Domestic energy sources have been subsidized in the U.S. for almost as long as we’ve been an independent nation, dating all the way back to 1789 when our new leaders first implemented a tax on the sale of British coal. Today, the debate surrounding federal support for the energy industry is as contentious as ever. The months leading up to Congress’s passing of the Fiscal Year 2015 Omnibus Appropriations Bills have been filled with an excess of rhetoric, half-truths, and whole-lies regarding the different ways that our government supports the energy sector. Instead of adding more fuel to the fire, here we will present empirical data detailing where and how much our government subsidizes energy and the future implications of federal support of the renewable energy sector.
The table below is the result of a study that analyzed the distribution of subsidies among the many ways in which the federal government has supported energy development for the entire industry from 1950-2010. The study estimated that federal support for the energy industry over that 60-year time period totaled over $837 billion (in 2010 dollars). Their findings show that the coal, oil, nuclear, and gas industries have been the major beneficiaries, having received close to 80% ($666.5B) of federal subsidies since 1950; while hydro, renewables and geothermal comprise the remaining 20% ($170.7B).
While these numbers seem to tell us that government energy subsidies heavily favor fossil fuel production, things start to look differently when we dig a little deeper. When we take into account the amount of energy that is actually being generated relative to the amount of subsidization received, renewables in the U.S. technically receive 25 times the subsidy that fossil fuels do. In the United States in 2010, in order to generate a billion BTUs of energy, the renewable industry received $1,724, while the fossil fuel industry received just $68.72. To that end, it would appear that renewables are more federally-favored than we thought. Considering the fact that we are comparing markets that are in completely different states of maturity, the future of the renewable sector may be more dependent in its ability to match the fossil fuel industry’s infrastructure, rather than federal subsidization.
Even still, federal support of the renewable energy sector is working. The cost of renewable energy has dropped dramatically since the 1970s, especially over the last 5 years, as we are now buying solar and wind energy for prices lower than coal. As for future policy, the road ahead looks positive but it would be a mistake to expect drastic reform in the ways that we subsidize our energy in the near term. One thing is for certain; the U.S. has an opportunity to deliver reliable, affordable, and environmentally friendly energy that we can’t afford to miss.