Of synagogues and subsidies

A while back I was engaged in an online discussion with other solar advocates about renewable energy — specifically, how to get more of it built. Some of the participants I knew, others I did not. The conversation was lively, ranging from the need for better education to public policy and incentives.

But then one of the participants threw in an unexpected comment. His email read, “Aren’t we all tired of synagogues?”

The question stopped me cold. I had never heard anyone express weariness of synagogues, much less understood that to be a consensus sentiment. However, I’m not Jewish, so if it were something my Jewish friends grumbled about among themselves but did not share more widely, then I wouldn’t necessarily know about it.

But our discussion was about renewable energy, so surely the comment could not really be about a physical house of worship. “Synagogue” had to be shorthand for something else. If someone said “aren’t we all tired of church,” it might be understood to refer to doctrinal thinking, or more likely, to preaching. You could see how someone would be tired of renewable energy advocates preaching about the benefits of wind turbines and solar panels. Could “synagogue” be meant as a sort of metaphor for haranguing people?

It seemed like a stretch, even assuming the person who had made the comment was Jewish, which I didn’t know. I looked back at the email to see if the name might give me a clue. At that moment, another email came through from him: “Sorry about that autocorrect, it was supposed to be ‘subsidies.’”

Ah.

I was relieved that synagogue fatigue was off the table, but now I had a new question to ponder: Are we, in fact, all tired of subsidies?

Opposition to subsidies is one of the touchstones of free-market capitalism, and even within the wind and solar industries you will find believers in the proposition that if a technology can’t attract enough customers on its own merits, it deserves to remain niche, and the government ought not to put its fat thumb on the scale.

Republican attacks on the Virginia Clean Economy Act, passed last year by the Democrat-controlled General Assembly, are often framed as opposition to the government “picking winners and losers.” The law certainly does that, by directing utilities to close coal plants and incorporate an increasing percentage of electricity from wind and solar.

Some Republicans are raising the same objection in response to the Biden administration’s plans for addressing the climate crisis. Technological advances and market forces are already moving us inexorably towards a clean energy economy—but not fast enough. So Biden’s initiatives rely on the full range of government powers, subsidies among them, to drive down greenhouse gas emissions nationwide in an effort to avoid a worldwide climate catastrophe.

But here’s the thing: to the extent the U.S. has anything resembling an energy policy, subsidies have always been a tool of first resort. Indeed, this has been the case literally since the nation’s founding. Often the difference between Republicans and Democrats is not in whether they embrace subsidies, but which ones they favor.

Cash grants, tax credits, loan guarantees, low-cost access to public land, public purchasing requirements, protective tariffs and federal R&D funding all shape the way energy is produced, delivered and consumed, and they are responsible for the fossil-fuel heavy energy economy we have today. Even U.S. foreign policy and our military have been deployed for the benefit of extractive industries. A century ago, the National Guard came to the aid of the coal barons against striking miners. More recently, a think tank crunched numbers to estimate the U.S. spends $81 billion per year to  protect global oil supplies. That figure rises to over $3 trillion when you count the Iraq war.

Externalities matter, too. If an industry is allowed to inflict damage to a community’s air and water, that is a form of subsidy that can be partly measured in dollars spent on health care and clean-up. Regulations requiring expensive pollution controls can lessen the economic advantages of offloading costs onto the public, but any remaining costs shouldered by the public are a subsidy to the polluter.

Conversely, by displacing fossil fuels, a clean energy facility may confer a public benefit far exceeding the cost of any government subsidy it receives. When we’re dealing with climate change, the public benefit of carbon-free energy is immense.

None of this is an argument against the merits of free market competition, which remains the economy’s most important driver of innovation leading to better and cleaner energy technologies. Well-designed subsidies should work with the market, not against it, to speed the energy transition towards a net-zero future.

And to that we should all say, Amen.

This article originally appeared in the Virginia Mercury on September 14, 2021.

4 thoughts on “Of synagogues and subsidies

  1. Ivy – I always enjoy your articles and posts, even though I often differ about 10% on some of your messages. But I gain new insights and appreciate the information in them.

    Anyway, the Synagogues/Subsidies post was especially interesting to me, as an economist with Conservative leanings — and as someone who has been studying climate change with great concern for over 20 years.

    I agree with many of your points. Where I might quibble a bit is on two points:

    (a) To some degree, you justified the Biden-proposed direct subsidies and tax subsidies because of historic policies of energy subsidies, many of them bad/deleterious economically and environmentally. Personally, I am not a fan of “one bad turn deserves another.” Thus, I think it would have been good to emphasize that, first and foremost, we need to start repealing the bad subsidies (e.g., oil and coal subsidy policies) — and then be very cautious about introducing new subsidies. The history of government subsidies, in my view, is that many subsidies seemingly justified at some point in time will be entrenched long past their usefulness — and that all too often because of technology change and new circumstances, historic subsidies become wasteful and counterproductive. (Plus: Federal subsidies increase already out-of-control U.S. debt, much of it held by China — and we are saddling our children with an economic debt that is just as bad as the climate risk we are foisting on future generations.)

    (b) More important: The current energy debate is almost totally ignoring energy conservation. In the United States, we are profligate in our energy consumption, and we need to provide economic incentives to change that. Layering on new subsidies to overcome the effects of old, bad subsidies is a terrible way to go. That is one of the reasons I am a huge advocate of carbon pricing, at the fossil fuel source, which incentivizes energy conservation AND shifts the entire economy to low-carbon energy sources.

    But let me end by applauding your closing paragraph: “None of this is an argument against the merits of free market competition, which remains the economy’s most important driver of innovation leading to better and cleaner energy technologies. Well-designed subsidies should work with the market, not against it, to speed the energy transition towards a net-zero future.” Bravo!

    P.S. I loved your synagogue approach to hooking readers into reading on. Very well done!

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  2. Amen indeed, IVY! I pray that the need for and benefits of renewable energy will not be lumped in with the cloud of disinformation and politicization of so many issues we now suffer under.

  3. Ivy – Two new analyses by Resources for the Future and World Resources Institute, done separately, find that CEPP and subsidies would fall short of the President’s goal of 50% GHG reduction by 2030.

    Below is a graph from the RFF analysis. Note the limited effect of CEPP and CEAA (2nd line from top), versus an economy-wide carbon fee (solid green line).

    Also note that the bottom line (dashed green line) shows that CEAA and CEPP would only modestly add to GHG reductions from an economy-wide carbon price. For the full RFF analysis, see modeling http://click1.trk-washingtonexaminer.com/qmgwncjgssdthdnstvjgvtjrqgtcvpbpqygqdjvpnpgwm_slvrcspjrbptbkvblpsvss.html?a=Daily+on+Energy+091721&b=09%2F17%2F2021&c=WEX_Daily+on+Energy&d=24790219&e=2017a9ef10c7605007d631043ce7d874f0688a805e9a0464d4fb51270df5af8e

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