09 August 2007

Subsidizing energy

Reading A Globe and Mail article on solar power, I was struck by two facts. One is that Germany is the world's leading solar power generator despite having a wet climate with clouds covering the sky 60 per cent of the time. And two, this leadership results from the industry being heavily subsidized.

Germany generates over half the photovoltaic power in the world and intends to increase its reliance on the source from three per cent of its electrical needs to 27 per cent by 2020. According to the Globe, "It is a thriving industry with booming exports that has created tens of thousands of jobs ...." The photovoltaic systems are owned by homeowners, farmers and small businesses that benefit from a law requiring power companies to buy the electricity they produce for at least 20 years at more than triple market prices.

Detractors might oppose this degree of subsidy because it seriously distorts the market. This argument, however, overlooks the unfortunate fact that the market often doesn't account for the true cost of products, and certainly doesn't with energy.

Gasoline provides a good example. The pump price of a litre of gas accounts for only a fraction of the cost of using that fuel. To begin with, it excludes
the costs of the pollution it creates, including its contribution to global warming. Then there are costs like policing roads, the health costs incurred from road accidents, and all the other costs of urban sprawl. And then there's tax subsidies to the oil industry through items such as the depletion allowance, program subsidies such as the cost of transportation infrastructure, research and development. The list is long. The International Center for Technology Assessment calculates that when all costs are included, the price of a gallon of gas is five to 15 times the pump price. The hidden subsidies of fossil fuels can be immense.

Criticizing solar, or other more environmentally sound energy sources, because they are subsidized makes little sense without an accurate evaluation of all the costs involved. No energy sources carry their true weight in the marketplace. All are subsidized. The simple fact that solar power produces no emissions almost certainly makes it cheaper than fossil fuels, keeping in mind the cost of global warming could be civilization itself.

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