Energy Subsidies and the Future of Power

Authors

Christian Jewett, University of Nebraska-Lincoln, USAFollow

Date of this Version

Fall 12-13-2015

Document Type

Article

Citation

Op-Ed from ENSC 230. Energy and the Environment: Economics and Policy, University of Nebraska-Lincoln, Department of Agricultural Economics, Fall 2015

Comments

Copyright (c) 2015 Christian Jewett

Abstract

The modern political climate has grown rife with talk concerning the use of fossil fuels as an energy source and how this may impact our planet for generations to come. The Left and the Right seem to be at odds over whether or not climate change is actually occurring, or who is causing it. Additionally, the energy industry likes to tout their “low-cost” energy sources as a boon to the global economy as well as a benefit to the consumer at large. However, are coal, oil, and natural gas truly the “cheapest” sources of energy? Whether or not one believes the scientists warning of climate change and its effects, all consumers are drawn toward the cheapest option for their energy supply. For 2015, the International Energy Agency determined that the median unadjusted cost of fossil fuels was 100 dollars per megawatt hour (MWh), compared to 200 $/MWh for solar, although solar has fallen from 500 $/MWh in just 5 years. As such, fossil fuel spokespeople have always claimed that renewable energy can only be as cheap as coal, oil, and gas when it is subsidized. However, data available on the U.S. Energy Information Administration (EIA) website tells a different tale. This data provides the estimated cost of each energy source in the next five years. Conventional coal costs, when adjusting for total lifetime cost of installation and maintenance, 95.1 dollars per MWh. In contrast, geothermal, wind, and hydroelectric power sources cost 47.8, 73.6, and 83.5 $/MWh respectively. These are the costs before any subsidies provided by the government. Nuclear power will cost 95.2 $/MWh, which is only marginally more expensive than coal. Based on this data, even before subsidies, coal will not be as cheap as numerous other clean energy sources. However, these statistics don’t tell the whole tale. In fact, it has been estimated that the United States government spent $18.5 billion in 2013 through indirect subsidies to fossil fuels that are not accounted for in the EIA data. These subsidies included tax breaks, incentives to increase production using federal land, and tax deductions for cleanup costs. When state subsidies for fossil fuel production are taken into account, this total rises to $21.6 billion in 2013. Additionally, the global subsidies for fossil fuels cost $5 trillion each year while causing untold increases in global pollution. In contrast, EIA data shows that each year the renewable industry as a whole only receives $15 billion in federal tax money. These subsidies also benefit energy sources that don’t emit toxic chemicals and gasses into the air.