David Roberts' recent post compelled some ideas that have been germinating for awhile, but are too long for just a comment on his post. Namely: we should stop talking about the need to subsidize green technologies, and instead frame the debate as a need to level the playing field.
It is a strange feature of energy policy that it is easier to create subsidy than it is to remove one. Thus, whenever energy bills get drafted, they are layered with pork that include very little actual structural reform. Renewables get a subsidy here, nukes get insurance liability waivers there ... but very little actually gets done to ensure the operation of unfettered market forces.
The reason why is a simple -- but unfortunate -- reality: there is no constituency for efficiency, be it of the economic or environmental flavor. Every interest group (including but not limited to businesses) lobbies hard to get more money for their interest, but none stand up and ask for rules that will make the world easier for new market entrants (a hallmark of a truly competitive market). And since no one asks for efficiency, no one gets it. Calvin Coolidge said famously that the business of America is Business, but somewhere along the line the universal, capital-B business got replaced with the specific, lowercase-b business, and the price has come in the form of economic efficiency.
So how does this relate to subsidies? Most politicians I have met will concede all of the above points, and further that it is very hard to get anything done in Washington if you don't have a dedicated interest group lobbying for it (and all the more so if you do have an interest group lobbying against it). Therefore we frame much of our energy discussion as "Can we afford to change?" rather than "Can we afford to stay the course?" (The question here relates solely to fiscal appropriations, and while we could frame the latter question in terms of environmental consequences, the fiscal framing resonates with a much larger group of legislators.)
The libertarian end of the political spectrum argues that all subsidies should be taken away, and therefore opposes most clean energy policy -- as presently framed. At the opposing end of the spectrum, we simply have a debate about whose subsidies are better that doesn't even pretend to be about economics. (Witness the recent senate debate that pitted RPS against oil and gas tax breaks). And while this end agrees on the need for subsidy, the ability to get your favorite one passed depends largely on who won the most recent election, rather than any more politically persistent philosophy.
However, if you agree with me so far, then you would have to also concede that there are likely to be massive subsidies to the existing status quo. And indeed there are. Consider just a few:
- Much of the money we spend to secure oil reserves in the Persian Gulf is paid for out of income taxes rather than at the pump. Thus, the true cost is not reflected at the level that would drive consumers to vote with their proverbial wallets, and the onset of alternatives to petroleum is delayed.
- If a regulated utility builds a dirty, inefficient coal plant connected through miles of transmission to the load, they get the whole investment bankrolled by the public. Utility commissions need only declare the investment to be prudent to ensure that the utility has guaranteed rate recovery -- which in turn enables them to get extremely cheap debt to finance the projects. By contrast, if someone wants to build a plant that is more efficient and cheaper at the point of consumption (be it a solar panel or a CHP plant, or anything in between), they must put up all the capital at risk and run the ongoing risk that the plant will cease taking their power before they have paid off the debt. Thus, we subsidize the dirty at the expense of the clean.
- Ontario recently calculated that the health costs of coal plants amount to a whopping 8 cents per kilowatt-hour, measured in the increase in premature fatality and asthma downwind of same. Those same plants are presently making money at 4 cents/kWh -- again, because the true costs are paid for out of income taxes.
This is a partial list, but the volume just of the above three is huge. (Consider the total capital invested by regulated utilities and assume that they saved a percentage point on interest payments per item 2 above to get a massively large number.) Instead of asking for subsidies, let's reframe the debate and just ask for a leveling of the playing field. A good politician ought to be able to frame this in a way that resonates with both sides of the aisle. Consider:
"I support tax breaks and economic efficiency. Therefore, I'm dropping marginal income taxes by an amount equal to what we spent in the Persian Gulf last year, and keeping my bill revenue neutral by replacing that with an equal tax on gasoline."
No one's ever said this, but I would suggest that this could just as likely be framed by an environmentally conscious politician on the left as an economically conscious politician on the right. Any volunteers?
