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Clean Energy Subsidies: A Necessary Step

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On January 8th, Jeffery Ball had an interesting post in the Wall Street Journal discussing clean energy subsidies. I feel he did a reasonably good job of highlighting both sides of the renewables debate, but I am concerned about a crucial piece of information that was missing from his blog: the entire reason for subsidizing new forms of energy is to decrease our use of fossil fuels which generate CO2 and are causing the temperatures of our planet to rise. A discussion of wind and solar energy subsidies outside of this context is akin to a discussion about what to have for breakfast when it is already time for lunch. The fact is that we have to switch to renewable energy sources because oil will not be around forever. The growing problems we are facing from burning fossil fuel make it necessary to hasten this transition and subsidies and feed-in tariffs are an important step in the process.

Anyone who has traveled outside of the United States knows that in most of the world gas prices are four to five times higher than they are in our country. I remember first learning about this disparity during a trip my family took to visit my relatives in Switzerland when I was a teenager. When I asked why gas prices were so much cheaper back home I was probably told about subsidies, but all I can recall now is learning about farmers. Yes, farmers. These folks would not be able to drive their tractors across their fields or drive their pickup trucks into town if they had to pay the high gas prices. America is just too large a place and people have to move themselves and their products great distances to make a living. Allowing us to pay the real price of gas would be impossible, so the government kept the prices low. This reasoning made sense to me at the time, but I now believe the money that has kept gasoline cheap needs to go toward bolstering the renewable energy market and that new taxes should be levied on polluting energy sources such as coal and oil.

It is certainly not only subsidies that create the difference in gasoline costs. Then just as now, Europe has far higher and more numerous taxes on petrol. This would be unheard in the US, for it would cripple the farmer and the construction worker who drives to job sites all over the county and the nurse who commutes one hour each way to the hospital. It would be un-American to burden these hard working souls with more taxes so instead cheap gas has led to urban sprawl, a lack of walking cities, and an increased dependence on our automobiles.

Our friends across the Atlantic implement taxes on gas to support public transportation and encourage small cars. They also offer feed-in tariffs, which pay those who install new a energy technology a rate that is well above the market cost in an attempt to help the new technology gain a market share in an industry dominated by fossil fuels. Mr. Ball’s article states that New Energy Finance estimates in Germany that “renewable energy from projects that qualified for feed-in tariffs between 2004 and 2008 will cost consumers [euro ]122.3 billion (about $175 billion) between 2008 and 2030 — 46% more than the same amount conventional energy would cost.” I do not question the validity of this statement. There will absolutely be an increased cost to renewable energy, but this cost is far less than the costs of not combating climate change. The Natural Resources Defense Council states that “Four global warming impacts alone — hurricane damage, real estate losses, energy costs, and water costs — will come with a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today’s dollars) by 2100.” (NRDC) Mr. Ball chose not to include this type of information about the future costs of “conventional energy” and why would he? This other half of the story turns the shockingly high 46% cost of solar over oil into a moot point.

It is not only the damage and destruction of property that needs to be considered. An often overlooked advantage that clean energy has over oil is that wars will most likely not be fought to control it. This can certainly not be said about the history of fossil fuel. In fact, in 2007, Alan Greenspan broke his silence and wrote in his memoir, ““I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.” It was clear to him through the lens of time that we had moved into Iraq to secure oil for our county’s future needs. Fortunatly, there are other ways to secure a nation’s future.

There are examples across the globe of countries who have successfully introduced clean energy into their economies. In 1975,  Brazil focused on producing ethanol to reduce its dependence on foreign oil. In 2008, ethanol was accounted for 50% of the fuel used in its vehicles and the country is now exporting 20% of its sugar cane based fuel abroad. Sweden has been moving toward an oil free economy for several years and its goal of breaking dependence on fossil fuel by 2020 is coming true with the help of subsidies and feed-in-tariffs. Despite Germany’s often overcast skies, it has the most solar installations in the world and has become the leader of solar manufacturing, followed closely by India and China. All of these nations are now exporting solar hardware and finding that being green is profitable.

The United States has an incredible opportunity to create a green economy in part by focusing on becoming a leader in renewable energy technologies. With so many other countries already on a path to reduce their green house gases and increase their GDP, I am saddened that, by the time the US is able to look back and realize that 2010 was the time to transition to clean fuels, it may be too late.

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  1. January 16, 2010 at 11:37 am

    Well stated. In Canada, as well, petrol prices have always been higher and we have an agricultural culture. The falsity of artificially low fuel prices has helped both the auto industry and agricultural equipment industry maintain higher profits while falling ever behind in fuel economy advancements.

    Intrinsically, creating equipment that has better fuel economy equates to less pollution even without the focus on reduction of emissions (burn less fuel – create less emissions).

    As Americans, we need to pay the true cost of an item. Not put the cost of for future generations to pay.

    Double the price of a tomato and you may increase literacy in the US, reduce emissions, reduce air, land, and water pollution, and so many other intertwined things.

    Perhaps an over simplistic view to increase pay to migrant workers and hold those creating tainted runoff accountable, but as Americans who, in large numbers, think sports players should be idolized as heroes – we need things like this in simple terms that we can acknowledge and then move forward.

    When Americans truly embrace a cause, they will move mountains to achieve it.

  2. January 19, 2010 at 1:26 pm

    Thanks for your comment, David. I like your point about the US auto industry falling behind on fuel economy advancements due to the artificially cheap gasoline in this country. And I agree that once our country truly embraces sustainability, we will do whatever we can to excel at it.

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