I participated last week on a panel at the New York Times Energy For Tomorrow conference in New York City. My session, the Closing Plenary, which you can watch here, focused on the issue of energy subsidies. Our session chair, Joe Nocera, queried whether it made sense to subsidize all of our different energy sources. Such is the politics of energy in the United States: We, the taxpayer, give handouts to anyone with a usable fuel, no matter its commerciality. Got a BOE (barrel of oil equivalent) to supply? Congress will give you an earmark or a tax break in the name of energy security.
The reality of subsidies from a political point of view is that they are all too easy to put on and almost impossible to take off. Over the years, we have subsidized virtually everything, from deep-water drilling to ethanol to nuclear and renewables and yet, after years of subsidies and billions of wasted dollars, consumers are no less vulnerable to price shocks from the Middle East this year than when all these subsidies were levied.
But this does not mean that US industry cannot succeed or that government cannot intervene successfully in markets. As “subsidies” go, I tend to like the Intangible Drilling Credit (IDC). This deferred tax stipulation helped bring us today’s natural gas surpluses but only because it was combined with a prior US Department of Energy (DOE) sponsored technological breakthrough that was leveraged by industry. The formula of government-backed R & D structured via public-private partnerships, or the so called SEMATECH model, is a winner and we need to shift more money to such activities and spend less financing existing businesses whose technology is not commercially profitable and could easily become obsolete, were a breakthrough to come to the fore. The U.S. has used the Sematech model successfully to save the American semi-conductor industry by advancing US competitiveness, and Japan crafted similar interventions in its car industry to dominate the hybrid tech sector.
The U.S. Department of Energy is looking at the SEMATECH model for solar energy. This approach has promise based on past experience and deserves the kind of funding levels we have previously preserved for corn-based ethanol or loan guarantees to poorly structured businesses with influential friends in the White House. But how would we identify new funding for a solar program with merit in this climate of mounting deficits? The national public needs to weigh in. We need to demand that all subsidies that cannot be shown to produce true energy security have a legislative sunsetting clause. This means no taxpayer dollars to industries that make money for purposes other than for public partnered R & D and no taxpayer dollars to industries that are either volumetrically insignificant or have little prospect of succeeding without government support. This de-appropriated money could be shifted to public-private solar research. In addition, if we were truly serious about energy security, we could consider levying some kind of well designed, targeted tax on our energy consumption. Americans are already showing a generational inclination to both use less and be more environmentally inclined. We should harness that momentum and turn it into a usable sacrifice for the future.