For renewable energy to compete with fossil energy, many obstacles must be overcome: technology development, distribution and public adoption, just to name a few. But for renewable energy to ultimately displace fossil-based energy, these new energy sources must be able to compete economically with traditional fossil energy sources. That’s the bottom line.
Nascent industries often require incentives to get up on their feet. Traditionally, in the interest of growth and competitiveness of the nation, it has been part of government’s role to assist in the “standing up” of new industries that are in the best interest of the broader society. In this context, government incentives for renewable energy development and production are important. (Still, it is dangerous for new businesses to rely on government subsidies for its profit margin. Just ask the biodiesel industry. With the government’s failure to extend the $1/gallon blender tax credit, approximately 80% of the industry ceased to exist.)
Incentives for renewables aside, the reason that renewables have difficulty competing with fossil fuels economically is that the playing field is not level. Why?
- The direct and indirect tax benefits granted to the developers of fossil-based energy
- The unrecognized social costs resulting from the use of fossil energy (air and water pollution, health-related costs, for instance)
If the tax benefits for fossil energy were removed and if the social costs of burning coal and oil were included, then the economic gap between traditional fossil energy industries and renewables would be partially or completely closed, making renewables better business investments.
Here’s just one example. The National Academy of Sciences (2009) estimated that for the year 2005 alone, the US use of coal for power generation had social (primarily health-related) costs of $62 billion. These costs were not allocated back to the producers of coal, however. If they had been allocated back to the price of electricity, the average US electricity cost would have increased by 3.2 cent/kw (source).
This is where our approach to fossil energy should be informed by our approach to cigarette use or any number of other diseases. Our society, for instance, has not had any difficulty connecting the dots between black lung disease and coal miners, brown lung disease and textile workers or cigarette smoking and illnesses like cancer, heart disease and emphysema. In order to move our society away from smoking, we have easily rationalized placing taxes on cigarettes to both recognize the true cost to our society of smoking and to place the economic burden on those who are responsible for that cost.
If we take the same approach to fossil energy and include the social costs of fossil fuel use into energy prices, then everyone who uses electricity will pay more for that electricity, a difficult political position to take in these economic times. If and when we get to the point that the REAL cost of fossil energy is reflected in its pricing, then renewables will compare much more favorably economically.
From this perspective, the issue isn’t so much that renewable energy is too expensive; it’s that fossil energy is artificially too cheap.
[...] and Natural Gas Prices Posted on June 11, 2012 by Suz-Anne Kinney In his recent post, Fossil Energy and Cigarettes, Stan Parton broached the subject of the cost of fossil energy and renewables. According to [...]
[...] Gasoline is only one energy cost that’s higher in Europe. The retail cost of electricity is two to three times the cost of electricity in the US. (This is one reason EU countries are executing many more renewable energy projects; the cost of renewables compares more favorably to the cost of fossil energy. See Fossil Energy and Cigarettes.) [...]