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Why Only Fossil Fuels Deserve Subsidies -- Just Ask Paul Ryan

As House Republicans take advantage of an extended congressional recess to start selling their recently passed "Path to Prosperity" 2012 budget, let's hope folks press their representatives to explain how they can call their energy agenda a "plan for a free and open marketplace." Or put another way: How can maintaining subsidies for the fossil fuels industry, while cutting incentives and funding for cleaner sources, be called anything but corporate welfare?

Ironically, one of the stated primary goals of the GOP budget crafted by Rep. Paul Ryan is to end corporate welfare with four major proposals to target financial reform; privatize Fannie Mae and Freddie Mac; restructure farm programs and restore competition and exploration in the energy sector.

This sounds good. That is, until, you take a closer look and realize the budget does the exact opposite. Ryan's plan doesn't take a long term view on growth or global competitiveness. Instead, it maintains wasteful subsidies for Big Oil and guts investments in clean energy. These cuts are deep and, if enacted, would leave investment in clean energy 63 percent below the current continuing resolution and 69 percent below the White House's FY2012 budget request, according to the Information Technology and Innovation Foundation.

Some key pieces of the GOP-passed 2012 budget:

  • Discretionary funding for energy programs would fall to $1 billion a year by 2014. President Obama's 2012 budget would provide about $8 billion to support clean energy research and deployment, the NYT reported.
  • Subsidies for "uncompetitive" energy sources would be completely eliminated.
  • Subsidies including tax incentives and credits for oil and gas would remain;
  • Maintain a loophole in a 1990s oil-and-gas law that the Government Accountability Office estimates could deprive the treasury of $53 billion in lost royalties.
  • Loan guarantees for clean energy programs would be eliminated;
The problem here is two-fold. For one, as I described above this budget isn't an end to corporate welfare. And two, we can't rely solely on the market to drive innovation. As the ITIF aptly notes this doesn't work because fossil fuels are cheaper and more reliable than clean energy. Meaning, utilities have no competitive reason to chose clean over dirty energy.
And energy is not really free market anyway, due to regulatory barriers and vested interests that only raise the hurdle for new alternatives. Thus, "market" competition does nothing to drive cost reductions through market takeup, experience curves and learning, nor does it lead to the more radical cleantech breakthroughs that are critically important in the long run.
By ignoring this, the House budget sets the U.S. up to fail in the clean energy industry. Perhaps that's their point. Numerous other countries that rely heavily on fossil fuels -- including China -- haven't turned their backs on clean energy sources. China, in fact, invests $12 billion every month in its wind, solar and other clean energy projects.

Photo from BP
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