Our week long collaboration with Grist rolls on today with a discussion prompted by On Day One user taylorshelton who suggests government subsidies for non-renewable energy should be eliminated.

Eliminate all subsidies for traditional fuels (coal, oil and nuclear) and invest all energy-related funds into renewable energy resources like solar, wind and cellulosic ethanol with the goal of completely eliminating dependence on fossil fuels and nuclear power.

Nigel Purvis, Kate Sheppard, David Roberts, and Timothy B. Hurst respond below the fold.
Nigel Purvis, President, Climate Advisers

Phasing out subsidies for climate damaging technologies is good, common sense. The challenge is mostly political — powerful industries, labor unions and other interest groups defend these subsidies whenever they are challenged. Because the benefits of subsidies are concentrated and the costs are not, subsidy recipients are usually more organized and effective in the political process than ordinary tax payers. Two things will make a difference. First, alternative economic opportunities are needed in places like West Virginia and Kentucky to help local communities thrive in a more climate-friendly economy. That is one reason why public funding for R&D for carbon capture and storage (CCS) technologies for coal-fired electricity production makes sense. CCS turns climate action into a fight against dirty coal not against coal-dependent communities. Second, the broader electorate needs to be mobilized to overcome the special interests. Will Al Gore’s ‘we’ campaign make a difference? It is too early to say. But it’s hard to see a fundamental shift in U.S. energy policy without a fundamental shift in voter attitudes and behavior.

Kate Sheppard

I’m with Nigel; this proposal makes a lot of sense. But of course, their are large political obstacles. Lobbyists for wind, solar and other renewables don’t have nearly the power on the Hill that the fossil fuel industries have, nor does the climate movement have the same wealth of, er, wealth to flood to politicians to encourage them to support a change like this. It would be a tough fight to get these subsidies simply shifted to renewables though; many politicians would balk at the idea of “favoring” these new sources of energy rather than just “letting the market decide.” Which is, of course, a crock of crap since we’ve been gaming “the market” for all these years to privilege fossil fuel industries. It would probably be an easier sell to invest these funds in research and development of new technologies rather than subsidies.

He makes another good point about the need to help communities that would have some hardship during this transition. I’m not as much a fan of massive government investment in CCS, since I think coal is a dirty fuel source from start to finish — not just in the burning of it. Rather, we should be investing in worker transition and new green jobs programs in industries that are actually green.

David Roberts

As Nigel and Kate have said, this idea has always had immense intuitive appeal, but it turns out to be one of the most devilishly difficult things to do in the real world of American politics. Attempts to shift a modest amount of subsidies from oil to renewables were blocked in the Senate no fewer than four times just this last session (with, ahem, John McCain joining the Republican obstructionists).

This is true for all the reasons already described by Nigel and Kate. And for another thing, no one can agree just how much subsidy fossil fuels get. Direct payments are often the least of it. There’s sweetheart deals on royalties, lax enforcement of environmental regulations, regulatory biases against efficiency and distributed power, longstanding political insider influence, and on and on. Is the military budget a subsidy for oil? In some sense it is, but it’s not clear how to quantify it, or how exactly to shift it.

Ultimately, while fossil subsidies are egregious, they are far less significant than the global macroeconomic forces we now see at work: skyrocketing demand, inexorably tightening supply, and the rise in commodity and construction costs. It is these forces that will squeeze fossil fuels and drive the shift to efficiency and renewables. Subsidies can delay and gum up that process, make it less speedy and equitable than it would otherwise be, but they can’t stop it.

So the goal should not be a clean, rational appropriations process (or a unicorn). The goal should be to give renewables and efficiency enough of a boost to get them rolling. Once they’re providing the jobs, the power, and the revenue, legislators will be far less likely to cling to fossil subsidies. Greens are fond of saying that the era of whale oil didn’t end because we ran out of whale oil. It didn’t end because we removed whale oil subsidies either. Everything hinges on the rise of robust, viable alternatives.

Timothy B. Hurst, Red Green and Blue, EcoPolitology

I agree with Nigel, Kate, and Dave that eliminating tax breaks to the “traditional” energy industries and transferring those breaks to the renewable energy industry sounds good on paper, but would be politically difficult, to say the very least. Dave raises the excellent point that it would be difficult to rescind those tax breaks because we are not exactly sure how much they get in the first place; calculating the total amount of subsidies that go to the ‘traditional’ sources of fuel is no easy task. Estimates of our subsidies to fossil fuel companies alone range from $15 – $35 billion annually. Throw in the $100 billion we have subsidized the nuclear industry over the last half century and we are talking about a whole lot of money in direct and indirect subsidy payments to the fossil fuel and nuclear industries.

