Elimination of Subsidies for all Energy Alternatives
I agree with the proposal to eliminate government subsidies for all energy alternatives so that all energy providers can compete in a free market economy. My rationale for agreeing with this proposal is that providing subsidies is a retrogressive economic policy that allows the government to prop one sector of the energy industry at the expense of other sectors. Rather than foster competition, government subsidies will give alternative energy investors unfair price advantages over other energy providers. Moreover, subsidies will cause the alternative energy sector to become less cost competitive and encourage unhealthy dependency on preferential treatment from the government. In that case, the subsidies will simply become a disincentive for any meaningful private sector investment (Olav & Sönke, 2015: 74-97).
The second reason is that subsidies allow the government to direct flow of capital in private sector investments, which is a form of government interference in trade. This can happen through tax breaks, targeted direct expenditures, loan guarantees and bailouts. All these mean that the government must allocate resources away from other equally deserving projects. For instance, if the government gives tax credit to bio-fuel producers only, it shifts more capital and labor towards biofuel production and away from other energy production activities such as nuclear energy or natural gas. In the long run, those energy sectors which are not given tax credits become less competitive due to increasing costs of production. This can hurt the entire economy because energy is the basis for economic growth in any country (Lackner et al, 2012: 13156-13161).
Lastly, if the government is allowed to dictate how investment resources are spent in the private sector, those industries that benefit most from government subsidies will spend more resources lobbing for the subsidies. In the example above, the biofuel producers will spend more resources to push for more tax credits. Consequently, other energy producers will complain that they are at a disadvantage and start lobbying for their own favors. This will result in an endless cycle of lobbying, which will be destructive to the development and stability of the energy sector. Ideally, it should not be the role of the government to determine which industry sectors to subsidize because doing so distorts the marketplace and increases the likelihood of investors using political processes for selfish gains (Olav & Sönke, 2015: 74-97).
Phasing out Subsidies for Conventional Fossil Fuels, Nuclear Power and Synthetic Natural Gas
I agree with the proposal to phase out all government tax breaks and other subsidies for conventional fossil fuels, nuclear power and synthetic natural gas. The main reason for taking this position is that fossil fuels are a major contributor to climate change. According to Duchane and Brown (2002: 13-19), the different types of fossil fuel emit millions of tones of greenhouse gases into the atmosphere. These gases are responsible for global warming and other adverse climate impacts experienced in the world today. In addition, burning of fossil fuels results in health related costs. Phasing out subsidies for these fuels will reduce investments in the fossil fuel industry and thus limit the industry’s harmful effects on the environment and human health. In contrast, renewable energy alternatives such as hydropower, solar power, geothermal and biofuel cause minimal harmful effects on the environment and health. Therefore, the renewable energy alternatives should get more subsidies than conventional fossil fuels, nuclear power and synthetic natural gas (Mark & Mark, 2011: 1174-1176).
Secondly, subsidies for development of conventional fossil fuels, nuclear power and synthetic natural gas cause heavy spending in infrastructural development. Unlike renewable energy alternatives, conventional fossil fuels require special infrastructure (such as roads for transporting coal and oil), which can be too costly for the government and consumers. The government also incurs commits substantial resources to the military to protect offshore conventional fossil fuel reserves (Goeppert, Czaun, Prakash & Olah, 2012: 7833:7851). Currently, the US government spends about $500 billion annually to defend its oil interests abroad. This means that American taxpayers have to pay a higher price for oil imports, which makes the oil market vulnerable to international developments. In contrast, renewable energy is rarely affected by international events. Therefore, it is more prudent to support renewable energy alternatives instead of the non-renewable energy alternatives. According to Goeppert, Czaun, Prakash and Olah (2012: 7833:7851), the most obvious benefit of halting fossil fuel subsidies is rapid increase in the availability of public money. This money can be used to promote development of clean energy alternatives.
Question Response
I agree with the first part of this proposal, which states that development of solar, wind and hydro energy should be left to the private sector, and receive little or no support from the federal government. However, I disagree with the second part, which states that fossil fuels and nuclear energy should continue to receive large government subsidies. Leaving development of the renewable energy sector in the hands of the private sector will ensure high levels of efficiency in resource allocation and energy production (Goeppert, Czaun, Prakash & Olah, 2012: 7833:7851). It will also lead to more foreign direct investments, as foreign investors are more likely to invest in the private sector. Therefore, it makes economic sense for the government to allow private investors to participate in renewable energy (Duchane & Brown, 2002: 13-19).
In order to facilitate health competition in the private sector, energy investors should receive little or no help from the federal government. Any help (usually in the form of subsidies) will make renewable energy less competitive not only in the domestic market but also in international market. Moreover, government support will be a disincentive for investors, as they will be required to make some concessions in order to qualify for the support. These concessions can be costly for both established businesses and start-up companies (Mark & Mark, 2011: 1174-1176).
My reason for disagreeing with the second part of the proposal is that continued federal funding for conventional fuels can be very costly in terms of energy prices, environmental impact and human health. Exploration and production of fossil fuel and nuclear energy causes many harmful effects on the climate. Therefore, if this sector continues to receive support from the government, the level of negative impact will increase remarkably, making it a costly venture. Ideally, subsides for fossil fuel and nuclear energy should be justified only if they reduce costs associated with business operations and environmental impact. However, the government should not ban use of fossil fuels and nuclear energy because renewable energy is not sufficient to replace the former (Goeppert, Czaun, Prakash & Olah, 2012: 7833:7851).
References
Duchane, D. & Brown, D. 2002. Hot Dry Rock (HDR) Geothermal Energy Research and Development at Fenton Hill, New Mexico. Geo-Heat Centre Quarterly Bulletin, 23 (4): pp. 13–19.
Goeppert, A., Czaun, M., Prakash, G. & Olah, G. 2012. Air as the renewable carbon source of the future: an overview of CO2 capture from the atmosphere. Energy and Environmental Science 5 (7): 7833–53.
Lackner, K. et al. (2012). The urgency of the development of CO2 capture from ambient air. Proceedings of the National Academy of Sciences of the United States of America, 109 (33): 13156–62
Mark, A. & Mark, Z. 2011. Providing all global energy with wind, water, and solar power, Part II: Reliability, system and transmission costs, and policies. Energy Policy. Elsevier Ltd. pp. 1170–1190.
Olav, H. & Sönke, B. 2015. Trends toward 100% renewable electricity supply in Germany and Europe: a paradigm shift in energy policies. Wiley Interdisciplinary Reviews: Energy and Environment 4, 74–97.
