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Renewables, nuclear power gets outsized federal subsidies: study

Highlights

Renewables, nuclear received 93% of subsidies

Comparisons made to unconventional drilling

Houston — The Institute for Energy Research on Friday announced a report showing that renewables and nuclear power received 93% of federal subsidies in 2016, but produced only about 22% of the nation's energy, which drew mixed reactions from industry observers.

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A market-oriented energy think tank, the IER announced Friday that it had analyzed an April US Energy Information Administration study entitled "Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2016," which was an update of previous similar studies conducted for the years 2010 and 2013.

"Federal subsidies to support non-fossil fuels (renewable energy and nuclear power) in fiscal year 2016 totaled $7.047 billion (in 2016 dollars), while those for fossil fuels totaled $489 million -- higher by over a factor of 14, despite much higher production by fossil fuel producers," the IER paper states.

The IER paper notes that biofuels -- largely for transportation -- received the largest share in 2016, at 37%, followed by solar with 30%, wind with 17%, fossil fuels with 7%, nuclear with 5% and other renewables with 4%.

The IER paper did not provide an electricity output breakdown by fuel type, but the EIA study does, which shows the following generation shares:

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Natural gas and petroleum liquids: 35.1% Coal: 29.6% Nuclear: 19.6% Hydro: 6.6% Wind: 5.4% Solar: 1.2% Other: 2.5%

Click here for full-size graphic

"The results of the study are not news and have been obvious to observers for quite some time," said Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York. "The reason for it is that renewable energy developers have been successful in taking advantage of the world's zeal to find alternatives for dealing with climate change."

The small scale at which renewables can offset fossil emissions "is in ... itself an argument against large subsidies for its development," Cordaro said in an email Friday.

"A much better use of subsides would have been to invest in research to develop more effective alternatives for reducing fossil emissions and to physically make preparations to defend vulnerable regions against the onslaught of what climate change could produce," Cordaro said.

SUBSIDY-OUTPUT LINK QUESTIONED

In contrast, Michael Giberson, an economist in the Rawls College of Business at Texas Tech University, cautioned against concluding that the level of subsidies should correlate positively with the amount of output from subsidized activities. "[One] of the points of the subsidy is to encourage the development of new technologies and resources," Giberson said in an email Friday. "It is not at all surprising that most of the subsidies go to small segments of energy produced."

Neil McAndrews, an energy market consultant based on Austin, Texas, pointed out that between 2010 and 2016, total annual energy subsidies fell from about $38 billion to less than $15 billion, in constant to 2016 dollars, which McAndrews considers more important than IER's conclusions about the relative value of fossil-fuels and renewable energy.

The IER paper also "excludes any mention of externalities like the [air quality standard] non-attainment costs that urban centers must bear."

"These are real costs that consumers must pay," McAndrews said.

James Carson, president and CEO of RisQuant Energy, a Minneapolis-based energy market consultancy, said he "likely" agrees with the IER paper's conclusions regarding the relative value of fossil fuels versus renewables, but "the methodology smacks of advocacy" because of its lack of externality discussion.

"Generally, ongoing subsidies for non-fossil energy are wasteful," Carson said in an email Friday. "Subsidies can be useful when used to move forward more rapidly. However, if a technology can't succeed at market prices, then it should be allowed to fail."

UNCONVENTIONAL DRILLING

In contrast, A.J. Goulding, Columbia University Center on Global Energy policy associate professor and president of Toronto-based London Economics International, compared existing support for renewables to the 1990s' tax credits that helped develop unconventional natural gas drilling techniques.

"The 'infant industries' argument that supporters of these technologies would have made then for natural gas are similar to those that supporters of renewables would make today," Goulding said in an email Friday.

"The primary justification for subsidizing renewables today is that the US has not developed a carbon tax or cap and trade program that appropriately compensates such resources for their environmental benefits," Goulding said. "Note, however, that much of the federal support for renewables is being phased out as tax credits expire. Given the maturity of the solar and wind industries, this may be appropriate."

Evan Vaughan, American Wind Energy Association spokesman, noted that the wind industry agreed in 2015 to a five-year phase out of production tax credits.

Over the past 100 years, US taxpayers have paid more than $500 billion to subsidize "traditional energy sources," Vaughan said, of which "many ... are permanent, making them more valuable to investors, and these incentives continue to this day."

-- Mark Watson, markham.watson@spglobal.com

-- Edited by Andrew Moore, newsdesk@spglobal.com