Should Government Provide Subsidies for Clean Energy?
On my piece about ARPA-E and government funding for the development of new, speculative technology, Larry Lemmert asks:
Why should the taxpayer be funding speculative projects? Why should the taxpayer be the first to take a hit when the speculative projects fail?
Why should close advisors to the president and others in Washington be able to pick projects promoted by their friends? There should be at least an arms-length separation from politicians and these projects folks.
The answer to your first question is that most people, me included, believe that the public sector needs to play a role in developing technologies that ultimately benefit large masses of people. That’s how we wound up with a phone system, an electrical grid, the highway system, a space program, an Internet, etc. And now, given the national security issues that surround oil, and the damage to our lungs that are associated with coal, most people argue that partnerships with government that develop energy efficiency and clean energy solutions in the 21st Century is perhaps the biggest no-brainer in the history of civilization.
Further, looking outside the U.S., the governments of every major nation on Earth are extremely active in forwarding those countries’ R&D efforts. It seems to me that this is a natural and vital role of government, especially today, where the private sector is obsessively focused on short-term profit. The U.S. is rapidly falling behind in technological leadership; withdrawing government support would mean instant death in this regard.
Obviously, there is no good answer to your last, most excellent point. There is no justification for corruption, and yes, we have plenty of it. But, though it certainly exists in the ARPA-E programs (as I also pointed out in my piece), it’s certainly not limited to that arena. Recall that the Senators who voted to continue subsidies for the oil companies received five times more money in campaign contributions per capita from the oil industry than those who opposed those subsidies. It doesn’t get any more blatant.
Craig,
I would parse the issue differently: There is funding for project deployment, and there is funding for R&D. The two are completely different animals, and should be considered differently.
I think funding for R&D (early stage, pilot and demonstration level builds, lab work, etc…) is essential, especially for small business. I also don’t believe that anyone on Earth has a problem with funding for R&D – though I do believe most people, myself included, would like to see the ability to determine who gets R&D funding removed from the DOE. I would like far better a system similar to the NIH or the NSF, where EXPERTS WITHIN THE FIELD review proposals and score them, and grants are apportioned to the grants with the best scores until the money runs out. But a reasonable system for funding R&D is easy to imagine and would doubtless get near universal support.
What gets tricky is when you determine that government money should be flooded towards a large-scale deployment of a specific company or technology. There is nothing more unfair than government officials choosing who wins and who loses, and the fact that they are doing this essentially means that no-one who they do not favor gets any private investment, because it’s clear that government is stacking the deck for their chosen few (regardless of merit).
The better path forward would be to offer goal-based subsidies for any and all technologies, and let the market then invest in the companies that the market believes can best accommodate that. If we offered a subsidy of $40/MWh of energy that has no emissions – without restrictions… then some people would develop wind power, and some would develop solar power… and some people might hook up a CCS system, a few scrubbers, and a RFTS plant to a CCGT. In all cases, you have emissions-free energy… and investors would be able to calculate anticipated margins including subsidies for any path – including entirely novel paths – without the requirement of endless lobbying for specialized and entirely un-equal government assistance.
That’s one of several dozen ways that the system could be re-designed in a way that is far less corrupt and far more effective than it is now. The key – however you structure it – is to remove the DOE from any funding decisions.
Glenn, you said it much better than I did.
I didn’t mean to imply that the government should not be involved at all in new technology. It is just the stage and the method of distribution of grants that has me ticked off. Early stage subsidies and even pilot plant assistance makes sense if there is wide consensus that the R&D has great potential.
Government choosing the winner instead of the marketplace is where I part ways with the proponents of big government.
Thanks for your input.
Yes, thanks to you both for your excellent insights on this.
My vote for Glenn to run DOE.
Ha! Mine too.
Glen’s point about goal based subsidies is a good one.
Feed in tariffs are in effect goal based subsidies usually differentiated by technology and scale – though without governments “picking winners”.
Another important point is that any subsidies and other forms of assistance is that the system should be clear, managed in a well defined way, and not subject to regular short term politically driven variation.
In the UK we now have a feed in tariff system to drive the development of renewable electricity as well as a broadly similar system for renewable heat. It is unfortunate that the government saw fit last year to make large abrupt changes to the rates without following its own consultation procedures which resulted in lost confidence and a major case in the high court which the government lost.
It is necessary to adjust feed in tariffs and other support mechanisms according to changes in installed costs of technologies, and taking into account the effect on national economies, but a fair clear mechanism with reasonable notice of any politically driven change is essential to avoid stop go investment cycles, higher costs and wasted investments of time and money. (Cost driven changes can happen regularly at shorter notice decided by a technical / accounting committee or based on cumulative installed capacity without disrupting progress as happens on a monthly basis in Germany)
Both the support arrangements and the mechanisms for adjusting them need to have clear sensible rules which give business confidence to make medium to long term investment decisions.
A clearly defined long term policy with politically determined goals in the public interest, and technically driven adjustments to ensure steady progress, reducing technology costs, predictable returns on investments and a stable investment climate is in my view the best way to ensure maximum bang for buck.