On both sides of the Atlantic, economic distress has forced attention to a question too long ignored: How much unaffordable energy can nations afford to support?
The shakeout began last year in Europe. Governments there created a boom in wind and solar power generation with feed-in tariffs, paying suppliers above-market rates for electricity. In some countries, notably Spain, governments funded the difference. In most countries, all or most of the extra burden fell directly on energy consumers. For a while, the wind and solar industries prospered and grew. Government officials boasted about leading the world in renewable energy.
Because more supply developed than governments expected, however, costs exceeded projections. Then recession made the burden unbearable. European governments last year began cutting feed-in tariffs and other help for renewable energy. Now, the wind and solar industries struggle with excess capacity. And their investors have endured a tough lesson about the risks of government-sponsored energy.
Questioning ethanol
A similar reckoning has come into view in the US. In an impressively bold political move, former Minnesota Gov. Tim Pawlenty announced his hope to become the Republican presidential candidate on May 23 with word that he would support an end to subsidies for fuel ethanol. He made the announcement in Des Moines, capital of corn-rich Iowa, the iconic caucuses of which he probably must win in February if he's to raise enough money for a full campaign. His message was stark and true: The heavily indebted US can't afford to continue subsidizing a fuel additive that remains noncommercial without the help, which it has enjoyed for decades.
The Republican-controlled House of Representatives pressed the assault by voting on June 16 to eliminate the 45¢/gal blender's tax credit for ethanol made from grain and the 54¢/gal tariff on imported material. If enacted, the measure would take effect June 30. But it passed as an amendment to an economic development bill unlikely to advance in the House. And the Senate probably would reject it.
For the US oil and gas industry, repeal of the ethanol subsidy would be troublesome for practical reasons but welcome overall. Refiners still have to meet a large and growing mandate for ethanol sold in gasoline. Absence of the tax credit would discourage production. And many US politicians mischaracterize industry expenses as subsidies when playing for populist points. Cancellation of ethanol subsidies might invigorate the assault on industry tax mechanisms, as though they're the same thing.
Concern about energy subsidies—genuine subsidies—is nevertheless good for the industry. It raises hope for steps that would lower costs and raise efficiency in the economy and remove a load from taxpayers. And the concern has spread beyond ethanol.
On June 16, the House voted to defund the Biomass Crop Assistant Program (BCAP), authorized by the Food, Conservation, and Energy Act of 2008 as a way to encourage production of biomass feedstocks for renewable energy projects not involving food. The help is generous. Biomass producers can receive 75% of project start-up costs and matching payments for delivery of materials to eligible conversion facilities. The first payments occurred in August 2009 under a pilot program that initially faltered, partly because of concern about environmental effects of targeted projects. The full program didn't start until last October.
Discussion necessary
For political reasons, an early end of the BCAP program is no more in sight than is removal of ethanol subsidies. That these programs have come under discussion at all, however, is noteworthy. Cherished agricultural programs seldom fall subject to doubtful question when a presidential election looms and the Iowa caucuses are in sight.
Whenever it occurs, the discussion is necessary. It signals an awakening in the US to lessons now pressing hard on Europe: that governments too readily spend too much money on too little energy and that economics hates the folly.
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