by Whitney Pitcher
A post at Reason on Tuesday noted the failings of green energy subsidies in Europe, highlighting the fact that Spain passed a law this month cutting subsidies to green energy companies. The Reuters article detailing the subsidy cuts notes a basic economic truth about the relationship between costs and prices:
Foreign investors poured money into Spanish wind and solar projects, drawn to generous subsidies during a decade-long economic boom that helped the country to become one of the biggest markets for investments in green energy.
The problem was that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.
Price may be what a consumer pays, but it isn’t necessarily the true cost of the product. Central planners often prey on the fact that citizens often do not distinguish between cost and price. Subsidies eventually cause a product to collapse under its own weight of its own cost. Over a decade ago, Thomas Sowell wrote an essay about the difference between cost and price in reference to health care. He notes:
When politicians talk about “bringing down the cost of health care” they do not mean that they have found a way to produce the same health benefits with less medicine or less time spent by doctors treating patients. They mean that they have some scheme for preventing these costs from being charged directly to the patient.
If these politicians were really going to bring down the cost of health care, they would have to do such things as stop so many medical resources from being diverted to enriching lawyers who win bogus lawsuits against doctors, hospitals and pharmaceutical companies. They would have to stop giving blanket subsidies to people who waste doctors’ time with trivial ailments that they would ask their local pharmacist about if they had to pay a doctor out of their own pockets.
The same principles apply to energy costs and prices. Governor Palin warned of Spain’s energy subsidy crisis nearly two years ago in a speech in India when she noted:
So as government locks up land & we lose good jobs in the ‘Conventional Resource’ arena, you may hear that “green jobs” will be the saviour! But look around the world & try telling that to the thousands of English & Scottish workers who’ve lost jobs as a result of government investments in “green energy” projects. A recent UK study shows that for every “green job” created, nearly four jobs were lost elsewhere in the economy due to lack of affordable energy! Same story in Spain – investment in “green jobs” brought massive debt, skyrocketing energy costs & unemployment.
This push for ‘green’ at the expense of ‘conventional, reliable’ sources is not a credible energy policy or economic policy. It’s “Social Engineering” by Central Government Planners. And it leads to nothing but more debt & more job loss. And taxpayers will be stuck subsidizing the failure and paying more for energy.
Despite the lesson that Europe has taught America and that Governor Palin warned of two years ago, President Obama continued to push for more green energy subsidies in his recent State of the Union address, claiming that the price of solar energy has gone down. This may be the case relatively speaking, but even with those additional subsidies, solar energy will still more much more expensive that coal, nuclear and other more traditional sources of energy, and that’s according to the President’s own Energy Information Administration. Even solar companies themselves are turning down subsidies from the government. In 2011, the world’s largest solar company, Solar Trust, turned down a more than $2 billion loan guarantee from the US government because it would be too risky. That company went bankrupt in 2012, even though the Obama administration fast tracked their land permits for energy development.
Margaret Thatcher once said that Europe was built on history and America was built on philosophy. She is right. Our leaders would do well to learn from Europe’s recent “green history” by eschewing the green socialism and corporatism of Europe and embracing again the pro market philosophy that founded this great nation by engaging in unsubsidized development of proven resources and sound policies that protect our future.