POWER May 2012 - 112

COMMENTARY
Ensuring the Best Use of
Federal Energy Subsidies
By Keith B. Hall
T
he U.S. uses a combination of direct expenditures, tax
breaks, loan guarantees, and research funding to promote
various energy goals. We could rely solely on the free market
and avoid using federal subsidies, but we do not do that
now and appear unlikely to do so in the future. Accordingly, we
must decide how we will use subsidies. The complexity of the energy
challenges we face makes it impossible to produce a precise
blueprint for the best use of subsidies, but we can outline some
general principles.
Implementing a Successful National Energy Policy
Federal subsidies should support a national energy policy that
balances three key objectives: achieving greater energy independence,
protecting the environment against accidents, and
operating in a sustainable manner.
Fairness. We should minimize the use of federal expenditures
and loan guarantees that are directed to specific companies.
Such subsidies are more likely to produce an unfair windfall for
a few lucky recipients and are more prone to actual or perceived
conflicts of interest and cronyism. Further, notwithstanding occasional
successes, the government has a poor track record of
picking economic winners and losers. Solyndra provides an expensive
example.
Balance. A primary challenge relating to fossil fuels is
sustainability, while a primary challenge relating to renewable
energy is practicality-its inability to affordably supply
most of our energy needs. It is not clear whether we will
have greater success at making fossil fuels more sustainable
or at making renewables more practical. For this reason, we
should pursue a balanced approach that supports research on
renewable energy while also promoting research on carbon
capture and sequestration, coal gasification, and other ways
that decrease fossil fuels' environmental impact and increase
their sustainability.
Another reason to take a balanced approach is that even
though renewables might become our primary source of energy
someday, that is unlikely to happen anytime soon. At present,
about 45% of our nation's electricity is generated by coal and
another 24% is generated by natural gas. The U.S. Energy Information
Administration (EIA) projects that by the year 2035,
coal will generate 39% of our electricity and natural gas will
generate 27%. If both electrical and non-electrical energy uses
are considered, our dependence on fossil fuels is even more pronounced.
They currently provide about 83% of our total energy,
and in 2035, they will supply about 77%. Thus, for at least a
generation, our continuing dependence on fossil fuels will make
it important to decrease our use of imported oil while working
to reduce fossil fuels' environmental impact and increase their
sustainability.
At present, we aren't taking a balanced approach in using
112
subsidies and instead are strongly favoring renewables. The EIA
reports that, during 2010, approximately 55.3% of all federal
subsides relating to electrical power were directed toward renewable
energy, while 21.0% were directed to nuclear power, 10.0%
to coal, 8.2% to electricity transmission and distribution, and
5.5% to natural gas.
When subsidies are compared based on the relative amount
of electricity generated by particular energy sources, the tilt
toward renewables is even more pronounced. Subsidies directed
toward coal and natural gas amounted to about $0.64
per 1,000 kWh of electricity generated by those sources. In
contrast, subsidies for renewable energy were approximately
$15.43 per 1,000 kWh.
Renewables also received the largest share of federal subsidies
for non-electrical power. Biomass, biofuels, and other renewables
received 77.7% of those subsidies in 2010, compared
to 20.7% for oil and gas. And again, renewables fare even better
when subsidies are compared based on the amount of power
generated. Subsidies relating to oil and gas were approximately
$75.83 per million Btu of power generation in 2010. In contrast,
renewables' subsidies were about $2,011. We should work toward
a more balanced approach.
Strategic Action. World trade generally benefits our country,
but we should decrease our dependence on oil that is imported
from countries that are unstable or hostile to the U.S. Our dependence
on foreign oil already has decreased-from 60% of our
total consumption in 2005 to 49% in 2010-and that percentage
is still dropping. Furthermore, our largest foreign supplier is
now Canada, a friendly and stable neighbor. But the EIA projects
that imported oil still will account for 36% of consumption in
2035, and some of that will be from nations much less stable and
friendly than Canada.
In contrast, the EIA projects that the U.S. will be a net exporter
of natural gas by 2021 because of rapidly increasing domestic
production. A strategic move would be to use more cars that run
on natural gas, thereby decreasing our dependence on foreign
oil. But there is a chicken and egg problem: Most consumers will
avoid buying natural gas cars if there are few natural gas fueling
stations, and entrepreneurs will avoid opening fueling stations
if there are too few customers. We should give incentives for
consumers to buy natural gas vehicles and for entrepreneurs to
open fueling stations.
Federal energy subsidies will yield the maximum benefit if we
use them to promote a national energy policy that balances the
objectives of energy independence, environmental protection,
and sustainability, and if we use subsidies in a way that is fair,
balanced, and strategic. ■
-Keith B. Hall (khall@stonepigman.com) is an attorney with
the law firm of Stone Pigman Walther Wittmann LLC in New
Orleans, La.
www.powermag.com
POWER | May 2012
http://www.powermag.com
POWER May 2012

Table of Contents for the Digital Edition of POWER May 2012
