The DOE’s Energy Information Administration reports that new renewable energy power plants will continue to be far less economically competitive than new gas‐fired generation plants over the foreseeable future, even after federal subsidies are taken into account.
Things look even worse in the transportation sector. The Obama administration has spent $5 billion to promote the manufacture of electric vehicles so as to put 1 million EVs on American roads by 2015. But layoffs and bankruptcies have plagued those receiving EV handouts because the technology is still problematic and the final product so expensive that consumers won’t buy it, even with $7,500 rebates. Consequently, only two tenths of 1 percent of the cars sold this year were EVs, and the vast majority of those were in development long before President Obama took office. EV sales would have to be almost nine times greater per year to meet the administration’s objective.
The only good argument for federal handouts to green energy projects is the contention that there are environmental costs associated with fossil fuel consumption that are not internalized in fossil fuel prices, distorting the market and leading to more “brown” energy consumption than is economically efficient.
But the most credible estimates about climate externalities put the cost at no more than $12 per ton of CO2. Internalizing that cost into fossil fuel prices would increase gasoline prices by no more than 12 cents per gallon, not enough to make EVs economically efficient or commercially competitive. If all the nation’s electricity were coal‐fired, a $12‐a‐ton CO2 tax would increase the price of electricity by about 1.3 cents per kWh, just over 10 percent above the average retail price of 12 cents per kWh. Given that a little over half of the nation’s electricity is coal‐fired, the actual increase would be even less.
If green energy is commercially promising, then profit‐hungry capitalists will make those investments. If it isn’t, no amount of government subsidy will turn those economic sows’ ears into wealth‐creating silk purses.