Comments View as Flat
JMG Posted 6:05 am
25 Jun 2007
Go in the other direction and you'll have it
"I support tax breaks and economic efficiency. Therefore, I'm INSTITUTING A NEW LOWER THRESHOLD ON PAYROLL (SOCIAL SECURITY) TAXES by an amount equal to what we spent in the Persian Gulf last year, and keeping my bill revenue neutral by replacing that with an equal tax on gasoline."
(In other words, shift taxes off wage earners from the bottom up rather than trying to tinker with marginal tax rates, which does not benefit the lower income folks who pay lots of payroll taxes but no income taxes at all.)
Save the world: Reduce greenhouse gas emissions 5% annually.
Permalink
JMG Posted 6:07 am
25 Jun 2007
Oh, and ...
You have to make sure that you don't let it be an actual gas tax, which the road gang nicely captured years ago. Call it an "Economic Security" tax or an "Energy Independence Tax" or whatever, but don't call it a gas tax or it winds up in the highway trust fund and nowhere else.
Save the world: Reduce greenhouse gas emissions 5% annually.
Permalink
Nucbuddy Posted 6:19 am
25 Jun 2007
Societal objective regarding the lower classes
JMG wrote: In other words, shift taxes off wage earners from the bottom up rather than trying to tinker with marginal tax rates, which does not benefit the lower income folks
Why would a society want to benefit lower-income folks?
Permalink
GreyFlcn Posted 7:04 am
25 Jun 2007
But thats back to the same arguement
But thats back to the same arguement.
That "renewables are inheriently more expensive than other options".
They aren't. They are less expensive.
However it's the current tax structure which makes it appear that they aren't.
_
The question we Should be asking is:
How much Green could we buy, for the same ammount of $Green$, as the Black is currently getting.
Permalink
sunflower Posted 7:18 am
25 Jun 2007
Wet steam in my dreams
We are subsidizing entropy.
We use high-value fuels for low-grade applications, like food processing.
We subsidize solar power to save fuel at power plants.
If we used utility capital to finance solar process heat to save fuel, like at food processing plants, we would save gigatons of money.
What a mess.
Permalink
naturescene Posted 7:22 am
25 Jun 2007
conservation payments
to farmers that use best management practices or preserve habitat are much more equitable than subsidies and they flow to all farmers. the funding for these conservation payments should be restored in the Farm Bill.
Permalink
odograph Posted 7:29 am
25 Jun 2007
A Complete Waste of Energy
This is the classic piece against subsidies. You should look those guys up and see what they are up to.
Permalink
odograph Posted 7:30 am
25 Jun 2007
4 years
Note that the above was written about the 2003 energy bill.
Permalink
Sean Casten Posted 9:41 pm
25 Jun 2007
Agree with the comments - but reframe
Glad to see so much agreement about the underlying point, but it makes me realize that I was not as explicit as I should have been in my underlying purpose. We need to stop framing requests to level-the-playing field for green technologies as if it was a request for subsidies. From capital cost buydowns for fuel cells to RPS credits for favored technologies, we need to collectively think of how to frame our requests so that we are not so subject to an anti-subsidy wave (or at least, anti certain subsidies) that inevitably blows through the political process. We will always lose the whose-subsidy-is-bigger debate so long as we don't have the biggest lobbyist. Fine - so let's change the debate.
Ontario shows an interesting model. They are about to announce a standard offer for clean energy, with payments to same calculated solely based on their stated objective to phase out coal. They calculated the costs of coal (including, but not limited to the 8 cents above) and then stipulated that a portion of that revenue should go to anyone who reduces the need for coal. Voila - no subsidy, just a leveller. Our goals will be realized quicker if we can develop similar ideas on the US side of the border.
Permalink
dotcommodity Posted 5:52 am
26 Jun 2007
love that reframing JMG
and some other names bandied about on dailykos, i/o gas "tax":- plunder fee, climate safety fee, oil-war tax
Permalink
FuriaFubar Posted 12:57 pm
26 Jun 2007
from green to.....
