Sunday, 11 December 2011

Wind energy subsidies take away incentive to innovate

The federal tax credits for wind power in the US expire at the end of next year. The wind energy lobby is now ramping up its efferts to get an extension of the subsidies. But, as Nicolas Loris points out, it’s time to let this wasteful, unnecessary subsidy run out:

Twenty years of subsidies later, wind still only provides a paltry 2.3 percent of America’s electricity in 2010, and it still needs subsidies.
Jim Nelson, CEO of Solar3D, argues that government subsidies are obstructing innovation in the renewable-energy sector:
Operating subsidies, or installation subsidies, helps get clean energy sources installed but the problem is that current technology is not economically competitive. Everything we do needs to be done with a view toward global competitiveness. Unfortunately, because current technology is not economical relative to alternatives, it does not promote our competitiveness.
The problem is that subsidies promote technological malaise. They take away the incentive to innovate and lower cost by promoting business models geared more toward gaining favor with politicians than on technological innovation. The result is that subsidized industries quickly become dependent on government. At that point, long-term competitiveness becomes secondary to near-term survival, which is generally conditioned on more handouts.
Thus when the government support is threatened, the propped-up industry responds with pleas for more handouts. Recognizing that their survival depends more on securing subsidies than on technological innovation, subsidized industries reject such investments to the extent that they too are not subsidized by government. Hence, the vicious cycle of subsidies inevitably result in technological stagnation.

The same of course applies to wind energy subsidies in other countries as well. Why waste money on a technology that does not work properly, when there will be e.g. more than enough of cheap shale gas available for all sorts of future energy needs.

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