Commentary | Budget, Taxes, and Public Investment

Green-energy investments are necessary: Fossil fuel subsidies must go

This piece originally appeared in MarketWatch

America has a nasty addiction to fossil fuels. This addiction harms our health by spewing toxic chemicals into the air, and undercuts income mobility by disproportionately hurting poor communities and those who lack political power.

By exacerbating our trade deficit, American oil imports drag on domestic economic growth. Our dependence on fossil fuels also undermines our national security by sending hundreds of millions of dollars every day to undemocratic, sometimes hostile regimes.

It threatens our very survival, as we march closer and closer to the tipping point past which we irreversibly change the planet’s climate. And remember, there is a finite supply of fossil fuels—technology can expand extraction, but we cannot manufacture more coal, natural gas, or petroleum.

Simply put, we must kick our fossil fuel habit, and this means drastically increasing the amount of energy produced from clean renewable sources.

Luckily, this is an entirely reachable goal, requiring that we eliminate fossil fuel subsidies, put a price on carbon (either through a carbon tax or cap-and-trade), and increase investments in green technology and infrastructure. This creates a carrot-and-stick effect: eliminating fossil fuel subsidies and the carbon pricing makes fossil fuel energy more expensive, and the investments make the alternative—that is, clean renewable energy—cheaper. And this approach it doesn’t even have to have a budget cost because revenues from the subsidies and carbon pricing can be used to fund investments in renewable energy and more efficient energy infrastructure.

Some defenders of fossil fuels oppose these measures, arguing that we shouldn’t pick winners and losers, and instead we should let the free market decide how energy is produced. Here’s why they’re wrong.

Despite the presence of green investments and subsidies, the playing field is heavily stacked against renewable energy in favor of fossil fuels. Between 2002 and 2008, federal fossil fuel subsidies totaled $72 billion, nearly 2½ times more than subsidies for renewable energy.

President Obama has pushed to eliminate many of these fossil fuel subsidies, only to be rebuffed by the same conservatives in Congress that also argue for “free market”

Furthermore, the historical dominance of fossil fuels creates an entrenched anti-competitive barrier to market entry for renewable energies.

If research came out finding that having driver’s seats on the right side of cars and driving on the left side of the road was far safer than the current arrangement, would the market naturally react? Of course not. We have an entire infrastructure in place predicated on driving on the right side of the road. More importantly, government itself made this decision.

Similarly, government decided a century ago to have a fossil fuel-oriented economy, and spent nearly half a trillion dollars over that time period to develop the industry and its infrastructure.

Government created this Goliath, and now is telling David that it can’t give him a slingshot because that wouldn’t make it a fair fight.

Let’s get specific. One of the best green investments we can make today is to modernize and expand our national energy grid.

There are many reasons to do this: it will reduce the chance of blackouts, improve energy efficiency, and help shore up what an infrastructure currently vulnerable to national security threats. But it is also the case that wind energy—and to a lesser extent, solar—is disproportionately disadvantaged by our inadequate national grid (most renewable resources lie outside population centers), so expanding it would have the added bonus of helping wind energy compete with coal on a more equal playing field.

Finally, fossil fuels enjoy a subsidy that dwarfs all others: unpriced carbon emissions.

At its core, a subsidy is when the government allows a business to shift a portion of your production costs onto the rest of the country by cutting you a check and taxing everyone else. What happens today with pollution is essentially the same thing. Coal-fired power plants, for example, are able to shift their production costs onto American families by spewing toxic pollutants into the air, which we then inhale, costing us over $50 billion in damages each year (this cost rises to just under $70 billion if climate change impacts are taken into account).

These companies are essentially taxing us—without representation—in the form of higher mortality and morbidity to pay for their subsidized production.

What we find, ironically, is that the solutions listed above aren’t contrary to the free market; rather, they are exactly what are necessary to level the playing field and let the market work.

Eliminating the explicit subsidies for fossil fuels that our tax code currently provides and the implicit subsidy for carbon emissions by putting a price on carbon would mostly end government’s current favoritism of fossil fuels. And making green investments in areas like our national energy grid helps to counterbalance the historical and incumbent market power advantage of fossil fuels that is in part a result of government assistance over the last century.

Opposition to these solutions under the guise of the free market reveals an ignorance of government’s current and historical assistance to fossil fuels, which has over time created an addiction to fossil fuels. This addiction is too strong and destructive to for us to hope that it will go away on its own. We have to act.

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