In stead of completely stripping our subsidies to the fossil fuel and nuclear industry, which the others rightly argued would be a political nightmare, perhaps we could analyze how those payments actually take place and make the necessary adjustments to free up revenue for cleaner energy sources. Certain subsidies could potentially be completely eliminated from the mix if lawmakers can frame those payments as the wasteful government handouts they are. Why should the government assume the legal risks of exploration and development (in stead of the private corporation doing so)? Why do we grant below-cost loans with lax repayment terms? Is it really necessary that we grant income tax breaks, sales tax breaks and low-interest construction bonds to corporations that are continually reporting record profits?

With that said, all subsidies are not inherently evil (government-sponsored R&D programs, in particular, might be one type that we might be bet better off leaving alone). But the longer they exist, the more likely it is they become codified into our tax structure, and the harder they are to take away. If a tax break is on the books for long enough, removing that tax break is then framed by its supporters as a “tax increase” that would “cripple our economy and threaten our prosperity.” Recent debates in our Congress have shown this very phenomenon in action. If we are to make any substantive change in our energy subsidy programs, we need to approach it not as an ‘either-or’ proposition, but rather as an exercise in pragmatic, rational, and fair budgeting.

This week marks the twentieth anniversary of NASA Scientist James Hansen’s groundbreaking Congressional testimony on global warming, an event that put climate change squarely on the political agenda. In honor of the anniversary, UN Dispatch, On Day One, and Grist are partnering to discuss ideas the next president can adopt to take on climate change. We are joined by a panel of experts who will weigh in on ideas submitted to On Day One by everyday users concerned about the climate crisis.

Our first idea comes from On Day One user wise old owl, who suggests we decentralize energy production.

Decentralized energy production through use of renewables (roof-top solar as well as solar farms, together with geothermal, tidal, and wind) can be transferred across our national grid to areas where it is needed from areas with higher productivity and/or lower need, which would change on a dynamic basis. This would eliminate centralized generating facilities as “targets” for terrorists, and eliminate the “control mentality” of large, centralized for-profit utilities.

Grist writers Kate Sheppard and David Roberts; President of Climate Advisers Nigel Purvis; and Timothy B. Hurst of Red, Green and Blue and EcoPolitology, each respond below the fold.
Kate Sheppard

This strikes me as important, because this is one of the ideas that people could start working on without the federal government. The ability to connect to the grid and sell energy back to your local supplier is based on state and local laws, primarily. I know in New Jersey there are farmers along the Delaware Bay, which has great wind capacity (and doesn’t have the prized “views” that folks along the Atlantic Coast are worried about impairing), who would love to build wind turbines and start selling back to the grid, but they’re prevented by state laws. It’s not only a tremendous opportunity to become energy independent and curb emissions, but it’s also an economic opportunity for individuals and small businesses. This is something that folks should be lobbying for on the local and state level now, which would help create more pressure to do the things nationally that would need to be done to make this happen.

But then, of course, there’s the bigger problem of revamping the grid to make this possible. Oilman-turned-clean-energy-evangelist T. Boone Pickens was on the Hill just last week testifying about how the country’s transmission problems are preventing wind from becoming a major source of power. Pickens is attempting to build the world’s largest wind farm in Texas. Right now though, it would be impossible to get solar energy from Arizona to Seattle, or wind energy from Texas to the surrounding states. It would require a a lot of new transmission lines, and that would probably take a significant amount of public investment at this point. Some states, like Texas, have already started adding and expanding transmission lines, but there really needs to be a national effort in order to connect all these localities.

On the federal level, though, another major hindrance right now is the lack of stability in the renewable industries, because Congress has failed to pass tax credit extensions multiple times now. There’s a $54 billion tax package hanging in the balance in Congress right now that would extend tax breaks for renewable energy that are set to expire at the end of this year. This includes a six-year extension of the investment tax credit for solar energy; a three-year extension of the production tax credit for biomass, geothermal, hydropower, landfill gas, and solid waste; and a one-year extension of the production tax credit for wind energy. There are also incentives for the production of renewable fuels such as biodiesel and cellulosic biofuels, incentives for companies that produce energy-efficient products, and incentives to improve efficiency in commercial and residential buildings. The House has passed the package repeatedly, but it’s failed in the Senate six times now.

Folks in the renewables industry are starting to get nervous as we near the expiration of those credits at the end of this year, and I’ve talked to people who work with trade organizations that represent renewable-energy firms on the Hill who say they’re already seeing a slowing of growth in the sector because companies are hesitant to start new projects without the assurance that these credits will be available. Passing those credits now would be a significant step toward decentralizing energy

Nigel Purvis, President of Climate Advisers

Opening and expanding the grid to promote green competition makes a lot of sense. Of course, we also need to find ways to ensure that the companies that paid for today’s grid recoup their investment in a green energy future. One way to do this would be to create financial incentives for today’s utilities to improve the energy efficiency of their customer’s homes, schools, factories and office buildings, as Duke Power CEO Jim Rogers has proposed. The cleanest power plant is the one that doesn’t have to be built. And greater investment in energy efficiency would increase incomes and economic growth, making it one of the clearest ‘no regrets’ climate change solutions.

