How Much Does the Government Spend on Energy Subsidies?

Thanks to the Energy Information Agency, I get little email every once and a while alerting me to when they have produced something called “Energy in Brief.” So this week, I got one in the email called:

“How much does the Government spend on energy-specific subsidies and support?”

Jackpot.

And the answer to this question: $16.6 billion just in the past year. To put that in pork perspective, that’s 45 to 60 Bridges to Nowhere, depending on which figure you use (total price of bridge to nowhere or just the famous 2005 earmark). That’s right, we can connect 45 to 60 small towns with their airports for just how much the government gives out for energy.

And what does the government do with this money? Not much, by the EIA’s own accounting:

Have Subsidies Affected Prices or Production?

Between 1999 and 2007, the average real price of total energy per British thermal unit (Btu)3 consumed increased more than 80%. Meanwhile, total energy consumption or demand, including imports, grew by about 5%. Most subsidies and support to energy producers should stimulate supply; so too should higher prices and rising energy demand. Yet in 2007, the United States supplied roughly 72 quadrillion Btu from domestic resources, about the same amount as in 1999. This leaves the impression that energy subsidies had little effect on net domestic production other than to help prevent further declines. But the enactment of various production-oriented tax incentives in the Energy Policy Act of 2005 and subsequent legislation may have contributed to the slight increase in primary energy production over the last two years.

So as a result of billions of dollars in subsidies and tax incentives, the US might have had a slight increase in energy production. At least with the 45 to 60 Bridges to Nowhere, we would have ACTUAL BRIDGES, not possible things that people would be hard pressed to identify.

You’d think that because of T. Boone Pickens’ ad campaigns that we don’t do anything to support wind energy right now. And, like most things T. Boone Pickens says, this is pretty wrong. Again from the EIA:

Did You Know?
The estimated value of production tax credits to wind producers in FY 2007 was $666 million. The benefit was distributed over an estimated 27.7 million megawatthours, making wind power the largest beneficiary of production tax credits among all renewable technologies.

And this doesn’t even include other incentives given to wind producers that AREN’T tax credits, like direct subsidies. And this doesn’t even take into consideration that wind power DOESN’T produce much energy. So the per unit cost is an astronomical $.02/per kilowatt-hour. Considering that your energy bill is anywhere from $.08 to $.20 / kWh per unit, wind gets a subsidy that’s equal to 10 to 25% of your per unit costs. That sounds like it’s doing a whale of a job.

But believe it or not, wind ISN’T even the worse offender when it comes to government largess. That would be “clean coal”, which gets $2 billion to produce a tiny fraction of the energy in the US. But once again, clean coal and coal-to-liquids have huge backers in the Senate in the form of Robert Byrd and Mitch McConnell. And that’s money that’s not doing a lick of good.

So before we start heaping MORE money on renewables, a la the Pickens Plan, we should look to see what works and what doesn’t. Right now, wind and solar aren’t.

Wind Energy is the Ethanol of Electricity

The more I hear about the need to switch to wind energy, the more I think that it’s going to become some government mandated item that’s supported by billions in tax dollars and has unintended economic consequences that nobody (at least in the political arena) will see coming, but will continue to be supported by politicians in key political states through a small group that benefits from the mandates and tax support.

In other words, wind energy will be the next ethanol.

I’d like to take all the credit for thinking of this myself, but I first read it in an article in Reason online (a libertarian magazine) concerning an interview with Robert Bryce, managing editor of the Energy Tribune.

The entire article is a good read, but I want to highlight one specific point that got me started on thinking that wind will be the electric ethanol:

reason: How about domestic renewables as a solution to dependence on foreign oil?

Bryce: I’m not opposed to renewables. I have 3,000 watts of solar panels on the roof of my home. I understand the economics of renewables. But an incurable problem for both solar and wind is intermittency. The sun doesn’t shine at night. I like to have lights and TV at night. Unless we come up with some incredibly efficient method of storing large amounts of electricity, it’s not a viable source because we can’t store it.

It’s the same problem with wind. I consider wind the electric-sector equivalent of the ethanol hype. At a conference recently I asked a wind guy, “Without subsidies, how many projects now under way [regarding wind] would make economic sense?” He said maybe 30 percent.

The point here is to say that there’s a place for wind, just like there’s a place for ethanol. But to make it responsible for 20% of electric generation, like T. Boone Pickens and Al Gore are proposing is economically illiterate. The same way that thinking making ethanol responsible for 10% of gasoline consumption is already causing problems with the nation’s economy.

Beware bi-partisan energy plans

Have you ever heard of a Gang that has done anything well? Gang of Four? Gang of Fourteen? Now, there’s the Gang of Ten, pushing a bipartisan energy bill that does… well, it’s alot of tax credits and drilling. That’s pretty much it.

Since it has the word Gang in it, of course Lindsey Graham, McCain’s lapdog in the Senate, has to be involved. But it can’t be good for conservatives, that’s for sure.

Basically, Republicans get their bone (more drilling), and the democrats get their bone (tax credits and R&D monies for alternative fuels). In the end, it’s going to be alot of money spent ($85 billion and not all of it paid for:

Offsets
The $84 billion in investments in conservation and efficiency in the New Era bill will be fully offset with loophole closers and other revenues. Approximately $30 billion will come from new revenues from the oil and gas industry through such measures as modifying the Section 199 manufacturing deduction for oil and natural gas production and other appropriate measures to ensure that the federal government receives its fair share of revenue from Gulf of Mexico leases. Remaining offsets will be finalized in consultation with the Finance Committee after accounting for interaction effects with other pending legislation.

