Free Market Energy: Advantage Renewables

The United States requires access to a consistent, low cost, stable, supply of energy to meet the needs of citizens, business, the military, and government; relying primarily on fossil fuels to meet the growing energy needs of the country (Miller & Spoolman, 2010).  Yet, fossil fuels are problematic for a number of reasons, including a dwindling supply (Webster, 2011), harmful environmental effects (Miller & Spoolman, 2010), and international price shocks created by nation-states that control oil production (Allaire & Brown, 2009).  Therefore, to enhance U.S. energy security and economic interests, while reducing environmental harm, the country needs to wean itself from fossil fuels and invest in domestic production of alternative, yet reliable forms of energy.  However, U.S. government energy policy favors the production of fossil fuels through a variety of tax breaks, subsidies, and other government interference.  Some energy analysts believe that fossil fuels should continue to receive subsidies and tax breaks, while private industry develops renewable energy sources (Needham, 2011).  Others, including this author, recommend phasing out tax breaks and subsidies for fossil fuel production, in favor of subsidies and tax breaks for renewable energy alternatives (Miller & Spoolman, 2010).  However, a more reasonable, achievable, approach is to phase out all government energy subsidies and let energy companies compete with the best available technology.

The energy industry receives roughly $20 billion in subsidies and tax breaks every year, with the lion’s share going to fossil fuel industries (Leonard, 2011).  Not only does renewable energy receive far less subsidies annually, but especially when viewed from a historical perspective.  Fund and Healey (2011) found that inflation-adjusted, average annual subsidies for fossil fuels were 5 times that of renewables, while nuclear power was subsidized at a rate of 10 times that of renewables.  In the final analysis, the federal government are underwriting the energy sector unevenly, put renewable energy development at a significant disadvantage, given both the high startup costs of innovation and competition from large, entrenched, subsidized, organizations; hardly a level playing field.

Despite the inherent challenges faced by those committed to renewable energy development, renewables have a distinct advantage; namely, they are renewable.  While coal and natural gas remain plentiful in the United States, concerns over reaching peak oil, coupled with growing demand in the both the developed and developing world, have driven oil prices to record highs, making the development of renewable alternatives feasible despite the high cost of capitalization in the energy industry.  Even the Defense Advanced Research Projects Agency has invested in renewables, developing an algae-based biofuel alternative for jet fuel (Goldenberg, 2010).   In a free market system, devoid of subsidies for either fossil fuel or renewable energy development and production, the advantage goes to renewable energy; it is simply a matter of time and the laws of supply and demand.

More importantly, it may be possible, given the country’s financial woes, to drop energy subsidies entirely.  In a year when four energy companies are in the top ten of the Global 500 Most Profitable Companies, collectively earning more than $90 billion annually (CNNMoney, 2011), while the country is facing massive debt problems, and taxpayers are being squeezed, it would seem the time might be right to level the playing field.  Leonard (Leonard, 2011) believes the time may be right politically as well, given the rise of the Tea Party on the right and a disaffection with ethanol on the left.

U.S. dependence on fossil fuels has become increasingly problematic with the implications felt in the economy, military, industry, politics, and the environment.  In an ideal world, the federal government would subsidize the development and production of renewable energy, minimally, at the same level as fossil fuels.  Unfortunately, the U.S. government uses energy policy to pick winners and losers in the energy sector and provides fossil fuel producers a distinct market advantage.  It is time to phase out all government subsidies in the energy sector and let the most efficient technologies compete in the open market; with the advantages inherent in renewable energy, the shift away from fossil fuels is simply a matter of time.

References

Allaire, M., & Brown, S. (2009). Eliminating subsidies for fossil fuel production: Implications for U.S. oil and natural gas markets (pp. 1-19). Washington DC: Resources for the Future.

CNNMoney. (2011). Global 500 2011: Most profitable companies  Retrieved December 9, 2011, from http://money.cnn.com/magazines/fortune/global500/2011/performers/companies/profits/

Goldenberg, S. (2010). Algae to solve the Pentagon’s jet fuel problem  Retrieved December 9, 2011, from http://www.guardian.co.uk/environment/2010/feb/13/algae-solve-pentagon-fuel-problem

Leonard, J. (2011, February 2011). Get the energy sector off the dole  Retrieved December 9, 2011, from http://www.washingtonmonthly.com/features/2011/1101.leonard-2.html

Miller, G. T., & Spoolman, S. (2010). Environmental science (13th ed.). Belmont, CA: Brooks/Cole, Cengage Learning.

Needham, M. (2011, November 8). Time to eliminate wasteful energy subsidies  Retrieved December 9, 2011, from http://dailycaller.com/2011/11/07/time-to-eliminate-wasteful-energy-subsidies/

Pfund, N., & Healey, B. (2011). What would Jefferson do?: The historical role of federal subsidies in shaping America’s energy future. San Francisco, CA: DBL Investors.

Webster, S. C. (2011, February 9). Peak oil now? Leaked cables show concerns that Saudis running low. The Raw Story  Retrieved December 9, 2011, from http://www.rawstory.com/rs/2011/02/09/peak-oil-wikileaks-cables-show-concerns-saudis-running/