NCPA - National Center for Policy Analysis

Government Subsidies Of Renewable Energy Unwarranted

September 12, 2002

Government subsidies are keeping alive the wind, solar, biomass and geothermal energy industries, but such government subsidies are based on erroneous economic projections, according to analysts. Despite polls offering strong public support for government-funded renewable energy, very few consumers will opt for it due to the high cost. Here's why:

  • Renewable energy is not likely to gain significant market share in the foreseeable future without a significant increase in government subsidies or mandates.
  • Rationales for subsidies for renewable energy and other preferences are without sound economic foundation.
  • The threat of global warming is speculative, and such warming is not necessarily deleterious from an economic perspective.
  • Even if restrictions in greenhouse gas emissions were necessary, replacing conventional energy would be more costly and less efficient than other emission abatement strategies.

Without preferential policies, the renewable energy industry (at least the portion that generates electricity for the power grid) would cease to exist. And while there is great support for renewable energies, less than 1.5 percent of consumers in any state have signed up for such programs. Clearly, there is a difference between what people tell pollsters about their willingness to pay for environmental quality and their actual willingness to pay in the marketplace, observers say.

Source: Jerry Taylor and Peter VanDoren, "Evaluating the case for renewable energy: Is Government Support Warranted?" Policy Analysis No. 422, January 10, 2002, Cato Institute, January 2002.

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