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Published on February 7th, 2013 | by Zachary Shahan

20

Energy Subsidy Nonsense — Energy Subsidy Narrow-mindedness Gets Old

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February 7th, 2013 by Zachary Shahan 

If you’re writing about the falling cost of solar or solar selling for cheaper than coal power or grid electricity, I’m sure you will quickly receive comments from “logical” and “fair-minded” people regarding one popular topic — subsidies. Unfortunately, their  logic will probably be upside down.

Energy subsidies have been around for about as long as government and energy have been around. And, quite bluntly, fossil fuel subsidies dwarf anything solar power (or wind power) have ever received. If you want some details, read on.

Externalities

To start with, let’s take a look at what is probably the largest and yet most overlooked type of subsidy: externalities. I don’t recall if I had learned about externalities in college or if I first learned about them in graduate school. So, to catch anyone up who hasn’t yet heard of them, I’ll just write a quick primer here (click the link above for more info):

Sometimes, the full cost of a good is not paid by the producer. Thus, naturally, that hidden cost is also not included in the price. But that cost is still being paid by others, which means that the price of that good is artificially low and is being subsidized by those “others.” Such “external” costs (costs external to the company) are called externalities. Perhaps the most common type of externality is pollution. Pollution increases the costs of healthcare and degrades the quality of life of countless humans and organisms. Nonetheless, much of the time, the companies causing the pollution do not pay a penny of those costs — their pollution is subsidized by other individuals through higher healthcare bills, reduced economic productivity, sickness and suffering, and even death (which economists do strive to price).

True Price Of Coal

Coal power plant pollution via Shutterstock

As should be obvious by now, fossil fuels come with a hefty bag of externalities. A Harvard Medical School study, published in the Annals of the New York Academy of Sciences and authored by the late Dr. Paul Epstein, found that the extra health and environmental costs of burning coal in the US costs the country up to $500 billion a year, or 9 to 27 cents per kilowatt-hour (kWh) of electricity.

Ideally, the government would step in and correct that “market failure” (a basic economics term) by adding 9 to 27 cents onto the price of coal. As International Monetary Fund (IMF) analyst Thomas Helbling notes: “Externalities are among the main reasons governments intervene in the economic sphere.”

Coal, at 10-14 cents per kWh for a new power plant, is already having a difficult time competing with cheaper wind, solar, and natural gas power plants. If 9-27 cents per kWh were added onto it’s price, no one would even consider building a new plant. Furthermore, old coal plants would be shut down like they were dispelling the plague (and they might as well be doing so). Frankly, this should have happened a long time ago, and if net societal interest were what more congresspeople actually cared about, this would have happened a long time ago. Some legislators do fight for this, but there are enough connected to, bought by, or confused by the rich coal industry that societal progress on this front is largely obstructed.

Other Coal Subsidies

There are many, many other ways in which coal is subsidized. Public land giveaways, tax credits, subsidized railroads — there are a lot of ways our government subsidizes coal. I highly recommend the following links for more details on these matter:

The pollution externalities are really enough in themselves to price coal out of the market. But if someone doesn’t want to acknowledge the fact that externalities are a societal subsidy, there’s plenty more in the links above with which to play.

This article was triggered in response to comments on our “First Solar Is Selling Solar Power For Cheaper Than Coal Power” article, so I’ve focused on coal subsidies. For a lot of detail on natural gas subsidies and oil subsidies, check out:

Oil Subsidies & Natural Gas Subsidies — Subsidies For The Big Boys

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About the Author

spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.



  • Hans Dampf
  • Chopper

    Good article. I think we will still see coal plants being built despite the health/enviro concerns simply because they are quick to build, reliable and have a significant lobby. Up here in Alberta, power is primarily generated by coal even though we produce most of Canada’s natural gas. (For the record, I work for an oil company). I am often conflicted on the choice of wind over natural gas because of the large land footprint required for wind farms; I don’t find them attractive and think that we would better off to build a couple of gas-fired power plants instead of installing a bunch of windmills.

    That said, my wife and I live on an acreage where we have a fairly constant source of wind and I am seriously considering a small windmill to provide power plus push some kW back into the grid. The economics are not great as we are only paying about $0.06 for power BUT I am curious to see how it would function. I would welcome any tips from those of you “in the know” on this topic.

    Regards,

    Bob

    • Bob_Wallace

      Coal plants take years to build. Wind farms can be built and operating in less than two years, sometimes less than one. Solar panels get installed in days and weeks.

