SACE | Southern Alliance for Clean Energy

Federal Subsidies for High Risk Energy


In theory, government energy subsidies – whether for oil, coal, nuclear or renewable energy sources – are intended to help the poor by lowering the price. In reality, though, subsidies often benefit the wealthy, especially the producers themselves and pave the way to dirty energy.

federal_bailout_for_nuclear.jpgWhile some ‘smart’ subsidies, such as targeted tax breaks, financial incentives or other market mechanisms may benefit the economy and environment by stimulating emerging energy sources, if subsidies exist simply to hold down the price of fuel, then everybody will use more of it, increasing pollution levels as a result. A 2008 U.N. report found that scrapping energy subsidies could cut world greenhouse gas emissions by up to 6 percent (more than 1/3 of the way to the proposed reduction goals offered by President Obama in Copenhagen in December 2009) while shoring up world economic growth.

Given that human-induced global warming is one of the most serious and urgent challenges of our lifetime, all possible energy options should be debated and discussed in our quest for viable solutions. However, to have an honest and open debate about the merits and shortcomings of each energy option, it is essential to have a clear understanding of the explicit and hidden government subsidies that affect energy production and use.

High-risk energy sources, such as fossil-fuel and nuclear energy, receive substantially larger subsidies than renewable energy sources do as the chart below shows:


Source: Environmental Law Institute, Estimating U.S. Government Subsidies to Energy Sources 2002-2008.

Fossil Fuel Energy

pollution.pngDespite being a mature, developed industry that has enjoyed government support for many years, a recent study confirms that the U.S. government provided more than $72 billion in taxpayer-supported subsidies to fossil fuels during the last 10 years. This number should be compared to subsidies given to renewable energy resources, which only currently total $29 Billion (between 2002-2008). And over half of these renewable subsidies unfortunately go to corn ethanol – the least sustainable form of biofuel that exists.

According to the Environmental Law Institute, “Most of the largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.”

In an August 2009 letter to Treasury Secretary Timothy Geithner, Sierra Club and Rainforest Action Network called out four primary sources of subsidies promoting the development of new coal-fired power plants from the Treasury Department.

These are:
1. Provision of tax-exemptions for private activity and governmental bonds which help finance infrastructure;
2. Loans guaranteed by the Rural Utilities Service through the Federal Financing Bank (FFB) to rural electric co-operatives – to develop electricity generation and transmission capacity;
3. Provision of capital and loan guarantees to banks under the Troubled Asset Relief Program (TARP) and related programs that allow for investment in carbon-polluting energy; and
4. Treasury Department engagement and influence with the World Bank and other international financial institutions.

Nuclear Energy

watts_bar_copy.jpgThe Union of Concerned Scientists issued a comprehensive study, “Nuclear Power: Still Not Viable Without Subsidies,” that examines the massive subsidies supporting existing and future nuclear power production.

During a SACE-hosted news conference, High Risk Energy Director, Sara Barczak, and fellow experts Peter Bradford, Henry Sokolski and Dr. Ed Lyman urged the Department of Energy (DOE) to halt controversial plans to issue risky nuclear-loan guarantees through taxpayer bailouts. Listen to the press conference here. These guarantees are part of the DOE’s Title XVII Loan Guarantee Program. On February 16, 2010, President Obama announced a taxpayer-financed loan guarantee of more than $8 billion for the proposed two Westinghouse AP-1000 nuclear reactors that Southern Company and it’s utility partners plan to build at the existing Plant Vogtle in Georgia. Well over three years later, the loan guarantee has yet to be finalized. Learn more here.

President Obama first announced during his 2010 State of the Union Address that he wanted to triple the nuclear loan guarantee program, from the $18.5 billion authorized by Congress in 2007, to more than $54 billion. This $36 billion increase was also requested in subsequent Administration budgets even though a 2003 Congressional Budget Office report found that, “the risk of default of a [nuclear] loan guarantee to be very high–well above 50 percent.” Thankfully these increase requests have not (yet) materialized. These guarantees mean that if the borrowers, in this case the utilities, default on their loans, U.S. taxpayers will shoulder the burden and pay back the debt. Essentially, another taxpayer bailout for a the wealthy nuclear industry, perhaps a form of nuclear socialism?