Tuesday, January 3, 2012

Researchers Invoke Thomas Jefferson In Energy Study

Subsidies for clean energy have been getting a bad rap lately, but the government has used taxpayer money to boost energy since the early years. In fact, subsidies fueled the innovation that drove this nation's growth, two authors note in a report entitled, "What Would Jefferson Do: The Historical Role of Federal Subsidies in Shaping America's Energy Future."

Venture capitalist Nancy Pfund and Yale graduate student Ben Healey say federal subsidies on fossil and nuclear fuels dwarf the comparative pittance spent on renewables, which should receive more attention: "Overall, what we find, in contrast to much of today’s headline-grabbing rhetoric, is that today’s government incentives for renewable energy pale in comparison to the kind of support afforded emerging fuels during previous energy transitions," they write.

The authors embark on a historic journey, citing the roles of energy subsidies in the early days, through the Westward Expansion and Industrial Revolution, to the Great Depression and on to post World War II. And they note the current stutter-step advancement of renewable energy from "the margins to mainstream."

They said land grants - which have to be classified as a subsidy - helped spur timber as an early fuel source, and that later legislation benefited the coal industry. The authors write, "As the railroads grew, 'The high price of coal and iron … created a furor … amounting almost to a mania, and the files of both houses [in Pennsylvania were] filled with bills for chartering new Coal and Iron Companies."

Then came oil and gas - and this from their study: "...from a 1990 report of the General Accounting Office: … The marginal effective federal corporate tax rates—i.e., the tax rates on genuinely incremental investments—for domestic petroleum production are already among the lowest for a major industry, due to the effects of existing tax incentives. "

Federal oil and gas subsidies alone have averaged $4.9 billion annually in 2010 dollars from 1918 to 2009, the authors suggest. By contrast, nuclear averaged $3.5 billion in subsidies yearly from 1947 to 1999, biofuel averaged $1 billion in subsidies each year from 1980 to 2009 and solar averaged only $0.37 billion in subsidies annually between 1994 and 2009.

The really big cost

(The oil subsidy figure does not include the cost of energy security. To quantify that, the researchers quote Roger Stern, an economic geographer from Princeton University who calculated the cost of keeping aircraft carriers in the Persian Gulf from 1997 to 2007 at $7.3 trillion.

"Because carriers patrol the gulf for the explicit mission of securing oil shipments, Stern was on solid ground in attributing that cost to oil," Pfund and Healey state. )

Not surprisingly, the authors suggest that "a strong case can be made" that the federal government needs to continue supporting subsidies to help drive the next generation of energy technology.

"Such incentives were instrumental in overcoming the risk factor and establishing the current petroleum industry, and they are as necessary now for the alternative fuel businesses as they
were 100 years ago to overcome high initial startup costs, minimize the risk associated with new
industries, and signal to taxpayers support for these industries."

The researchers point out that combustion turbines were once uneconomic, and government support helped make them mainstream: "That kind of innovation was surely a subsidy to the natural gas industry," they wrote, "But we can also agree that America as a whole is better off having access to the resulting technology. . . Why should current renewable technologies face different standards?"

The authors end their study by offering an answer to their cover question: WWJD? What would Jefferson (who inspired the Bill of Rights and was the nation's third president) do? Here's more on Jefferson's role.

The authors contend that Jefferson would "support emerging technologies to drive innovation, create jobs, protect our environment, enhance our national security in a time of rapid change, and to further a distinctly American way of life in which resources once thought to be endless are replaced by ones that actually are."

(Photo by Matthew Maaskant)

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