      Here’ s a good site for wind.

      http://www.wind-works.org/cms/index.php?id=1

      I doubt that you’re going to make the math work for a turbine if you pay only 6 cents per kWh. But check it out.

      • Chopper

        Hmmm….I agree. But I have found a site to investigate from our electric provider.

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  • http://www.facebook.com/sid.abma.1 Sid Abma

    Zach. Lets push for these power plants to be converted to natural gas, but not just do a fuel converted. Lets do a Total Energy Efficiency Convert.
    It’s time for the New Generation of Natural Gas Power Plants. Look at the picture and all those big high chimneys blowing all that HOT dirty exhaust into an upper airstream.
    We are now working with clean burning natural gas. No more chimneys.
    The heat in the exhaust will be recovered with the technology of Condensing Flue Gas Heat Recovery.

    We are trying to reduce global warming, are we not?
    America wants to be more Energy Efficient does it not?

    Instead of wasting all that heat energy (this is America remember) lets use efficiently all this recovered heat energy.
    There are so many applications, but that would make my comment to long.
    Research it, and when you come up with a new suggestion, please let me know what you came up with.

  • Hayden

    Zach. I often think that if you were to display your graphs in a “logged” form, they would be far more compelling. Just a thought.

    • http://zacharyshahan.com/ Zachary Shahan

      We don’t make most of the graphs we share, but we could theoretically make graphs out of graphs.

  • http://www.energyquicksand.com/ Edward Kerr

    Zach,
    Like Hans says, this is old news for some of us. Like gasoline, if people had to pay the “real” cost of gasoline at the pump, the phrase “sticker shock” would take on new meaning. It would be well over 20 a gallon. (those Ev’s-even run on coal electricity-would look more attractive) But, even the externalities you mention fall short of the true cost of burning coal (emitting extra CO2). When one factors in the future costs that, at this point, can’t really be imagined we are going to see some real “sticker shock”…Problem will be that we’ve already bought it and there is a strict “no return policy”. When food becomes so scarce that the cost will be mayhem and many coastal areas become inundated. these will be “externalities” that we have yet to plug into our equations. I’m sure that you can think of others. The point is that we have yet to fully realize the true cost of our industrial society and how we power it. If we don’t wake up soon (like 2 decades ago) we might find ourselves paying the ultimate cost the most expensive externality of all.
    Regards,
    Ed

    • http://zacharyshahan.com/ Zachary Shahan

      Agreed. Hopefully you can use it to help educate more people about subsidies and more accurate prices.

  • anderlan

    “Some *congresspeople* do fight for this”
    Say “legislators” in the general sense. States almost as much as DC control energy policy.

    • http://zacharyshahan.com/ Zachary Shahan

      hmm, and just caught a typo on the line above that. should probably start reading through my pieces one extra time or have them run through an editor. :D

    • http://zacharyshahan.com/ Zachary Shahan

      good call. changing.

  • Hans

    For people “in the know”, this is old news. Unfortunately, not so much people are in the know. And externalities are ignored in politics, the media and public discussion. It is ironic* that especially politicians and think tanks who pretend to support rational economic policies ignore the external costs. The reason is that their true agenda is to defend vested interests who profit from a selective application of economic theories (yes to deregulation, yes to subsidies for their industry, no to paying for damages, no to subsidies for competitors).

    So keep on banging on this drum as loud as you can, and maybe one day we can get the message in the head of the mainstream media, the general public and the lawmakers.

    *enter off-topic discussion on the proper use of ironic

    • http://zacharyshahan.com/ Zachary Shahan

      Completely agree. I often forget how undeserved this point is. But as you said, it is skipped over by the parties you mentioned above over & over again. The recent obsession with solar subsidies in reference to that First Solar post just made me realize this was ripe for another post. :D And that I should go ahead and stick this series in our sidebar so that more people are informed.

      Basic Econ 101. But I guess most people don’t actually take that.

      • https://twitter.com/MatthewLRose Matthew Rose

        Think of how stupid the average person is, and realize half of them are stupider than that.

        -George Carlin

        • http://zacharyshahan.com/ Zachary Shahan

          Yeah, I didn’t want to say anything.

          As a kid in ‘gifted’ classes, I didn’t feel special, just a bit in wonder at the rest of our crew (most humans). Guess it’s just something to accept and work with.

    • Bob_Wallace

      I’m making a point of commenting as often as possible on as many sites as possible about the real cost of coal.

      I’m making a point of talking about how we are wasting tax payer money and paying higher health insurance premiums because we burn coal.

      I’d love it if others would join my efforts. We can implant these facts in people’s heads and that should help renewable energy.

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