Energy favoritism now has become a bonafide topic of conversation in Washington, D.C. Where else but in our nation's capital could energy subsidies and government intervention become a heated topic at New Year's parties?
But it has, energized by two potentially significant events breaking simultaneously. First are the federal tax bills that may or may not reduce subsidies to some energy producers. And second is that the Federal Energy Regulatory Commission has roughly a week to weigh the merits of Energy Secretary Rick Perry's proposal for a new way to capture the value of coal and nuclear plants in making America's electricity supply more reliable.
There is a case to be made for public support of every fuel source — and advocates feverishly make the case to Congress and the administration based on the varied contributions their energy sector contributes to the public good. As such, environmental benefits stem from carbon-free wind and solar; conversely, reliable and affordable power comes from coal. Nothing un-American about any of this. We subsidize everything from homeownership and business gatherings to the cost of living and raising kids in high-tax states.
The problem arises when those who condemn subsidies as a sin are themselves sinners. A recent example: the unusual barrage of protests from wind and solar advocates indignant over what they claimed was Secretary Perry's crass meddling to revalue the reliability of some power plants. Given the production tax credits and mandated market shares larded on renewable-energy producers, this protest rang a trifle hollow.
Greentech Media recently revealed that production and investment tax credits now account for at least half the cost of an average wind farm and up to half the cost for a typical solar project.
Ignoring these subsidies creates a deeper, more obstinate problem, a sort of Potemkin Village effect that magnifies public enthusiasm for the green revolution. This leads advocates to overstate the public's desire for green living, in some cases creating an aura of religious fervor around consumer demand for electric vehicles, rooftop solar panels, and wind turbines.
But the impressive growth of renewable power requires an asterisk — that subsidies are largely responsible for it. A billion-dollar net worth is less impressive if the first $900 million is inherited. And even with such lavish subsidies, wind and solar power still account for only 7 percent of total U.S. electricity generation.
That's why a candid quote this month from General Motors CEO Mary Barra, a renewable-energy advocate, offered a welcome reminder of the real world. Barra criticized congressional attempts to reduce tax subsidies for electric vehicles by underscoring their importance as a selling point to consumers: "Repealing that (tax) credit will have an impact because it changes the equation that determines whether people want an electric vehicle," Barra said.
What a revelation: Subsidies not only influence but may determine consumer demand for green products and services. Of course that won't be news to businesses that manufacture wind turbines and solar panels. They know the score. But the fact that subsidies are what juices demand for green energy will come as a shock to many activists.
As Warren Buffett famously said, "We get a tax credit if we build a lot of wind farms. That's the only reason to build them."
An emissions-free lifestyle is costly. Unless it comes with a deep discount, debt-laden consumers are unwilling to pay for it. Let's stop pretending otherwise. As we learn in economics 101, whatever you incentivize, you get more of. The reverse can also be true: the absence of incentives kills demand.
It's one thing to assert the need for green products; it's quite another to hype their demand.
Luke Popovich is vice president for external relations at the National Mining Association (nma.org) in Washington, D.C. He wrote this for the News Tribune.