Clean Power david-subsidies

Published on February 25th, 2016 | by Giles Parkinson

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The Myth About Renewable Energy Subsidies

February 25th, 2016 by  

Originally published on RenewEconomy.

Ever hear the story about why renewable energy can’t compete without a subsidy? You hear it all the time from the fossil fuel industry. And the response from renewables? Take away fossil fuel subsidies, and they’d be glad to compete on level terms.

This graph below, displayed today by David Hochschild, a commissioner with the California Energy Commission, at the Energy Productivity Summer Study in Sydney, illustrates why the fossil fuel and nuclear industries don’t want that to happen.

Studies by the International Energy Agency point out that global subsidies for fossil fuels outstrip those for renewable energy nearly 10-fold. The International Monetary Fund said if climate and environmental costs were included, then the fossil fuel subsides increased another 10 times to nearly $5 trillion a year.

david-subsidies

This graph, that Hochschild sourced from DBL Investors, shows the accumulated energy subsidies in the US under federal programs. Oil and gas dominate, followed by nuclear. Federal renewable energy subsidies, in the form of investment and tax credits, are a small fraction.

“The fossil fuel industry hates to talk about that,” Hochschild told RenewEconomy in an interview after his presentation.

“There is a myth around subsidies, but there is no such thing as an unsubsidised unit of energy.”

He said the oil depletion allowance had been in place for the oil industry since 1926, and would be ongoing, despite the fact it was one of the most profitable industries in the world. He cited insurance costs for nuclear plants – met by taxpayers – “without which there would be no nuclear plants”.

For natural gas, it was the drilling, or fracking, which had been made exempt from compliance with the safe drinking water act: “That is subsidy,” he said. And he pointed to taxpayer funded rail networks that have helped coal.

By contrast, the large-scale wind and solar industries in the US have had to content with repeated changes to their federal support mechanisms. The tax credits have been changed seven times in a decade.

“How can you plan a wind turbine factory or project in those types of conditions,” he asked.

And he used this graph to illustrate the short-term nature of the subsidies that renewable energy does get. And the biggest benefit. “You put subsidies in renewable energy and costs go down” to the point where they are not needed any more. That has not happened with fossil fuels and nuclear.

david-susbidies-time

Reprinted with permission.

 
 
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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • SA Kiteman

    What would Jefferson do? Well, first off, he wouldn’t lie so blatantly with his chart.
    Hell, “renewables” only since 1994? But nuclear since 1947? Wht about all the research that went into figuring out optimum airfoil shape that sindmills use. What about all the research that went into developing the PV in te first place. What about the hundreds of billions if not trillions of dollars that ent into building all those dams in the thirties?
    A report I read last year shows that counting from 1950 to today, renewables have gotten about 3 times the subsidies as nuclear power while producing about 1/3 the energy. That means that the taxpayers have provided about 10X the subsidy to “renewables” as they have to nuclear.

    • tmac1

      SA Kiteman
      OK I will bite.

      I think the Fleet of Nukes we have now should be kept going as long as possible.
      New Nukes are not going to cut on many fronts:

      SAFETY/INSURANCE
      Show me any self insured nuclear plant in the US
      You cannot
      The insurance industry refuses to insure nukes.
      The clean up costs of any disaster from Fukushima to Three mile Island will be swept up by you and me and the ratepayer.
      How do you figure in the cleanup of Fukushima into the price of KWHR in Japan? That is a huge subsidy
      Solar emergency / Solar SPill happens to be a nice sunny day

      COST
      Show me a nuclear program that has decreased the costs of production or done things on time.
      You cannot.
      The Nuclear industry has consistently run late and way over budget.
      The Nuclear plant in England and the Vogle reactor in Georgia are the latest bloated and late nuclear plants to demonstrate just how bad the nuclear industry is. Unlike every other industry, which shows that the longer you make a product the quicker and cheaper it gets to be, think Moores law of semiconductors, EV batteries, Flat screen TV, Nuclear gets slower and more expensive.

      Contrast plummeting costs of solar.

      TIME
      Nuclear takes a decade to complete ( I know I know its because those nasty regulators
      In contrast Wind and Solar can deploy Megawatts capacity in under a year or two

      In summary Solar wind win on safety cost and time. Once we get cheap storage watch out FF and Nukes.

      Coal is just about dead,
      New Nuclear is going nowhere
      Gas is here for a while but hopefully we can get rid of this as well.

