In Praise of GOP Tax Reform: Phasing Out Energy Subsidies
The GOP has managed to push through tax reform in the Senate, weeks after the House had voted to pass it. While the media and the Democrats are up in arms about what they believe is a terrible plan, Americans should rejoice about one section of the bill in particular: the section on energy production. The new tax bill seeks to phase out tax credits for wind, solar, and geothermal energy, while keeping in incentives for the development of nuclear production. The news could not be better for this country’s domestic energy industry, and for clean energy around the world.
Liberals have long been in love with subsidies for renewable energy sources such as solar and wind. They claim that because these are clean sources of energy that will ultimately save the Earth from the consequences of global warming, the solar and wind industries should be subsidized into existence, no matter what the cost. Yet, while the goal to clean the atmosphere is a noble one, the means of getting there is not.
Renewable fuels are neither profitable nor cheap enough to survive on their own, and forcing taxpayers to pay for them until they are is a poor and ineffective way to spend taxpayer money. In fact, subsidies for these industries push up energy costs for everyone due to a paradoxical type of situation; for solar and wind to be truly clean and cheap, 100% of energy must come from them. However, we are still decades and many technologies away from the 100% threshold, and anything less means that traditional energy sources will need to be used as backup for when solar and wind cannot meet energy demand. The more renewables are used, the more idleness in capacity traditional energy sources such as coal and nuclear are subject to, which makes deploying them more expensive and time consuming when they are eventually necessary. The more popular energy sources like solar and wind become, the more expensive fossil fuels will, and until renewables can be used to power 100% of energy depend, the costs of it make it a non-starter.
Speaking of nuclear energy, the new tax reform has good news for that too. The plan wants to help and encourage the development of nuclear energy, which in any political environment unlike the hyper-partisan one of today would be great news for the planet. Nuclear energy is truly clean and efficient – it emits very little carbon dioxide, and has the potential to provide energy without the intermittency of other renewables. Nuclear has unfortunately gained a bad reputation over the past several decades. Ask anyone what they think of nuclear power, and the first things that usually come to mind are Chernobyl and Fukushima. But a lack of public trust is not a reason to demonize an energy source that has this much potential, and instead of banning the development of nuclear, the industry should only look to making it safer.
Germany has learned this lesson the hard way. In 2011, a few months after the Fukushima disaster, Prime Minister Angela Merkel and her party ordered an immediate shutdown of eight of the 17 nuclear reactors in Germany. They also vowed to take all remaining reactors offline by 2022. The majority of voters supported the plan. But now they are facing the consequences. German citizens now face some of the highest electricity costs in the world, thanks to the large expenses of the renewable industry. To solve the intermittency problem that wind and solar largely suffer from, coal has now become the go-to backup energy source, ironically increasing the country’s carbon emissions even as the country has vowed to become cleaner. Coal has now become more expensive due to the need to fire it up and shut it down in line with the supply of renewables. The two largest energy providers in Germany have announced major profit losses and layoffs, as they are unable to pay for the country’s ambitious renewables plan. All this for a feel good policy promoted by politicians who are just after a good sound bite; Angela Merkel should have thought twice about banning a viable energy source just to gain popularity. The GOP’s tax reform plan makes no such mistake; it recognizes the potential of nuclear energy and wants to nurture it to make America’s energy market truly great.
Subsidies in any industry ultimately become market distorting, and simply because those subsidies are chasing a noble goal does not make them good. Solar, wind, and geothermal subsidies are a poor use of valuable taxpayer money, being thrown at an industry that has done nothing to deserve them. Renewables cannot pay for themselves today and will not be able to do so tomorrow, and in the process they will destroy other viable, clean sources of energy that are truly affordable. Germany and other European nations have not learned that, but with the new tax reform bill, this country has. Tax credits for far-off goals will no longer exist, and domestic energy production will thrive with the use of natural gas and encouraging the development of nuclear energy. The best thing that can be done for the American energy industry is for politicians to realize this, and the GOP tax bill comes closer than any other to finally recognizing that. This country will be better off for it.