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11/7/2017

Coal Subsidies: Just As Bad As Green Energy Subsidies

Republicans promote the free market rhetorically, but in crafting policy, all too often they jump ship and support corporate subsidies for favored industries. For example: coal subsidies.

President Donald Trump followed that well-worn path last month when he called for coal subsidies that would cost American taxpayers an estimated $10.6 billion per year, according to a joint analysis from Climate Policy Initiative and Energy Innovation.

Trump appears to be trying to live up to his promise to bring back coal jobs, but he shouldn’t ignore free market principles or force the energy market at the expense of the economy as a whole. Coal has been declining in its percentage of the energy market for several decades. Although anti-coal regulations put in place by previous administrations have played a role, the increased efficiencies in the production and use of natural gas have been the primary driver of coal’s loss of market share.

Coal production started declining in the ‘80s when low-sulfur coal become harder to find. It dipped again in the late 2000s as hydraulic fracturing made natural gas cheaper to produce. Once natural gas became competitive with coal, power companies started building cheaper and more efficient gas-run generation plants.

In addition, power generation from renewable energy is estimated to increase by 169% by 2040, while coal, as a percentage of our energy mix, could decrease by 51%, Bloomberg New Energy Finance predicts. For a number of reasons, solar has even become cheaper than coal in many countries, and as the Guardian reported, even with Trump’s laudatory hands-off approach on green energy, companies are still investing heavily in alternative fuel sources.

As with all state-controlled markets, government policies that favor one sector over another end up helping certain companies and individuals at the expense of others, and ultimately, it injures consumers and the economy, generally. President Trump’s plan would subsidize only a handful of companies that operate about 90 plants in the East Coast and Midwest. Meanwhile, the specter of cronyism has emerged. As E&E News reported, the official leading the charge on this initiative previously lobbied for FirstEnergy Corp., a company that stands to benefit directly from the coal subsidies.

Trump’s plan to help the coal industry is similar to former President Obama’s initiatives to prop up green energy, which conservatives properly lambasted as inappropriately “picking winners and losers.” Indeed, President Obama funded select green energy groups that played politics well, even if they didn’t use the money as efficiently as they could. For example, Solyndra received guaranteed loans, but an investigative report showed it never got close to yielding its expected results. Its principals played politics, wasted and misused taxpayer money, and kicked the can down the road until everything collapsed. Companies like Solyndra were able to ignore the signals of the market, cash in on government largesse, funnel massive bonuses to high-salary CEOs even as their business crumbled beneath them, and were never held accountable.

If Trump uses federal coal subsidies, one should expect similar results. Coal companies will be encouraged to play politics to stay afloat instead of being encouraged to provide more efficient products and services. And this means Americans may be forced to prop up companies that aren’t able to compete in the market. It is a waste of taxpayer money.

Trump and other Republicans should embrace free market principles that incentivize competition rather than embracing a top-down approach that will help a few businesses at the expense of everyone else.  By all means, eliminate the regulations that unfairly target coal at the expense of other energy sources, but don’t transfer taxpayer money in the form of subsidies, another failing business model.  The government should not be in the business of picking who wins and who loses.

Tyler Arnold is a communications associate at Cause of Action Institute.

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08/9/2017

Wednesday Waste: Federal Subsidies Prop Up Corporate Executives at Taxpayers’ Expense

The federal government doesn’t just provide welfare to struggling families. On the contrary, it also gives huge sums of money to some of the biggest and wealthiest businesses in the world, amounting to about $100 billion per year through federal subsidies.

Corporate subsidies, or “corporate welfare” to its opponents, are supposedly designed to lower prices and employ Americans. But such well-intentioned justifications fail to materialize and the subsidies end up lining the pockets of corporate executives at no benefit to the consumers, or propping up unsuccessful businesses that aren’t meeting market demand.

The biggest recipients of corporate welfare are not struggling businesses, but rather very successful companies. The country’s top corporate welfare recipient is Boeing, one of the largest defense contractors in the world. Boeing receives a whopping $13.4 billion from taxpayers each year. Other household names at the top include Intel, General Motors, Ford, Fiat, Nike and Shell. Each rakes in between two and six billion dollars annually. Unfortunately, when businesses solicit money from taxpayers, rather than customers, incentives change.

In a free and open economy, consumer spending, not government rewards, signals businesses to act, and businesses are incentivized to listen to consumers. When the government intervenes, it creates artificial signals that are not based on market demand. Rather, they’re incentivized to make political friends and ask for favors. This does nothing for consumers and fuels cronyism and inefficiency.

Instead of focusing resources on customer satisfaction, companies now spend incredible amounts on lobbying. In the last eight years, American businesses have spent more than $3 billion per year on lobbying, more than doubling what was spent annually in the late ‘90s. On top of traditional lobbying, companies also spend millions of dollars funding the campaigns of candidates like Donald Trump and Hillary Clinton to get a friend in the White House. Companies make generous campaign donations sometimes to maintain federal subsidies.

Despite ethics laws, favors are granted to the companies and lobbyists who have the most connections. Such corporate subsidies rarely add value to the economy, nor do they benefit consumers.

If the United States ended federal subsidies today, these problems would largely go away. Corporations would go back to making money by pleasing customers instead of pleasing politicians. If the money spent on subsidies was left in the hands of taxpayers, they would spend it wherever they think is most valuable for themselves instead of having it spent wherever the politicians think is most valuable to their personal careers. Removing federal subsidies would result in better market efficiency and more valuable goods in society. Eliminating these subsidies would also take away more than 20 percent of our current deficit spending.

Some of the inefficiencies are not visible, because we’ve never had a truly free economy. However, some of the inefficiencies are very apparent.

One of the clearest examples is the Obama-connected Solyndra scandal. The company received guaranteed loans, and an investigative report showed that the company was constantly playing politics, instead of producing services, until it went bankrupt in 2011. Even as they were going bankrupt, top CEO’s were still receiving tens of thousands in  bonuses, on top of their already high salaries.

Another lesser-known example is the government’s attempt to subsidize broadband in rural areas, which led to much poorer results than promised. Forty percent of the projects were not even started by the time they were supposed to be completed. Analyses found that the subsidies did not have an effect on rural penetration and “that about 60 percent of subsidies went to rural providers’ overhead rather than to investment.”

Regardless of the business model, the free market will always be a better solution for people overall.

Tyler Arnold is a communications associate at Cause of Action Institute

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