You're speaking in a language that I am sure I can bone up on, but one that, having been looking primarily at the science, I am rusty at. How to get scientists and regulators to speak in a common tongue? Or am I oversimplifying? And...can you direct me to some sources for how petroleum is paid for in income taxes? I find that to be news
Furia
All the Best, Furia - http://www.xanga.com/furia_fubar
Permalink
Sean Casten Posted 12:35 am
27 Jun 2007
Petroleum payments
The source that I've heard quantify this (but don't have a precise reference) is former CIA director Jim Woolsey. I recall he wrote an article in Foreign Affairs with Dick Lugar about a decade ago trying to quantify this number, pinning the total cost paid for oil, but not reflected in the marginal price paid by world oil markets at ~$20/bbl. But my memory is fuzzy, so don't quote precisely.
The qualitative point is fairly obvious though. Gas taxes in the US go top pay for roads & other direct transportation related costs, but not for the military, which comes out of general funds (e.g., income taxes). Thus, it is simply a matter of addition and division by the number of barrels to get at the number which I (hopefully correctly) ascribe to Woolsey. Note that this need not even get into Iraqi adventures. Much of the annual military budget goes to patrolling shipping lanes in the Persian Gulf. It is reasonable to presume that this is not to protect the spice trade. Likewise, one could look at Department of State expenses (embassies, etc.) in the Persian Gulf and calculate by comparison to other similary sized countries that don't have oil how much of that pot is going to oil. Add those all up, and the $20/bbl would not surprise me.
As your questions of getting scientists and regulators to speak the same language, all I can say is hear hear. Getting engineers to explain what they do to regulators is no easier than getting regulators to explain why politics ought to matter to engineers. It is truly rare to find people who have the gift to speak coherently to both groups.
Permalink
Biodiversivist Posted 1:42 am
27 Jun 2007
Cost of oil
It is unlikely we will ever find a source of liquid fuel as cheap as oil. If we can replace coal as a source of electricity and make plug in hybrid technology the standard, we can replace most liquid fuel with electricity. The higher costs of electricity may be compensated for by higher mileage plug-in cars eliminating the need to buy $1500 worth of liquid fuels annually.
I completely agree with you, Sean. The politicians need to start leveling the playing fields. They should all be forced to take an introductory econ course.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
Permalink
GreenEngineer Posted 2:17 am
28 Jun 2007
Yeah^3
I also completely agree with you, Sean. Frankly (and not to diminish the importance of what you are saying, or the fact that you're saying it) it's pretty damn obvious to anyone who works in the energy industry. (I think most supporters of renewable energy understand that the big barrier to adoption is the unlevel playing field; they focus on getting subsidies for their technologies because it is perceived to be easier than eliminating the other guy's subsidies.)
But all this begs the question: If it's so obvious, why has this particular meme been so long in coming, and been so hard to propagate? I can think of a few reasons, but I'd like to hear what you think the primary barriers are, and how we might overcome them.
Permalink
David Roberts Posted 2:22 am
28 Jun 2007
GreenE,
good to have you back. I wondered where you'd wandered off to.
As to why the idea is hard to get across, part of it is that the right has quite successfully, and brazenly, framed any new subsidies and regulations as "big government," while pushing the illusion that what we have now is a free market.
Robert Kennedy Jr. has been fighting for this new thinking for a while now, proclaiming that we need a free market. Unfortunately, he gets bashed by lefties for it.
grist.org
Permalink
Sean Casten Posted 6:10 am
28 Jun 2007
Why it's hard
GreenE,
As is so often the case, that 300 year old Frenchman Alexis De Tocqueville said some of the most perceptive things about American politics:
"The legislature is usually the strongest power in free governments. It will seek... to encroach upon the other departments; and this is especially to be feared from the House of Representatives as holding the power of the purse."
So look what we now have. Elected officials know that they are beholden to those who get them elected, and those who elect them have figured out that power-of-the-purse issue. So lots of businesses ask for and get handouts (some of which, to be sure make good policy sense, even if others are totally nuts). But no businesses ask for economic efficiency - which is the opposite of a subsidy.
