Economics, Energy and the Environment

Energy Fact of the Week: Subsidies for Wind, Solar, and Biofuels Dwarf Those for Fossil Fuels

The issue of energy subsidies comes up a lot, with the usual half-informed clichés that fossil fuels get larger subsidies than renewables such as wind, solar, and ethanol. Some environmentalists like to include a large portion of defense spending as a “subsidy” to oil, as our military is deployed in part to keep the global oil market (especially the Middle East) working smoothly. I suppose it’s an arguable point, though it might carry more weight if environmentalists didn’t resolutely oppose expanded oil production from domestic fields, which would reduce our vulnerability to global oil shocks and perhaps lower our defense commitments overseas.

But that’s an argument for another day. What are the facts? A 2008 study of energy subsidies from the Energy Information Administration, entitled “Federal Financial Interventions and Subsidies in Energy Markets 2007,” explores the subject in detail, and produced estimates of subsidies on a per-unit-of-energy supplied basis, which is the best way to think about this. This report defines subsidies in the three most prevalent forms: direct payments to energy producers, tax treatment (favorable depreciation and credits), and research and development assistance (which can be both direct payments or tax favoritism). See especially tables 35 and 36 on pages 106 and 108 of the report.

I’ve summarized the key columns in the two tables below. The first table shows the subsidy per megawatt hour of electricity generation, which totaled $6.7 billion in 2007. The last column to the right tells the key story: wind and solar subsidies are a large multiple of nuclear subsidies. (Refined coal noted here refers to the R&D projects for carbon sequestration and other demonstration projects.) While the average subsidy per megawatt hour was $1.65, for wind and solar the subsidy is about $24.

table1

The table below shows the subsidies for non-electricity fuel use, which totaled $9.8 billion in 2007. Here, it is easy to see the outsized subsidy for ethanol and other biofuels, which comes in more than twice the subsidy for solar power.

table21

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