Solar Energy Options
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What’s the reason to subsidize alternative energy companies?
I’m not asking about raw research that occurs at universities – like discovering totally new technologies.
I’m wondering if there are any good reasons to subsidize existing solar, nuclear, wind, etc power companies. By reducing the price of nuclear power below the market equilibrium, people consume more nuclear power than they otherwise would, so there’s a deadweight loss.
If you just want to discourage gas consumption, wouldn’t a gas/petroleum tax be more efficient? That way private firms can optimally choose between other options.
Your question is essentially one that should be taken up as a question of economics and not the nuts and bolts of “alternate fuel vehicles.”
There are several reasons. One already mentioned is that most energy companies already get subsidies. But these are larger than the obvious grants and discounts, (credits on taxes.) In economics there is a concept of “externalities.” 1 Polution is cited as a prime example of an externality. It is part of the manufacturing/refining process but the cost of polution is not figured into the end product. (health issues, the costs of clean ups and filtration.) When I go out and buy an air filter I am to some extent paying for someone’s polution. The water treatment plant is a cost that taxpayers bear for polution that has been done upstream.
To the extent that some alternative energy options do not produce externalities they are being asked to compete against an unfair advantage. Subsidies attempt to level the playing field.
There is another aspect as well. To the extent that alternative energy development is a social benefit it may be something that we should socially promote ie: subsidies.
Last, any new company will have difficulties competing with an existing company where economies of scale, and product identification 2 are already in place.
Sometimes it is difficult to put a number on some of these costs/benefits. The alternative may be to start taxing companies for the polution that they produce and eliminating any subsidies that they currently get. Undoubtedly someone would complain when an existing benefit is taken away. Business as usual is hard to change.
Law 270.7 – Lecture 1 – Introduction to Renewable Energy Options
