Sometimes Energy Subsidies Represent Sound Economics *Gasp*

Will Greene March 3, 2014 0

By Will Greene
Blog for Arizona | www.blogforarizona.com

EconomicsEnviro

Many defenders of dirty energy label climate-concerned citizens as adhering to a “church of global warming.” In truth our concerns are based on long-accepted physics backed by decades of empirical evidence, exhaustive research, and unprecedented consensus. These same fans of fossil fuels are often among the political segment that repeatedly point to subsidies, whether in energy or elsewhere, as “interference in the marketplace” and a scourge to free enterprise. They do this with comparable religious-like dedication. Candidate for Arizona Governor Doug Ducey included in his campaign announcement speech his disdain for subsidies. “We succeeded without tax breaks for waffle cones,” said Ducey referring to the company he founded, Cold Stone Creamery.

In their defense, the basis for the anti-subsidy position is well founded. No economy dictated by bureaucrats will ever be able to equal the efficiency of the profit motive, the balance of supply meeting demand, or the capacity of the entrepreneurial spirit to solve problems. Just ask the economy of Soviet Russia. Of course there is a place for government – to assist those who are beaten down at little fault of their own, and to protect the rights of citizens when those rights are threatened.

The American government at every level has abdicated its duty to protect citizens from the release of greenhouse gasses by industry. While the most effective and politically feasible way to deal with climate pollution is likely through a revenue neutral carbon tax, such as that proposed by former Republican Congressman Bob Inglis, the current makeup of Congress makes federal action from lawmakers inconceivable for the time being. This leaves us looking (desperately) to other levels of government for leadership, such as the Arizona Corporation Commission – our state’s powerful energy regulatory body.

The current Commission largely comes from the anti-subsidy congregation, and they reside over an electric system that has little resemblance to a free market. Their job is to look towards the long-term success of the state’s energy system while protecting ratepayers from unnecessary rate increases. Their anti-subsidy impulses can be a benefit when rejecting utility requests for rash rate hikes and new fees, but can also hurt when years of progress developing beneficial new technology, such as solar energy, is damaged by the misdirected anti-subsidy mindset.

I won’t pretend to be an expert in economics, but as an econ minor out of WP Carey I can offer some perspective as to why subsidies exist in the first place. When an action affects a third party positively or negatively it is appropriate for government to step in and either promote (in the case of positively) or discourage (negatively) the action from taking place. Otherwise the market is inefficient, and the country less prosperous.

Taxpayers subsidize education because we all benefit from an educated population. Subsidies promote clean energy and taxes discourage pollution because we all benefit from clean air, clean water, and a stable climate. In these cases the government is, in economics terms, correcting a “market failure” and making everyone better off (except for perhaps the polluter himself who will lose business to the cleaner industry).

The question then becomes to what degree is the pollution harming the public and therefore what level of subsidy or tax is appropriate? Those who refuse to listen to the Revere-like shouts of warning from the climate science community, will value clean energy at a much lower level than those of us able to put aside partisanship and listen.

But Arizona’s leaders do us a disservice when they pretend that all energy subsidies thwart some sort of mythical “energy market”. Some of them would stand to benefit from a couple afternoons in ASU Professor Nancy Roberts’ ‘Microeconomic Principles’ class.