America’s Energy Future – Subsidies

Wow that’s a huge topic, I’ll break it down into sections. Today’s topic is subsidies.

What’s a subsidy?

1) a financial aid supplied by a government, as to industry, for reasons of public welfare, the balance of payments, etc.

2) English history a financial grant made originally for special purposes by Parliament to the Crown.

3) Any monetary contribution, grant, or aid

So, if you got financial aid for college, you got a subsidy. The US government subsidized the payment of your fees, because it understands that not everyone can afford a college education and there are smart people who aren’t rich.

How does this apply to energy? Well, energy companies, being for the public welfare, get money from the government for a couple of reasons. They include encouraging exploration and exploitation (which is very expensive, even if you get a hit on a good source of fossil fuels), keeping prices low, helping with major capital expenditures (refineries, wind farms, etc).

No one seems to be totally sure how much the US government subsidizes energy and energy related companies. Estimates I seen run from 10 billion a year all the way to 100 billion US dollars over a seven-year period. This report from The Economist has some of the information:

At least two reports state the US government gave upwards of $72 billion dollars to fossil fuel companies per year. The US is trying to help renewables to the tune of $12.2 billion dollars. Interestingly, the provision for fossil fuel subsidies is written into the US Tax Code as permanent provisions, while renewables languish with an expiration date.

Just for grins, let’s look at what you could build with $72 billion dollars in terms of renewable energy:

Wind Farms: roughly 28 Gigawatts of name plate capacity – That would increase the US installed capacity by over 50%.

Solar electricity: 72 200-Megawatt solar towers = 14.4 Gigawatts of name plate capacity. Current solar production in the US is about 1 Gigawatt.

Wait, haven’t the fossil fuel companies reported record-breaking profits for quite a while now? Yes, yes they have. Exxon’s six-year lowest profit was $3.95 billion dollars… for three months in 2009. It’s best was $14.83 billion in profit in 9 months prior.

Chevron posted a profit of $23.9 billion dollars in 2008. Not income, profit.

I could go on, but you get the point. Why is the US government giving these companies billions? They would still be profitable if the government took away all the subsidies. I’ll give you a hint and it’s where a non-insignificant chunk of that money goes… in fact it’s where it came from in the first place… government.

I’m not sure how to end this post. Optimistically, Obama will push renewables and there is a movement to pull fossil fuel subsidies within the government. Pessimistically, there is so much money already in the hand of fossil fuel supporters that it’ll never happen and the CEOs of Chevron and Exxon will laugh all the way to bank, while the Earth burns.

Hopefully, we can get rid of subsidies and let the power sources compete on merit and efficiency alone. I think there’s a lot of popular support for renewables and the price of electricity from renewables is beginning to come down. Wind, in many areas, is already competitive with fossil fuels.

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