Putting Energy Subsidies in Context

Green Building

Putting Energy Subsidies in Context

Recently, I came across an editorial for an online magazine in which the author took umbrage with the disparity in the amount of federal subsidies provided for renewable energy compared to fossil fuels. The author cited this recent study by the Environmental Law Institute, a nonpartisan research and policy organization. The ELI study concluded that between 2002 and 2008 federal subsidies provided for renewable energy topped off at $29.0 billion; while those provided for fossil fuels amounted to $72.5 billion (or 250% more than fossil fuels). I summarized a breakdown of the ELI findings in Figure 1.

Figure 1: Federal subsidies (2002-08) in billion dollars. Adapted from http://www.eli.org/pdf/Energy_Subsidies_Black_Not_Green.pdf

Initially I found this data to be discouraging, but then it occurred to me that a major layer of information was missing. How much energy is consumed by Americans for each of these sources? If fossil fuels provided 2.5 times the energy provided by renewables, then in a sense, wouldn’t the subsidies disparity be a wash? I investigated.

If the ELI study considered the energy produced between 2002 and 2008, then I needed a sense of how much energy was consumed by Americans during that time-span. For this, I consulted the US Department of Energy’s Energy Information Administration (EIA). I recovered an “Energy Flow” diagram (see page 3) from the EIA’s Annual Energy Review 2007. I considered this data to be a reasonable approximation of how much energy Americans consumed for every year between 2002 and 2008. From this data, I considered the information offered in Figure 2.

Figure 2: Energy Flow, 2007 – Energy Consumption (Quadrillion Btu). Data taken from US Department of Energy.

Note that both ELI and I are using US DOE data and the DOE does not consider nuclear electric power as a renewable energy source. They define “renewable energy” as “conventional hydroelectric power, biomass, geothermal, solar/photovoltaic, and wind.”

Methodology

In the interest of full disclosure, I am not an expert on energy policy. Perhaps this gives a uniquely clear perspective or perhaps I am overlooking some nuances. In any event, I attempted to keep my analysis simple!

1. I took the DOE EIA data for consumed energy from fossil fuels and renewables in 2007 and multiplied it by 7 years (the range of the ELI study).

2. I converted the quadrillion Btu to kilowatt-hours (kWh). As far as I could tell this “consumed” energy data from the DOE EIA does consider electrical system energy losses as part of the “consumption.”

3. Finally, I divided the consumed energy from fossil fuels and renewables by the total amount of federal subsidies cited in the ELI study.

For transparency, I’ve posted the spreadsheet calculations here.

Findings

According to my findings, when one considers the federal subsidies against the proportion of the total amount of energy provided by fossil fuels and renewables a completely different story emerges compared to the ELI findings. As depicted in Figure 3, renewables actually receive over two times more in federal subsidies per consumed kilowatt-hour than fossil fuels.

Figure 3: Federal subsidies in dollars per consumed kilowatt-hour.Definition of “consumed” is per the US DOE Energy Information Administration / Annual Energy Review 2007.

Analysis

I think the best way to approach this data is simply as data without much interpretation. I am a strong supporter of renewable energy, so this is not to be perceived as an argument regarding whether or not renewables should have more or less “seed money” from the federal government. I acknowledge that the analysis was crude and rudimentary, yet I feel that this subsidy per consumed kWh metric is a very simple way of displaying the data within the context of the amount of energy provided from the two categories of sources (fossil fuels and renewables). Admittedly, I am not delving into all of the different ways and forms that subsidy money, from both direct payments and tax breaks, is given for different types of energy. The tax breaks in particular seems like an especially tricky subject to tackle. Also, common sense would suggest that large scale energy production from companies invested in fossil fuels would yield larger totals for tax breaks and subsidies than smaller scale operations.

Bottom line: I realize there is a lot of nuance to this issue and acknowledge that there are some assumptions and simplifications being made in my analysis. However, I sense that these assumptions and simplifications probably lead to findings that better explain the whole picture than the “lump sum” subsidy data that is typically thrown around (ELI study was not nearly the first time I’ve encountered such data).  In essence, I am attempting to be honest and open and letting the chips, the summations, and conclusions fall where they may.

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