is that the loan guarantees are not fat enough.

I write, of course, about the $8.3 billion federal loan guarantee announced by President Obama this week for Southern Company to build two new nuclear power plants.  The money will be used to guarantee the loans being made by the federal government (via the Federal Financing Bank) to partially cover the cost of Southern’s projected $14 billion nuclear construction project at their Vogtle plant near Waynesboro, Georgia

The loan guarantees were authorized by Congress in the 2005 Energy Policy Act and, we are told, are the first installment on a total package of $54 billion that the President would like to hand out to facilitate the construction of 7-10 new nuclear power plants (Congress, however, has only authorized $18.5 billion to this point). 

The claim being made by some – that the loan guarantees are necessary to jump-start investor interest in new nuclear power plant construction – is not quite correct.  Even these lavish loan guarantees aren’t enough to do that.  In a letter to the U.S. Department of Energy dated July 2, 2007, six of Wall Street’s s then-largest investment banks – Citigroup, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley – informed the administration that, contrary to the government’s expectations, anything short of a 100 percent unconditional guarantee would be insufficient to induce private lending. 

Why is it risky to build nuclear power plants?  [Read more →]

February 18, 2010   16 Comments

Busting the "Clean Energy Bank" (another problem with Waxman-Markey)

Buried within the controversial Waxman-Markey “cap and trade” bill to reduce greenhouse gas emissions (formally known as HR 2454, “The American Clean Energy and Security Act”) – a bill that may well reach the House floor for a vote before the July 4th recess – is another fairly arresting proposal: the creation of a federal “clean energy bank.” The idea (found in subtitle J, addressing “Nuclear and Advanced Technologies”) is to use federal tax dollars to provide subsidies (in particular, direct loans, letters of credit, loan guarantees, and insurance products or other credit enhancements or debt instruments) to private business in order to “promote access to affordable financing for accelerated and widespread deployment” of clean energy, energy infrastructure, energy efficiency, and manufacturing technologies.

 The Senate is considering similar legislation in the form of S 949, “The 21st Century Energy Technology and Deployment Act,” but it would go further and also allow indirect subsidies as well, including securitization, indirect credit support, the acquisition or selling of debt or interest in the debt; and secondary market support through lending on the security of debt.  That bill will likely be passed by the Senate Energy Committee this week as part of a larger energy bill titled ”The American Clean Energy Leadership Act.” [Read more →]

June 8, 2009   5 Comments

Windpower: Response to Comment (on 4 cent/kWh wind and interfuel subsidies)

[Ed. note: Occasionally a comment is important enough to deserve its own post, rather than a reply in the comment section. This is in response to Comment #1 of "A Texas Sized Energy Problem" here.]

The Energy Information Administration, an independent agency within the Department of Energy, in its 2008 report, Federal Financial Interventions and Subsidies in Energy Markets 2007, compares subsidies related to electricity production, the sector where wind is used. In table ES5, they show that the traditional fuel sources (coal, natural gas, and petroleum liquids) received $1,081 million in Federal subsidies for electricity production in 2007, while wind received $724 million, a ratio of 1.49. However, in that year, the traditional fossil sources generated 2,865 billion kilowatt hours (kWh), while wind generated 31 billion kWh. On a per unit basis, the traditional sources, received a subsidy of $0.00038 per kWh, while wind received a subsidy of $0.0234 per kWh.

Also, the Texas Comptroller’s 2008 Energy Report you cite indicates that in fiscal year 2006, the year in which they calculated subsidies, that Federal subsidies for wind represented 11.6% of total U.S. consumer spending, while the subsidies for nonrenewable fuels- oil, coal, natural gas, and nuclear- represented only 0.9% of total U.S. spending.

Regarding federal subsidies, the Texas Comptroller’s report that you reference notes: [Read more →]

April 26, 2009   3 Comments

Capitalist Reform to Reduce International Oil Demand: Getting World Refiners to Price at Market

A market-driven revitalization of the world oil refining sector is the best and fastest way to reduce both oil demand and related air emissions, including CO2. A combination of market-based pricing–absent from foreign refineries (most politically owned and/or managed)– and new investment brought forth by the improved profitability of such pricing, could reduce the demand for crude oil by between eight and twelve million barrels per day, or about 10–15 percent.

A Bold Hypothesis

This rather astounding assertion can be educed as follows:

  • Most countries subsidize refined oil product consumption, usually middle distillates (diesel and kerosene) at the expense of gasoline and other products;
  • Owing to the price controls on heavily used middle distillate products, most oil refiners outside the U.S. and a few other countries lose money;
  • The subsidies to middle distillate users, at the expense of gasoline and LPG consumers, creates an “unbalanced” demand barrel – one that defies both economics and chemistry; [Read more →]

April 23, 2009   3 Comments

ExxonMobil's Tillerson on Renewable Energy: Realism amid Politics

As reported by Russell Gold at Environmental Capital, ExxonMobil CEO Rex Tillerson has made an incisive new argument against his company’s investing in government-dependent renewable energy.

“If I wanted to kill [tax subsidies], the thing to do is for Exxon Mobil to go and invest heavily in them and then Congress would immediately cancel the tax subsidy. Actually what they would do is they would just cancel it for us,” said Mr.Tillerson, during the annual analyst meeting at the New York Stock Exchange.

He added: “In reality, that is what I fear would happen. So we are not going to go into investments that are dependent on a government providing a tax system to make them viable.”

This is very interesting. Former ExxonMobil CEO Lee Raymond and now Tillerson have argued against investing in politically dependent renewables because they have been-there-done-that, with investor losses in the 1970s. And looking at the present and future technology of wind and solar relative to what ExxonMobil can realistically add, they are not sanguine about going forward in the same area.

But Tillerson is now saying something new: [Read more →]

March 7, 2009   11 Comments

Reducing Oil Consumption will Hurt our Friends and Us More than the Middle East

Many people believe that national security would be advanced if we reduce our petroleum usage, because, goes this theory, we would be funneling less money to the Middle East which then would reduce, if not eliminate, funding for terrorists who wish to harm the U.S. (more on this in the future).  Ex-CIA Director, James Woolsey, for instance, is reported to have said that we need  “destroy the strategic power” of petroleum by making us not less dependent on foreign oil, but less dependent on oil, period. See, also, here[Read more →]

February 9, 2009   3 Comments