Translation: We’ll try and bleed as much as we can from oil companies, but for the rest, we’ll just tax and borrow like we always do. We don’t need no stinkin’ pay-go rules, this is an election year!

This will do pretty much the same as it was before, so there’s not going to be any real change in US government energy policy with this Gang of 10 bipartisanship. Huh, just like the Gang of 14.

One more note, this another time I’ve noticed that more spending for infrastructure “$2.5 billion in R,D&D on next generation biofuels and infrastructure; Tax incentives for the installation of alternative fueling stations, pipelines and other infrastructure;”

This, along with the other proposals (ie. the Obama plan and the fuel tax increase), all mention shifting money towards construction in infrastructure. Now, I don’t have a problem with this in principle, as long as the money is use wisely and correctly. The current political structure, on the other hand, has no idea how to spend money. So we should fix that before we start putting more money toward construction.

Of course, I’m impressed with the lobbying acumen of the highway construction/contractors group, whatever it is. I’m seeing more and more money getting shoveled in their direction. And the most recent highway bill doesn’t expire until next year!

Weekend Post – Obama Doubles Down on Stupid Ideas

Just when I thought Obama might just leave well enough alone and just encourage conservation through words, he comes out with six pages of emphasizing the really bad part of his strategy to give the appearance of his caring for high gasoline prices.

An “Emergency” Economic Plan by Obama

Here’s just a rundown of the faults:

• Another stimulus/rebate check. This time $500 a person. This time paid for by a 5 YEAR windfalls profit tax. This isn’t temporary, it’s permanent. And what happens if there aren’t “windfall profits” four or five years from now?
• $50 billion slush fund in the form of two congressional pork troughs, a direct grant to states and a “jobs and growth” fund.
• He asks for a “reasonable share of profits”… reasonable by what definition of the word
• Obama completely ignores economics. McCain has at least admitted his ignorance on the issue, but Obama’s is completely ass-backwards in terms of economics. Imposing a tax 5 years from now is just going to make prices higher NOW and IN THE FUTURE. Suppliers are going to cut back on supply (because they can, and why take a tax hit now when you can wait 5 years and get all of the profit on pumping oil), and that’s going to raise the price of oil.
• Then there’s Obama’s construction slush fund. This is going to be spent well, and there’s absolutely no room for corruption with having $25 billion to throw around on roads and school construction.

Now, I wouldn’t have a problem throwing money at road construction, except Congress has ZERO credibility in spending the money it has now. Where was all the construction when oil prices were low (lower asphalt costs) and consumption was high (greater revenues)? Oh yeah, being sent for study upon study and mass transit systems. And not for these critical repairs Obama says are needed.

I’m now currently reading Henry Hazlitt’s “Economics in One Lesson”. It covers many of the topics involved here, including taxation and public works. Perhaps Obama should read the first 50 pages and see where that takes him. Probably nowhere, but then maybe he won’t put out drivel like this proposal.

Congress Considers Punishing Drivers for Politicians Mistakes

Call it the law of unintended consequences. Call it massive ignorance of cause and effect. Call it whatever you want, but Congress is getting ready to not cut the gas tax in the face of rising costs.

They would increase it.

According to multiple sources, Congress has not only rejected the gas tax holiday proposed by Sen. John McCain and others, but is now getting ready to INCREASE the gas tax.

The reason is that Congress’ eyes are starting to get too big for their stomach. Congress and their buddies in the road construction business are beginning to realize that there is actually a limit on how much pork they can hand out for roads. And after doing to budget crunching on the gas tax holiday, the government now realizes that they can’t keep handing out the goodies without something to back it up.

This is somewhat ironic in a government that has lived off of deficit spending for most of the 20th century and continuing into the 21st. By law, Congress is limited in their spending by the amount of money in what is called the Highway Trust Fund (hey, it’s like the Social Security Trust Fund!). Once the US completed the Interstate Highway system in the late 1980s. Money continued to flow from the gas tax as consumption increased, but highway construction came to a standstill. So with all this money to play with, Congress did what Congress does best: spend like it’s their last day on the job.

Of course, at the same time, under the guise of… something, Congress started putting fuel economy standards on cars. So people started to use less gasoline for their cars. For a while, the increase in the amount of drivers offset the decrease in the amount of gasoline purchased, so income grew (Again, like Social Security). But so did spending out of the Trust Fund (I’m seeing a parallel here). Now, revenues are decreasing, but Congress and their pork-addicted campaign contributors in the construction industry still want to spend more money (Somebody stop with the analogy to social security…).

So now they’re at a crossroads: they want to keep spending, but they won’t have the money to do so. Right now, this is where the comparison stops with social security, because SS will still have a surplus for the next 10 years or so. But the Highway Fund is about to run out of money. Congress, since they don’t have to pay for these things out of their own pockets, will do the honorable thing:

Increase taxes.

Instead of cutting the pork, they’ll make prices even more expensive for drivers in the months ahead. Instead of putting the money to good use, they’ll keep funneling other people’s money to their campaign contributors. Instead of weaning themselves off an unsustainable path, Congress will just keep enabling their behavior without consequences. (Ok, that’s more like social security again).

So what can be done about it? Since people don’t like voting out incumbents very much (thank you gerrymandering and campaign finance laws), we’re stuck with the same people. But if you speak up to your representative or senator, there is just maybe a chance that they’ll think they have a shot at losing an election. And that fear will scuttle any type of pork raising on the part of Congress. But they have to fearful of losing their privileged position before anything can be done.

So tell Congress to get their priorities in gear and stop making drivers pay for the politicians shortsighted policies.