      • SA Kiteman

        Re insurance: False.
        You are flat out wrong. Insurance companies not only insure nuclear power plants but they willingly do so to the maximum that the Federal Government allows them to insure ANY company. Then, beyond that, they self insure for 40 times as much.

        Whoever told you that insurance crap LIED to you. Perhaps you should rethink your reliance on their “wisdom”.

        The complete cost of TMI clean-up, INCLUDING business losses due to the unecessary evacuation, have already been paid by TMI’s insurance company. They didn’t even have to delve into the industry self insurance fund. As for Fukushima, TEPCO is 100% liable for the costs. How they and the JapGov have arranged for them to pay it all is not in my ken.

        Actually, the big subsidy is the money Japan is paying to the fossil fuel companies. They have spent about 4X as much on the EXTRA fuel needed because of the shuttering of all their nuclear plants as is being spent on Fukushima cleanup and decommissioning.

      • SA Kiteman

        Re: Cost: False.
        Of the nuclear power plants built recently, the large majority of them have been built on time and within budget. Only in Europe and maybe the US, where anti-nupow activists can simply and cheaply impede the building process, is there a propensity for late and thus over-budget nuclear plants. Meanwhile, in South Korea, nuclear plants are routinely being built for ~$2(US)/W.

        True, Hinkley C is shaping up to be another costly attempt to build an EPR. So far, even the Chinese have had difficulty with that design. Vogtle, the AP1000, is not doing badly for a First of a Kind build. And the energy generated will still be much cheaper on a reliable kWh basis than any other low carbon source save hydro. But hydro is basically built out.

        Yes, it is amazing how cheap something can get when it is being subsidized to the tune of $2.4/kWh. Hell, for that level, nuclear would be free!

      • SA Kiteman

        Re: Time. False.
        While history shows that ittakes much longer to build each nuclear power plant than it does to install a solar panel or wind turbine, they don’t have to build one unit at a time. And because of tis, and the fact that each nuclear power plant produces VASTLY more energy than a solar panel or wind turbine, history also shows that the fasted increase in per capita electricity production is dominated by nuclear power. The 7 fastest increases in low carbon capacity (ignoring hydro) has been nuclear power.

  • bart889

    A couple of things are interesting. The study that graph is taken from is five years old, and it never mentions subsidies on a dollar per unit of energy delivered basis. Of course, doing so would be embarrassing in the extreme for those whom wind and solar have ascended to a sort of religion.

    It is also built on the lies that allowing the oil and gas industries to deduct expenses from revenues and allowing the depreciation of capital is somehow a “subsidy”. If that is the case, then every single business in every single line of work in the US is “subsidised”.

    • Frank

      If I run into your car, I have to pay to fix it. If you pollute the air, and cause me to get sick, it’s free. Why? BTW, have you ever looked at what happens to Florida if the Greenland ice melts? What is that going to cost? Seen what has happened to the price of renewables in the last 6 years?

      • Epicurus

        {crickets}

        Winner by a knockout–Frank!

        Externalities are the Achilles heel of free market fundamentalism. Something like 150,000 people die prematurely in the U.S. because of air pollution caused by fossil fuels. The health care costs are astronomical. It’s far worse in some other parts of the world.

        • tmac1

          Epicurus
          “Externalities are the Achilles heel of free market fundamentalism”

          Brilliant, as a matter fact I am going to steal it
          I said it first and I am going to use it as the title of my new book.!

          • Epicurus

            The subject of external costs deserves a book, and a huge chapter in economics text books.

            I would like to read it. Let me know when it’s coming out and where to buy it.

            The “free market” causes a lot of harm and distorts rational choices unless external costs are added back into the costs of the products that engender them. Coal generated electricity couldn’t compete with wind or solar if some of its major costs weren’t socialized. The righties never acknowledge this simple truth.

          • bart889

            Every basic microeconomics textbook spends a lot of time talking about externalities. Everybody who studies this issue gets told a lot about market failure. If you had ever opened a textbook, you would know this.

            Market systems are imperfect, but fundamentally better than the central planning and authoritarianism you seem champion, which have brought death and misery to billions over the past century.

          • Epicurus

            Yeah, clean energy advocates are all authoritarians and central planners. In your mind.

        • bart889

          “Something like 150,000 people die prematurely in the U.S. because of air pollution caused by fossil fuels.”

