Monday, October 12, 2015

Picking Winners and Losers

The Daily Kos recently posted a photo and a brief article about the installation of solar panels on the White House during the Carter Administration.Sadly, only a couple of years later, President Reagan removed the panels and presided over the elimination of tax subsidies for renewable energy. The discourse surrounding government support for renewable energy has been dominated by those who exclaim that "Government shouldn't be picking winners and losers." They argue that government bureaucrats are not very skilled or smart in making these choices.

While there is some evidence that government has had more success than venture capital in Silicon Valley, there are two deeper points to be made. First, this way of framing the debate ignores the nation’s long history of support for fossil fuels and obscures the economic theory behind the subsidies. Congress has been picking winners and losers for over a hundred years, providing substantial subsidies to fossil fuels through the tax code. Second, when you refuse to regulate or tax the activities that are causing harm to health and the environment (such as fossil fuels), the only choice you have for encouraging a shift to other non-harmful substitutes is to choose. If you are going to provide support in the form of cash or other benefits, you have to make decisions about what kinds of projects deserve support and how they are going to qualify for that support. If, instead, Congress taxed the polluting industry, ensuring that the full health and environmental costs and risks that the public faces are shifted back to the fossil fuel industry, those costs would be included in the price of gas and coal-fired electricity.This would allow the market to respond. Instead, we now have market failure, we are funding deeper market failure (through tax subsidies to oil and gas and coal), and we provide tepid support for renewables. For more discussion along these lines, see my most recent article, Picking Winners and Losers: Examining the Structure of Tax Subsidies for the Energy Industry, 41 COLUM. J. ENVTL L. __ (forthcoming Winter 2016).

Consider, how the personal computer has transformed our world in the last 30 years. Where would we be if we had stayed the course with solar and continued to develop alternative energy resources?