How Much Federal Subsidy Goes to Renewable Energy?

The US Government subsidizes all forms of energy production, from a $10 billion cap on nuclear disasters to tax credits and cash grants.  Where does renewable energy fall into that sizable outlay of money?  According to Renewable Energy World, only so-so.

Types of Federal Subsidies Available

• Tax Credits: Solar investment and production credits fall into this category (i.e. put solar on your roof and we’ll reimburse up to %20 with tax credits).  Ethanol and Biofuel also fall into this category.  This is the largest method of subsidy, comprising 45% of all government energy assistance between 1950 and 2003, and a peak of 65% in 2006.
• Cash Grants, Loan Guarantees and Others: These accounted for about 20% of federal support between 1950 and 2003, and 29% in 2006.  The ARRA Renewable Energy Cash Grants fall into this category.  Essentially, this type of subsidy is a handout or a loan with very agreeable terms to ensure the success of the recipient.
• Regulation: Create a regulatory climate that encourages folks to invest in energy.  This is the category that the above-mentioned $10 billion cap on money allocated to a nuclear plant disaster falls into.  Ethanol additive regulations also fall into this category and encourage the expansion of ethanol products.

Though the tide is beginning to turn, the long-entrenched favorites for energy production are the forms we’re all familiar with (coal, gas, nuclear and hydro) and those industries have received the bulk of this type of funding, the foremost being oil and gas.  The US government’s first effort to subsidize the energy industry began with oil in 1917.  Of the $725 billion spent between 1950 and 2003, 60% went to oil and gas (though oil had 45% of that), coal received 13%, hydroelectric took 11% and nuclear was given 9%.  So, if that pattern continued until recently, it’s safe to say that renewables are close to the bottom.

How far toward the bottom?  The renewable field received $29 billion, (two and a half times less than oil and gas) overall between 2002 and 2008.  Of that $29 billion, $16.9 billion was for ethanol and similar technologies.  That means that $12 billion (16.6% of the total received by fossil fuels) went toward wind, solar, geothermal, hydropower and non corn-based fuels and biomass.  It begs the question, how hard are we trying to get to a renewable future? And of course, the response, put your money where your mouth is.

As Matthew Slavin of Renewable Energy said, “According to the U.S. Energy Information Administration (EIA), federal subsidies for conventional coal-generated electricity production in 2007 equaled $0.44/MWh (megawatt-hour). The equivalent figure for wind was $23.37 and for solar, $24.34 per MWh.”  These numbers show how much subsidy is necessary to make renewables cost-effective for the consumer at this point in their development.  The difference between the industries is that renewable energy does not get the steady and secured funding that oil (and others) do, partly because renewable energy is newer and partly because lawmakers vacillate from year to year on how much should be allotted to renewable energy, which doesn’t help a businessowner forecast the future.

The author of the article argues that now is the time to provide a climate that encourages investment in the renewable field and even suggests lessening fossil fuel subsidies to allocate the funds.  I can’t agree more.  How well that will fly is a question mark, though.  However, encouraging investment in the renewable field may accomplish more than just speeding us along toward a carbon-reduced future.  Encouraging investment in a growing industry and creating a boom (like Silicon Valley) could once again create a healthy economic outlook for the US and its citizens.  Perhaps it could even lessen or eliminate the recession, and that would not be a bad trade-off at all.

Source: RenewableEnergyWorld, article by Matthew Slavin, Phd

Photo Credits: Equal Life & Polizeros

Posted on November 17th in Solar Funding by Craig.