All Commentary
Friday, August 11, 2017

Environmentalists Are (Half) Right About Energy Subsidies

We have here yet another example of ideology masquerading as analysis.

Sometimes progressive environmentalists have a point. For instance, they argue that oil subsidies are wasteful and should be abolished. Unfortunately, they typically pollute their sound arguments with gross inconsistency and unwarranted alarmism.

Subsidy Hypocrisy

Oil Change International, a group of mainstream progressive environmental pressure organizations, has published two recent papers complaining that the G20 governments, through international and national development banks, continue to finance fossil-fuel projects around the world, with insufficient subsidies for “clean energy,” defined as renewables not including hydro and some others.

The anti-oil coalition is absolutely correct that subsidized finance for fossil-fuel projects is highly wasteful. The group explains the rationale for its prescription as follows: “The best available science shows an urgent need to keep global temperature increases below 1.5°C to avoid severe disruptions to people and ecosystems.”

This anti-oil coalition is absolutely correct that subsidized finance for fossil-fuel projects is highly wasteful. It is one thing to subsidize fossil fuel development as a step in economic development, to alleviate acute poverty in developing countries. But where this is not the case, the financing of highly profitable commercial undertakings such as fuel production should be the job of the private sector.

Businesses have powerful incentives to evaluate the economic merits of alternative projects, with a vastly smaller role for political factors. By definition, the opposite is true for government finance agencies, such as the World Bank and the U.S. Export-Import Bank.

The problem is that in the same breath they attack oil subsidies, Oil Change International, demands subsidies for solar installations and windmills, citing environmental doomsday scenarios to justify this distortion of the public discussion on energy development.

First, it should be noted that the purportedly adverse effects of increasing greenhouse gas concentrations – the driving rationale for the OCI argument – are nowhere to be found in the data. There exists a scientific consensus about the reality and causes of global warming. There is no such consensus about its potential effects, which could range anywhere from mildly beneficial to catastrophic.

Access and “Clean” Renewables

The wind doesn’t always blow and that makes it more expensive to harness.

OCI’s even more disingenuous claim is that “clean renewables … are needed to improve energy access” for the poor in less developed economies. That assertion is preposterous.

Renewables are simply more costly than conventional energy, in large part because the energy content of sunlight and wind flows is unconcentrated, unlike the case for fossil fuels.

The wind doesn’t always blow, and the sun doesn’t always shine, and that makes it less practical and thus more expensive to harness their power in a useful form. Except perhaps for specialized and highly limited applications in localized contexts, higher costs translate to less access. This is why development banks, when they fund energy projects for less-developed economies, often choose fossil fuels.

Moreover, there is nothing “clean” about renewables. There is the heavy-metal pollution created by the production process for wind turbines, along with their noise and flicker effects. There is the large problem of solar panel waste. There is the wildlife destruction caused by the production of renewable power. There is the land use both massive and unsightly, made necessary by the unconcentrated nature of renewable energy.

And above all: There is the increase – yes, increase – in the emissions of conventional effluents caused by the up-and-down cycling of the conventional backup generation units needed to avoid blackouts caused by the unreliability of wind and solar power.

So this plea by the progressive environmentalist groups – more government subsidies for more expensive energy, less for cheaper energy – is highly problematic. It is yet another example of ideology masquerading as analysis, premised upon energy and climate assumptions vastly at odds with the evidence. Those managing the development banks would be wise to ignore it.

Reprinted from the American Enterprise Institute.