Consider basic economic theory, which says that in order for Adam Smith's invisible hand to work, you need competitive markets. In order to have competitive markets, you need to satisfy the following conditions:
- Free entry into the business
- Clear price signals
- Restriction of predatory practices by established firms against insurgent firms.
Put simply, no business lobbies to lower the barriers to entry to it's market, nor to ensure transparent pricing, nor to limit it's ability to squash it's competition. This is not inherently bad, but it does cause it to be much easier politically to impose new subsidies than to take them away. Which is why I think that we would be better off simply calculating and highlighting hte existing subsidies, and then factoring them into rates. If we think it's beneficial to pay industry X $Y to stay in business, then let's pay them - but let's pay them in such a way that the price reflects the true cost.Permalink
GreenEngineer Posted 7:28 am
28 Jun 2007
Thanks
Thanks for the kind words. I've been taking a break, and I'm likely to be more scarce around here, since work is going to be taking more of my time. But I'll try to stop by now and again.
The lefty allergy to the free market is really, really unfortunate. It's ironic, really: progressive are concerns with economic justice, which is a matter of solving the resource distribution problem in an equitable fashion. Yet they reject the market mechanism, which has proven to be a very effective solution to solving the partial information problem. It's not ideal, by any stretch, and it's far from perfectly fair. But before markets, the middle class didn't exist: there were the rulers and the ruled, and that was it. But the progressives want to throw out the baby with the bathwater, just because the baby has not yet been toilet trained.
Lester Brown nails it: We must let the market tell the ecological truth. If we can do that, we can get past 50% of the social inequities and 95% of the really scary threats to the survival of civilization. It won't make a perfect, perfectly just world, but it would be a start, and it would buy us a few more centuries in which to evolve a social structure worthy of the term "civilization". (As Ghandi said when asked what he thought of Western Civilization, it would be a good idea.)
Permalink
JMG Posted 7:41 am
28 Jun 2007
Not quite
It's quite popular to critique the left for its aversion to the "free market," but---as many have noted---to really find entities adverse to the free market, you have to go to corporations, whose sole interest in markets is in dominating them.
I happen to agree that environmentalists can make better use of tools that we have come to associate with markets. However, I also observe that anytime you see the word "free" in front of "markets," you are well advised to watch out, something is being peddled, usually something bad for the environment and most definitely not "free."
The dominant idea in corporate circles is to capture state power and use it for corporate purposes, all the while calling this "the free market." Corporations are sociopathic externalizing machines, genetically programmed for continuous expansion and incapable of putting any value over that of profit/expansion. In this, they are like a boxful of scalpels and uzis --- worth having around in some instances, but also worth painstaking control to avoid bloodshed and suffering.
So, yes, we should honor the insight that "Communism failed because prices couldn't tell the economic truth, and capitalism may fail because prices don't tell the environmental truth" -- but let's not forget that no US chartered, publicly traded corporation has ever placed a commitment to environmental truth or sanity over its commitment to profit.
Save the world: Reduce greenhouse gas emissions 5% annually.
Permalink
GreenEngineer Posted 7:58 am
29 Jun 2007
Free markets
It's quite popular to critique the left for its aversion to the "free market," but---as many have noted---to really find entities adverse to the free market, you have to go to corporations, whose sole interest in markets is in dominating them.
Sure, no argument there. Unfortunately, when to talk to rank-and-file lefties (as opposed to the wonkish types I tend to see here), they have a knee-jerk rhetorical response to oppose "markets". In this, they play perfectly into the hands of the corporations: The corps take policies that favor them, and call them by the name of the policy which, in reality, they fear the most. And the left plays along, by demonizing the term which the corps have set up for them, thus ensuring that no one seriously looks at the potential value of actually free markets. Sort of a Brer-rabbit-and-the-briar-patch maneuver, but in reverse.
Permalink