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Energy Subsidy Myths and Realities

Playing favorites or ‘all of the above’?

Fortnightly - June 2012

the DHHS-administered Low Income Home Energy Assistance Program (LIHEAP) has the mission of assisting “low income households, particularly those with the lowest incomes that pay a high proportion of household income for home energy, primarily in meeting their immediate home energy needs.” Programs of these types indirectly affect energy markets, but their primary purpose is to provide financial assistance to low-income persons and households. In fact, since inability to pay utility bills is the second leading cause of homelessness—after domestic violence—WAG and LIHEAP can also be categorized as housing assistance programs. 9

Government intervention in energy markets affects long-term resource options, and political considerations factor into this. For some of the energy technologies, government intervention and support has literally created the industry. Relevant examples include government development of hydroelectric projects starting in the 1930s—TVA, Grand Coulee, the Hoover Dam, etc.; government support of nuclear power since its inception in the 1940s; and government support of renewable energy. The RE electricity options—photovoltaics, solar thermal, and wind—are almost entirely dependent for their existence on government subsidies and mandates.

However, the fossil energy technologies, while benefiting from government support, aren’t critically dependent on it for their existence. For example, while oil has been the major beneficiary of federal subsidies and incentives over the past six decades, even with much less generous government support oil would still be critical to the economy. Similar comments apply to coal and natural gas. Thus, the determinate nature of federal support differs radically among the energy technologies, and government support of some technologies might be necessary for keeping these available as long-term resource options. Indeed, if low-carbon energy alternatives are desired for future deployment, then substantial, continuing government incentives might be necessary for some technologies for many years.

Finally, as might be expected, political considerations are a key determinant of energy subsidies. Thus, while oil might not have needed all of the federal support it has received, given the importance and influence of the oil industry in the U.S., it’s hardly surprising that it has received generous incentives. The political popularity of wind and solar has helped renewable energy receive substantial federal support in spite of the lack of their commercial viability. And, there’s little doubt that the first presidential caucuses being held in Iowa every four years contributes mightily to the perpetuation of ethanol subsidies.

 

Endnotes:

1. 60 Years of Energy Incentives: Analysis of Federal Expenditures for Energy Development , Management Information Services Inc. report prepared for the Nuclear Energy Institute, Washington, D.C., October 2011.

2. In addition to direct subsidies, regulation, and tax incentives, the study considers other policy initiatives including market support, demonstration programs, R&D, procurement mandates, information generation and dissemination, technology transfer, directed purchases, and other types of actions.

3. The information presented here was compiled from publicly available documents prepared by federal agencies with a role in energy development, including the U.S. Department of Energy and its predecessors, the U.S. Nuclear Regulatory Commission, the Office of Management and Budget (OMB), the Treasury Department, and others.

4. Geothermal is listed as a separate category because