David Roberts

I think large, central-generation power plants are on the wane, for reasons as much economic as environmental. The cost of power plants has been spiking and there’s been a concomitant surge in interest in smaller, faster, lower-risk investment options. There’s big private money flooding into this area and orders of magnitude more ready to go pending the lowering of a few barriers.

Keep in mind that there are two kinds of decentralized energy. One is solar panels, small wind turbines, combined heat and power systems, geothermal heat pumps, and other sources of energy that can be owned and operated by communities, business, or individuals. The other is utility-scale renewable power farms, mostly wind and concentrated solar (CSP). These are large and centralized insofar as they clustered together, but they are decentralized in that they are made up of multiple independent units. They are, in the jargon, modular.

Both have their merits — 207 merits, according to Amory Lovins. A system based on some mix of the two would get you graceful failure (individual units can go out without imperiling overall supply), safety (it’s difficult for terrorists or natural disasters to take out power plants that are spread out), dispatchability (it’s almost always windy or sunny somewhere in a large geographical area), and speed (units are smaller and cheaper and thus can be built more quickly).

As in so many cases, what’s needed is a combination of regulatory reform and investment. Right now electricity sector regulations are heavily biased in favor of central plants, for reasons varied and painfully wonky. In terms of investment, we need to put far, far more public money into clean energy R&D, and we need to get serious about infrastructure, particularly building a smart grid that can intelligently coordinate distributed resources. We also need innovative funding mechanisms (like Berkley, Calif.’s rooftop solar program or Shai Agassi’s Project Better Place in Israel) to overcome the primary barrier to deployment, which is high upfront capital costs.

Just to end with a metaphor: the move from central to decentralized power will mirror the move from mainframes to desktop PCs. The democratization of computing power not only made IT cheaper, it is helping invigorate democracy itself as citizens learn to talk, learn, and work together directly, without intermediaries. Thus has come a flood of innovations and serendipities we never could have predicted in advance. Another flood will come with the decentralization of power.

Timothy B. Hurst, Red Green and Blue and EcoPolitology

The biggest obstacle to decentralizing our system of electricity generation and transmission has been, and will continue to be, the institutional structures working to keep it centralized. For us to transition to a system that favors decentralized or “distributed” generation, we would need substantive changes in policies at the local, state, and federal levels — not to mention cultural shifts at the utilities themselves.

Thus far, the favored policy mechanisms for developing renewable energy in this country have been tax credits, and more recently at the state level, renewables portfolio standards (RPS). But the problem is that federal investment tax credits for renewable energy (ITCs), and production tax credits (PTCs) have not provided the steady, long term investment security that is needed to make renewable energy a substantial portion of our electricity mix.

Instead, the one and two year extensions of the tax credits interspersed with periods of no federal support whatsoever, have given us “feast or famine” cycles of clean energy development, whereby, renewable energy development ebbs and flows with the shifting political tides.

The tax credit/RPS model does little to encourage proliferation of the kind of small-scale renewable energy generation Mr. Owl refers to in his question. For example, the PTC is only applicable to those entities with a large enough tax liability to make a tax credit worthwhile (usually multinational energy companies). Excluded from taking advantage of the PTC are most individuals, churches, schools, water districts, neighborhood associations, or any other not-for-profit organization.

I submit that the best way to develop this country’s renewable energy sources is not necessarily to extend those languishing tax credits for another couple of years, but rather to democratize the grid by guaranteeing a fixed tariff for anyone who puts electricity back on it. The “feed-in tariff” model is the primary reason that half of the world’s installed solar PV is in Germany. German feed-in laws require utilities to pay a specific tariff based on the technology used to generate the electricity. The idea behind the different payouts is that they will eventually drive down prices of the more expensive technologies so they become more competitive with other sources. Thanks to the feed-in, Germany now gets about 15% of its electricity from renewable sources, at an added monthly cost of about $1.69 per household.

In the U.S., on the other hand, those who put solar, small wind, biomass, etc. back on the grid are lucky if they can benefit from a local “net-metering” policy, which allows meters to spin backwards, but doesn’t allow the folks who own them to actually turn a profit.

Feed-in tariffs have been introduced in several U.S. states, and most recently, a national feed-in tariff proposed by Rep. Jay Inslee (D-WA) may be introduced in the House as early as this week. But as I mentioned at the outset, the policies and institutional structures that have been built around the model of centralized generation and distribution will not be easy to change, and those with vested interests (i.e. the major utilities) are going to do their best to prevent that change from happening.