          And by how many person-years are lives extended and improved by the use of fossil fuels? Do you think electricity and transportation of persons and goods are simply trifles that are ancillary to life? Do you really want to go back to the 17th century? Just how enjoyable do you think life was back then?

          Looking solely at costs without considering benefits is deliberate myopia. It is selective blindness, which is a form of self-imposed mental handicap. I understand that life is simpler when you only look at one side of a coin, and I understand why “simple” has such an appeal to you, but have you ever considered stepping out from under the umbrella of your religion and looking at the world, and the complex issues facing it, in its entirety?

          • Epicurus

            God, what a straw man.

            The issue is not fossil fuels versus not having energy. The issue is using fossil fuels and suffering their external health and other costs or using clean energy. Putz.

          • Frank

            That whole argument only makes sense when renewables are expensive, and they were, but now they aren’t. If it doesn’t cost more, or maybe even cos5s less, wouldn’t you prefer clean energy which causes fewer costly problems? Isn’t the simplest way to do that is put a price on it, and let the market figure it out?

      • rockyredneck

        The problem with your argument is that no industry or individual is without guilt. None of the costs come without gains and there is no doubt our present standard of living is largely a result of resource use, fossil fuel and otherwise. As for Florida, it might be more valuable if it was largely under water. Most of the results are not actually destruction, but only change. Of course, most people are more frightened of change than of imminent threats.

        • Frank

          Oh I’m guilty too. Here is the thing. If we put a reasonable price on what goes up the smokestack, or out the tailpipe, and reduced taxes elsewhere, it would actually improve our economy. Our economy would favor renewables which are a better deal now. The fact that pollution is free rewards the more costly technology.

      • bart889

        What do you consider to be the optimal amount of pollution? Zero? Put another way, what do you consider to be the optimal amount of humans on the face of the earth? Maybe you think that should be zero too.

        • Frank

          The beauty of putting a price on what goes up the smokestack, or out the tailpipe, is that the market automatically reaches for the low hanging fruit first, like when an old coal plant retires, you don’t build a new one, you put up renewables, but if there was a price on what was coming out of the tailpipe of my prius, I just pay it till the Tesla model 3 comes out, or maybe comes off lease.

    • Epicurus

      “The graph . . . never mentions subsidies on a dollar per unit of energy delivered basis.”

      Right, and it would be interesting to see the cumulative amount of subsidies per unit of energy. Percentage depletion has been around since the 20’s, and it was 27.5% for most of the time.

      “It is also built on the lies that allowing the oil and gas industries to
      deduct expenses from revenues and allowing the depreciation of capital
      is somehow a ‘subsidy’.”

      You don’t really know anything about oil and gas subsidies (or incentives, as some of us refer to them), do you?

      How do you justify intangible cost deductions–the expensing of costs that would otherwise be capitalized?

      Cost depletion is analogous to depreciation but not percentage depletion. Everybody elects percentage depletion. I do. How do you justify percentage depletion?

    • Epicurus

      “It is also built on the lies that allowing the oil and gas industries to
      deduct expenses from revenues and allowing the depreciation of capital
      is somehow a ‘subsidy’.”

      Where did you get this ridiculous straw man? From talk radio?

      You really don’t know what tax subsidies the oil and gas industry enjoys, do you?

      • bart889

        I am a market analyst in the oil and gas industry, so, yes, I do know. Question: do you consider depreciation and cost-expensing in the wind and solar industries to be “subsidies”?

        • Epicurus

          Depreciation is only a subsidy to the extent it is accelerated depreciation and expensing of costs is only a subsidy to the extent they are costs which would ordinarily be capitalized (like IDCs).

          Do the wind and solar industries get accelerated depreciation, and do they get to expense capital costs?

          I don’t know. I have been in the oil and gas industry for several decades.

        • Epicurus

          Does the oil and gas industry enjoy any tax incentives that non-mining industries do not, and if so, what are they?

          Would the American oil and gas industry exist as it is today without tax incentives?

  • Can we get a link to the original presentation and a description of the data, assumptions and methodology used, please. Unfortunately this article just repeats what’s at RenewEconomy.

  • Billy Bangle

    If this article is correct, then it’s funny that electricity in Germany & France is twice the cost of that in France, isn’t it?

    • Ninjaneerd

      “If this article is correct, then it’s funny that electricity in Germany & France is twice the cost of that in France, isn’t it?”

