Real Numbers: The U.S. Energy Subsidy Scorecard

Real Numbers

ROGER H. BEZDEK

ROBERT M. WENDLING

The U.S. Energy Subsidy Scorecard

In his State of the Union address on January 31, 2006, President Bush called for more research on alternative energy technologies to help wean the country from its oil dependence. The proposal was not surprising: After all, R&D investment has long been a staple of government efforts to deal with national challenges.

Yet despite its prominent role in the national debate, R&D has constituted a relatively small share of overall government investment in the energy sector since 1950. According to our analysis, the federal government invested $644 billion (in 2003 dollars) in efforts to promote and support energy development between 1950 and 2003. Of this, only $60.6 billion or 18.7% went for R&D. It was dwarfed by tax incentives (43.7%).

Indeed, our analysis makes clear that there are diverse ways in which the federal government has supported (and can support) energy development. In addition to R&D and tax policy, it has used regulatory policy (exemption from regulations and payment by the federal government of the costs of regulating the technology), disbursements (direct financial subsidies such as grants), government services (federal assistance provided without direct charge), and market activity (direct federal involvement in the marketplace).

SURPRISES ABOUND. TAX SUBSIDIES OUTPACE R&D SPENDING.SOLAR R&D IS WELL FUNDED. OIL PRODUCTION IS THE BIG WINNER.COAL RECEIVES ALMOST AS MUCH IN TAX SUBSIDIES AS IT DOES FOR R&D. NUCLEAR POWER RECEIVES MUCH LESS THAN COAL FOR R&D.

We found that R&D funds were of primary importance to nuclear, solar, and geothermal energy. Tax incentives comprised 87% of subsidies for natural gas. Federal market activities made up 75% of the subsidies for hydroelectric power. Tax incentives and R&D support each provided about one-third of the subsidies for coal.

As for future policy, there appears to be an emerging consensus that expanded support for renewable energy technologies is warranted. We found that although the government is often criticized for its failure to support renewable energy, federal investment has actually been rather generous, especially in light of the small contribution that renewable sources have made to overall energy production. As the country maps out its energy plan, we recommend that federal officials pay particular attention to renewable energy investments that will lead to market success and a larger share of total supply.

Renewable energy not neglected

The perception that the renewable industry has been historically shortchanged is open to debate. Since 1950, renewable energy (solar, hydropower, and geothermal) has received the second largest subsidy—$111 billion (17%), compared to $63 billion for nuclear power, $81 billion for coal, and $87 billion for natural gas.

Federal R&D Expenses for Selected Technologies, 1976-2003

LEGEND: PV: Photovoltaic (renewable); ST: Solar Thermal (renewable); ANS: Advanced Nuclear Systems; CS: Combustion Systems (coal); AR&T: Advanced Research and Technology (coal);LWR: Light Water Reactor (nuclear); Mag: Magnetohydrodynamics (coal); Wind: Wind Energy Systems (renewable); ARP: Advanced Radioisotope Power Systems (nuclear).

Source: Management Information Services, Inc.


Roger H. Bezdek () is president of Management Information Services, Inc., (MISI), an economic research firm in Washington, D.C. Robert Wendling is vice president of MISI.