Coal Tattoo

Earlier this week, my buddy Ted Boettner over at the West Virginia Center and Budget and Policy passed on a nifty new report from the firm DBL Investors that provides an interesting look at an always popular topic here on Coal Tattoo: Energy subsidies (see previous posts here, here and here).

I gave it a read yesterday, and was planning to blog about it … but Ted beat me to it, writing on his organization’s blog:

A new study by Nancy Pfund of DBL Investors and Ben Healey of Yale University shows us that federal subsidies have played a large role in guiding America’s energy economy over the last 200 years. In particular, Pfund and Healey quantify and compare how federal subsidies for earlier energy transitions in coal, oil, gas, and nuclear compare to our current commitment to renewables.

Ted quoted from the report:

Our findings suggest that current renewable energy subsidies do not constitute an over-subsidized outlier when com- pared to the historical norm for emerging sources of energy. For example:

– As a percentage of inflation-adjusted federal spending, nuclear subsidies accounted for more than 1% of the federal budget over their first 15 years, and oil and gas subsidies made up half a percent of the total budget, while renewa- bles have constituted only about a tenth of a percent. That is to say, the federal commitment to O&G was five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear.

– In inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.

Nancy Pfund, Managing Partner, DBL Investors and co-author of the report, said:

All new energy industries – timber, coal, oil and gas, nuclear – have received substantial government support at a pivotal time in their early growth, creating millions of jobs and significant economic growth. Subsidies for these ‘traditional’ energy sources were many, many times what we are spending today on renewables.

Regarding coal, Ted pointed out:

The study also looked at how the federal government currently subsidizes the coal industry. Between 2000 and 2009, they found that the capital gains treatment of royalties on coal have totaled $1.3 billion in federal tax expenditures.

Pfund and Healey also look at the historical role of direct spending and development initiatives by the US government in the 19th century on behalf of the coal industry, including tariffs, the redistribution of land (e.g. Homestead Act of 1862) and natural resources, and the building of railroads and ports for distribution.

At the state level, they found that states propped up the coal industry by exempting coal from taxation, granting corporate charters only to coal companies, and by sponsoring geological surveys to identify coal seams for the industry. (As we pointed out last year, the state of West Virginia also heavily subsidizes the coal industry with preferential tax treatment and other expenditures).

The DBL Investors Report concluded:

Throughout our history, energy incentives have helped drive critical innovation, speed U.S. economic transitions, and helped shape our national character. Today, as we seek to move towards a more independent and clean energy future, the truth is that renewables—from a historical perspective—are if anything under-subsidized. This weak support is inconsistent with our nation’s own historical energy narrative, which suggests:

Today’s market for cheap power results in part from substantial investment by the federal government in innovative technology.

It takes a substantial amount of money, invested over several years, to bring an electricity generation technology to maturity.

Although energy subsidies can and do serve many policy purposes, the most basic relate to furthering the development and commercialization of technologies deemed to be in the public interest.