October 8, 2012
By David W. Kreutzer, Ph.D.
The problem with subsidizing wind and solar power is that subsidies don't make these unaffordable energy sources affordable, they just change who pays. Taxpayers foot a large part of the bill, instead of the producers and consumers of wind and solar power. And the costs that imposes on the economy aren't justified by any of the supposed benefits of these energy sources.
The argument that wind and solar energy are on the verge of being cost-effective is an old one, dating at least to the early 1990s. And yet we are still handing out subsidies that supposedly will push them over that line in just a few more years. It's time to stop. With a phaseout or not, extending subsidies is just more of the same.
Numerous studies purport to show that energy subsidies will stimulate the economy by creating jobs. But these studies consistently ignore the fact that draining taxes out of the general economy to pay for those subsidies runs the broader job-creating mechanism in reverse. The net effect is to shrink the economy, not grow it.
Another myth is that we need subsidies to stay competitive with countries whose economies will increasingly be propelled by wind and solar energy. That argument needs to be written on a dry-erase board, because the country that is supposedly outcompeting us on this front keeps changing. That's because our competitors keep bailing out of their subsidy schemes. The purported European models, such as Spain and Germany, have drastically cut their subsidies, because they were unaffordable and unworkable.
The current name on the board is China. This is an economic role model? China's per capita income ranks 92nd in the world. Yes, China's economy has grown dramatically in recent decades, but only because they moved toward freer markets—that is, toward an economy a little more like ours. In any event, China's total carbon-dioxide emissions are skyrocketing. Whatever they may be doing with wind and solar power pales in comparison with what they are doing with coal-fired electricity.
A third myth asserts that these subsidies will save the planet. Broad agreement that man-made carbon-dioxide emissions warm the Earth doesn't mean we are headed to environmental catastrophe. Even the Intergovernmental Panel on Climate Change, for instance, projects a sea-level rise of about seven to 24 inches over the next century—not 20 feet. Recent trends argue more strongly for the lower end of that range.
There is nearly universal agreement that an all-out carbon-cutting policy in the U.S.—of which wind and solar subsidies are only a small part—would do next to nothing to moderate any global warming. This is because future carbon emissions will come overwhelmingly from the developing world, which shows little appetite for squeezing economic growth to cut a few inches from sea level.
Yet another myth is that we need subsidies to move us toward the energy of the future before we run out of fossil fuels.
Once again, the Malthusians are wrong. Thanks to technological advances in recent years, the world has centuries of untapped natural gas and coal at its disposal—much of it relatively cheap and right here in the U.S. It's simple: We don't need wind and solar to keep the lights on.
Surely some alternatives to fossil fuels will be developed, but they will only work if they are affordable. Wind and solar aren't, and that isn't changed by shifting the costs from consumers and producers to the taxpayers.
Bureaucrats and politicians shouldn't be the ones deciding which technologies are the most promising or what timeline is too long or what losses are too deep. The market will do a much better job of answering the question: Are wind and solar power really viable?
Let's get rid of the subsidies and find out.
First appeared in The Wall Street Journal.
David W. Kreutzer, Ph.D.
Research Fellow in Energy Economics and Climate Change
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