Notes from the Funderground

The WTO's Agreement on Subsidies and Countervailing Measures was supposed to help change this. However, its rules don't incorporate all subsidies of concern, and reporting has not been systematic enough [PDF] to make it a powerful resource. Multi-country evaluations usually rely on overview metrics, such as comparing the world price of an energy resource to domestic price levels (the "price gap" approach). These miss many subsidies. Single-country evaluations (e.g., IEA country studies) have lots of policy detail, but the subsidies are not usually quantified in an integrated way.

In terms of subsidy transparency, countries with more open governance tend to have better information on subsidies. In the U.S., for example, budgeting rules that require government agencies to issue annual reports with outside auditors, tax expenditure reporting at least at the federal level, and estimates of credit subsidies have greatly improved data availability. Similar information exists for many European countries. However, important gaps remain. In the U.S., estimation models and assumptions for tax breaks and credit subsidies are not publicly available, and it is hard to tell how accurate they are. Given the complexity of the measurements the government analysts must make, and the short time frame they have to do so, my guess is that model accuracy is not great. Other areas, such as contingent liabilities (insurance caps on private responsibility for damages from a nuclear accident, for example) remain extremely murky.

Still, we know much more about subsidies to nuclear power in the U.S., for example, than we do about such subsidies in France or China. If you have data on either of these two areas, please send it my way.

This example aside, overcoming the entrenched political constituency of any subsidy is a challenge. Making the political process a zero-sum game, so politicians fight with each other for their slice of subsidy pie, is one important element of a solution. However, nongovernmental organizations also need to stop trying to take on the entire subsidy issue on their own. What is needed is a complex, comprehensive reporting system that can challenge and embarrass politicians in real time. While no single organization can afford to build or maintain such a system, a consortium of groups certainly can. Unfortunately, data systems like this don't have nearly the level of donor appeal as activist campaigns on particular policy issues do, despite being much more important in the long term in protecting the environment. This would seem a perfect project for large environmental funders to take on, and I would be happy to speak to any of them about how such a system might work.

Subsidy coverage on government sites is spotty at best, with many states providing no data at all on programs like tax breaks or loan guarantees. Where subsidies are tracked (Minnesota is a good example), you don't see data on the state system until well after the subsidy has already been granted. It's better than nothing, but not exactly a great point of leverage for challenging new subsidies.

Increasingly, government statutes are online and you can search by keywords and find surprising little gifts to particular industries buried in there. State taxpayer groups and D.C.-based Good Jobs First are also useful resources.

I think that tax exemptions to fuel used in international transport could be removed fairly quickly if the goal was not to provide revenues to particular governments, but rather to allocate funds back to the industry in proportion to their energy efficiency or low emission. The tax reform would restructure the incentives of shippers to focus on energy efficiency and environmental impacts in ways they don't at all today.

I am concerned that massive new federal subsidies to nuclear power will result in many new plants without anybody really understanding the costs associated with liability caps, waste management, and proliferation. At the very least, I'd like to see comprehensive costing of these subsidies done by a non-industry party. This information is a critical counterbalance to the irrational exuberance of nuclear boosters around the world.

In terms of actions outside of government, I'd like to see some of the nation's top university engineering or operations management programs take on the problem of electrical-grid pricing and control. Their objective should be eliminating as many cross-subsidies as possible, and making new entry by alternative suppliers much easier than is now the case. Our electrical grid five years from now should be like the phone network was five to 10 years after the breakup of AT&T -- with plentiful opportunities to enter the generating market and tremendous innovation in services delivered.

One important caveat is that subsidies per unit may be higher because an energy resource is new with a very small installed base. There is certainly an argument for government support of basic research into new energy technologies. However, this argument gets progressively weaker as the technology enters production, and as that production is scaled up. Basic research into enzymatic breakdown of cellulosic material into ethanol is a far more justifiable target for public support than are the excise tax credits to ethanol blenders that spiral upward without limit for each gallon produced.