      Trying to follow your comment but I think it’s missing something?

      Maybe “Germany and France” needs to be replaced with “Germany and XXXXX”

      Or maybe it’s actually a true statement if Germany and France each spent the same on electricity, then it would be true that together they spent twice than one of them.
      (haha!, I’m guessing that’s not what you meant)…

    • Good grief, man. You can’t even state the insider group’s article of faith correctly!

      This is a reference to Germany and Denmark and their exceptional deployment of wind and solar and comparing it with France’s exceptional deployment of Nuclear to try and show that renewables are far more expensive and don’t scale and the only solution is Nuclear power. Amirite? That argument is so lame and ignores numerous other factors. And it’s not hard to reverse it to reach completely the opposite conclusion. eg. The only reason French Nuclear electricity is so cheap is because of the vast government subsidies paid for out of excess taxation.

    • Ivor O’Connor

      France’s nuclear reactors were subsidized. Despite already being built the French government says they are too expensive and want to replace them with wind and solar.

      Germany’s electricity was more expensive before they started their energiewende program. Apparently the utilities and fossil fuel industry thought they had an unbreakable monopoly.

      • Germany and Denmark’s electricity is also expensive because it’s the most highly taxed in Europe. And there are strong arguments for taxing energy use heavily to encourage a push for efficiency.

        • Billy Bangle

          There are levies in Germany & Denmark that are used to cross-subsidise within the energy industry, but there’s no tax with the sole intent of pushing the price up. I also don’t think China or India would agree that you need to make energy expensive for its own sake. Fossil-fuel energy needs to be made more expensive to cover the damage to the environment.

  • Epicurus

    How about allowing solar and wind producers to take 15% of their production income tax free? That’s what the current depletion allowance does for oil and gas producers.

    Or 27.5%–that’s what the depletion allowance was for most of its existence. Everybody and his dog would be building wind turbines and solar farms.

  • Epicurus

    Deductions for intangible drilling costs are a significant subsidy too (allowing expensing of costs that would otherwise be capitalized).

    A graph showing the amount of money involved for each subsidy would be nice.

  • eveee

    Nice article Giles. And have the oil, gas, and nuclear subsidies been phased out after a many decades? No. They are mature industries that are not getting better. Subsidies to oil, gas, and nuclear are wasted bringing no return.
    They are swimming in free dollars while hypocritically claiming renewables are using subsidies.
    Historical US renewable subsidies are dominated by renewable fuels, mainly ethanol. So only a fraction of historical renewables subsidies went for wind and solar.
    The claims against renewable subsidies are a complete sham. Truth is, without subsidies, renewables competition would fail.

  • sjc_1

    Depletion allowances are a big tax break. They would argue you turn on your lights and drive your car, so you should be grateful.

    • eveee

      Thats what they argue when they have a monopoly. Now that their monopoly is crumbling, they are arguing that they should have subsidies while their competition should have none.

      • JJA_S

        Correct me if I’m wrong here, but isn’t the depletion allowance the exact same as any other company using depreciation for capital assets to offset their main assets?

        • eveee

          You would have to ask an accountant or someone like that, but IMO, there is just nothing like the subsidies oilcos get. If they drill a dry hole its completely written down. No taxes. They have Master Limited Partnerships. Lets put it this way. I don’t think there is any other field that has so much subsidy bragging rights. Just go to an investor page and read how ecstatic they are about all the tax advantages. You won’t find anything like it in any other field.

          For a definition,

          “Depletion allowances let oil companies treat the oil in the ground as capital equipment, and thus allows them to write off a certain percentage for each barrel that comes out.”

          http://thinkprogress.org/climate/2013/03/01/1654501/oil-subsidies-century/

          Lets see if that applies to farming. All the peaches and apples on Farmer Johns orchard are capital and are allowed a depletion allowance.

          Nope. don’t think so.

          • Cabbage Head

            Of Note: Produce isn’t taxed.

          • Tim

            Elucidation acceptable. I feel for this poor Farmer Jones guy. He can’t rip taxpayers off like the dirty oilmen can. Your most important point is still “…wasted bringing no return.”

          • Epicurus

            Farming. Interesting point. I suspect the trees are the capital costs and that their costs are depreciated (i.e. trees have a useful life). Trees don’t deplete like a mine or well.

            I assume you don’t have a problem with businesses amortizing the costs of their depreciable assets over their useful lives. Businesses have to be able to replace those assets when they wear out in order to continue to exist..

