Published on February 7th, 2013 | by Zachary Shahan23
Energy Subsidy Nonsense — Energy Subsidy Narrow-Mindedness Gets Old
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.
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
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:
- Federal Coal Subsidies
- Coal Subsidies Database
- Top Three Ways That American Taxpayers Subsidize Dirty Coal Development
- Why Are U.S. Taxpayers Subsidizing Coal Mining?
- Will the Bureau of Land Management Subsidize Peabody’s Plans to Export Coal to Asia?
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.