Energy Subsidies

The Energy Information Administration (EIA) released its latest “Energy in Brief” report on September 8 titled “How much does the Federal Government spend on energy-specific subsidies and support?”

A few points from this analysis are well worth highlighting:

• The Federal Government spent an estimated $16.6 billion in energy-specific subsidies and support programs in Fiscal Year (FY) 2007. Energy-specific subsidies have more than doubled since FY 1999.

• In FY 2007, most primary energy production received some type of energy-specific subsidy, as did conservation- and efficiency-related activities. Subsidies to renewable energy resources have been growing most rapidly. In FY 1999, renewable energy received $1.4 billion in subsidies. By FY 2007, subsidies to renewable energy of all forms grew to $4.9 billion.

• There are several alternative ways to compare subsidies across fuels. In FY 2007, wind power received subsidies and support valued at $23.37 per megawatthour (MWh). Refined coal and solar had even higher subsidies per MWh produced. The estimated subsidies for traditional primary energy sources used for electricity production were significant in total dollars. It is estimated that coal received $854 million, nuclear received $1,267 million, and natural gas and petroleum liquids received $227 million. However, these traditional forms of generation produce most of the Nation’s electricity, resulting in subsidies and support per unit of production of between $0.25 and $1.69 per megawatthour.

The analysis provides the following details on subsidies per unit of production:

Subsidies/Support in Dollars Per Megawatthour by Energy Source

Natural Gas and Petroleum Liquids at 0.25

Coal at 0.44

Hydroelectric at 0.67

Biomass at 0.89

Geothermal at 0.92

Nuclear at 1.59

Wind at 23.37

Solar at 24.34

Refined Coal* at 29.81

*chemically enhanced to reduce certain emissions



Hey, here’s a crazy thought: Why not stop all of the subsidies that hit the taxpayers, distort the market, and therefore, restrain the economy’s overall potential? If we just let the market work and send its signals through prices and profits, then entrepreneurs, businesses and investors will boost supply and innovate, and consumers will conserve accordingly.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council