Renewable Energy Subsidies Do Little to Reduce Emissions

Experts concerned about government policies ahead of Obama energy speech

Jeffrey Energy Center coal power plant in Kansas
Jeffrey Energy Center coal power plant in Kansas / AP
June 25, 2013

A recent report’s findings that federal tax subsidies for renewable energy have negligible effects on greenhouse gas emissions and in some cases even increase them has renewed concerns about government energy policies ahead of President Barack Obama’s speech Tuesday unveiling his new climate plan.

The report, conducted by a National Research Council committee for Congress and sponsored by the U.S. Department of the Treasury, concluded that the tax provisions fail to place a significant dent in greenhouse gas emissions at a "substantial cost." Energy-sector subsidies totaled $48 billion in fiscal years 2011 and 2012, according to Treasury Department estimates.

While the report released Thursday found that production and investment tax credits for renewable electricity reduce U.S. carbon dioxide emissions by 0.3 percent, the researchers determined that tax supports and mandates for biofuels such as ethanol, some of which expired last year, actually increase emissions.

Biofuel mandates under the Renewable Fuel Standard will increase global carbon dioxide emissions by about 2 million metric tons, according to model projections in the report.

"These results show the often-counterintuitive nature of the effects of tax subsidies," the report states. "Although it may seem obvious that subsidizing biofuels should reduce CO2 emissions because they rely on renewable resources rather than fossil fuels, many studies we reviewed found the opposite."

The report suggests that biofuel credits increase emissions because they lower the prices of motor fuels and encourage consumption, canceling out the intended emissions reductions of gasoline blended with renewable biofuels.

The report’s authors recommend a carbon tax or tradable carbon allowances as "both necessary and more efficient" measures of curtailing emissions.

However, Obama is expected to announce tougher regulations on existing coal-fired plants and avoid any tax proposals, which would likely face congressional opposition.

Obama’s stance might reflect the view among some experts that an increase in electricity prices is unlikely to affect consumer behavior, said Maureen Cropper, University of Maryland economics professor and a member of the report committee.

"I think the question is really how much of an increase does it take to alter people’s behavior," she said.

The regulations more likely represent Obama’s first concrete effort to make renewable energy sources more attractive by inflating the prices of traditional fuels, hurting consumers in the process, said Dan Kish, senior vice president for policy at the Institute for Energy Research.

Some economists have labeled carbon taxes and similar regulations regressive because low-income people spend a larger percentage of their income on energy.

"If you can take actions that kill the coal industry that make it look like you’ll rely on the natural gas industry, and then regulate the gas industry to make prices goes up, that makes the electricity prices go up to such a point that renewable sources are competitive," Kish said.