Energy subsidies are as old as the republic
By Brad Plumer,
The fallout from Solyndra’s collapse is already starting to ripple through the wider solar industry. Earlier today, First Solar Inc., an Arizona-based company, announced it would not receive an expected $1.9 billion loan guarantee from the Energy Department to help construct a new solar farm in California. The company says it couldn’t finish its application in time, but industry analysts are pointing to jitters over Solyndra as a likely culprit.
Reed Saxon/Associated Press
The report’s authors, Nancy Pfund and Ben Healey, start by looking at subsidies given to different forms of energy in their first 15 years of existence. Back in the 1950s, nuclear power received support worth $3.3 billion per year in today’s dollars — or a full 1 percent of the federal budget — for its first 15 years. Oil and gas got an average of $1.8 billion, or 0.5 percent of the budget in its early days. And solar and wind? Their support averaged less than $0.4 billion from 1994 and 2009:
The report delves into the history of government efforts to incubate new forms of energy, starting with coal in the late 1700s. Back then, the United States protected its coal interests from British merchants through steep tariffs. States like Pennsylvania “exempted anthracite from taxation, provided incentives for smelters to promote its use, and publicized its advantages within and outside the state.” Government-funded geological surveys reduced the cost of exploration. And railroads — made possible by federal land grants—helped transport coal across the country.
Or take natural-gas turbines, which are becoming increasingly popular with utilities. These turbines, the report notes, are based on jet-engine technology which, for many decades, was deemed too inefficient and unreliable for power generation. But the government invested heavily in R&D — the Pentagon’s budget for jet-engine reserach averaged $425 million per year from the mid-1970s to the mid-1980s. And, eventually, the new turbines caught on with the power sector, which reaped the benefit of taxpayer-funded military research.
Then, of course, there’s nuclear power. Not only did nuclear reactors benefit from civilian R&D and other subsidies, but they would’ve been unthinkable without Congress passing the Price-Anderson Act, which covers liabilities from a nuclear power plant in case of a catastrophic accident. Meanwhile, ratepayers have bailed out the nuclear industry at several points, including in the 1990s, when nuclear plants offloaded billions of dollars in “stranded costs” from plants that became uncompetitive as a result of deregulation. Even today, new nuclear plants can’t break ground without loan guarantees from the federal government — and the CBO has called the risk of default for those loans “very high.”
Now, that’s hardly an argument against nuclear subsidies. But it does put Solyndra’s support in perspective. Compared with government backing for other forms of energy, solar and wind have received scant support.
It’s also not to say that the Energy Department’s loan-guarantee program is an optimal form of government support. In fact, says Rhone Resch, president of the Solar Energy Industries Association, far more critical is a Treasury grant program that covers 30 percent of the cost of a solar project, in lieu of a tax credit. “Without that grant, the solar industry would be half its size right now,” Resch says. (He also notes that companies only get this grant after a solar program is up and running, making Solyndra-esque busts unlikely.)
But that program, part of the stimulus bill, is set to expire at the end of the year. And, as the DBL report points out, that’s been a recurring feature of support for renewables. Wind and solar tend to get short-term tax credits, lasting for a year or two, that frequently lapse. That, in turn, has led to frenetic booms and busts in both industries — quite different from the calm, steady patronage that fossil fuels and other forms of energy received in their early days.