          • eveee

            The whole depletion allowance is a fraud. OIl is not capital no matter what the oil industry thinks.

          • sjc_1

            The orchard was planted, those trees are capital and should be depreciated, but are not. Oil is a land resource, thus NOT capital.

          • Epicurus

            Yes, fruit and nut trees (and vines) are depreciated (you could have googled that before you opened your pie hole).

            https://www.irs.gov/publications/p225/ch07.html

            There is a conceptual difference between depreciation and depletion.

          • Epicurus

            Depletion and depreciation are two different concepts related to the nature of different industries.

            Shouldn’t extractive industries, like timber, mining and oil, have a cost recovery method for their assets like manufacturing industries do?

            “Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property, depletion is the actual physical depletion of natural resources by companies.”

          • Epicurus

            Thinkprogress is not the best source for understanding accounting concepts.

        • Epicurus

          Cost depletion is analogous to depreciation. Mines (and wells) deplete over time as they are produced, like equipment wears out. But producers can elect cost depletion or percentage depletion. Percentage depletion is unrelated to the amount of money invested to create the mine or well.

    • Epicurus

      There are huge risks in drilling oil and gas wells. Ever heard of dry holes?

      No one in their right mind would take these risks without incentives.

      Now that we want clean energy, the best way to get it is to grant similar incentives to build wind turbines and solar farms. The more incentives, the more clean energy we will have.

      • rockyredneck

        The biggest incentive for investment by any individual or corporation is the potential for profit.
        Most direct subsidies and tax breaks are not secure enough for the long term but do provide a bit of risk reduction.
        Loans at low guaranteed rates or guaranteed markets reduce risk more and can be very low cost to governments.

        • Epicurus

          True. The biggest incentive for investing in oil and gas wells is the possibility of getting a return on investment of several times your investment. Unfortunately, clean energy lacks this feature, but on the other hand, there aren’t any “dry holes” with solar panels or wind turbines. But the ROI in clean energy projects is usually not very exciting.

          In addition to the huge ROI potential in oil and gas, the ability to shelter current income is a huge incentive for attracting non-industry investment.

      • SA Kiteman

        The trouble with this logic is that it just BEGS for corruption. X, Y, and Z form a small company that drills a hole to within 50′ of a suspected deposit in 10 locatios and come up “dry”. They go “bankrupt”. Then Y,Z,X,&T form another company, buy the bankrupt company’s assets, pennies on the dollar. They then drill the last 50′ and “suprise, suprise”! The upshot, the taxpyer has drilled their holes for them.

        • Epicurus

          Just about any business is an opportunity for the criminal mind. Ever see “The Producers” about the Broadway theater business?

          Not sure what you mean by “the taxpayer has drilled their holes for them.”

          Every business, every taxpayer, is allowed to write off business and investment losses.

          • SA Kiteman

            There is a vast difference between “writing off” and getting a tax credit. Perhaps you need a bit of review?

          • Epicurus

            I know the difference between deductions and tax credits very well, but I’m still not sure what you mean by “the taxpayer has drilled their holes for them.” I think you are the one who needs to review tax law. State specifically how you think the taxpayer ends up paying the drilling costs.

          • SA Kiteman

            Back when I was interested in this stuff, I found out that the cost of drilling a failed well could be credited against your taxes while the cost of a production well was merely a business expense which is a simple income deduction. So, a company would create subsidiary company that would drill a well near a known field but for some reason the well would be dry. So the subsidiary company would take the tax credit. Then they would sell the well to another subsidiary of the big company for pennies on the dollar. The new company would say, “ya know, we should try it again” and start drilling. Then what do you know, another 50′, 100′ down and shazaam, OIL!!!

            The taxpayers who had to cover the cost of the “failed well” paid the cost of the production oil well. THAT is a subsidy. I don’t know whether THAT scam is still going on, but I’m pretty sure that SOMETHING like it is.

          • Epicurus

            You were misinformed.

            Dry hole costs are deductions, not tax credits.

            There are indeed tax incentives for the oil and gas industry, but that isn’t one of them.

            You are close to describing an age old scam where investors incur all the risk for finding a new reservoir and the promoter ends up with most of it risk-free. That probably is what you are thinking about.

          • SA Kiteman

            It was the way I described back when I was investigating it. Umm, 80s time frame?

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