Green Energy: Learning from Recent European History to Re-Embrace Our American Philosophy

A post at Reason on Tuesday noted the failings of green energy subsidies in Europe, highlighting the fact that Spain passed a law this month cutting subsidies to green energy companies. The Reuters article detailing the subsidy cuts notes a basic economic truth about the relationship between costs and prices:

Foreign investors poured money into Spanish wind and solar projects, drawn to generous subsidies during a decade-long economic boom that helped the country to become one of the biggest markets for investments in green energy. 

The problem was that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.

Price may be what a consumer pays, but it isn't necessarily the true cost of the product. Central planners often prey on the fact that citizens often do not distinguish between cost and price. Subsidies eventually cause a product to collapse under its own weight of its own cost. Over a decade ago, Thomas Sowell wrote an essay about the difference between cost and price in reference to health care. He notes:

 When politicians talk about "bringing down the cost of health care" they do not mean that they have found a way to produce the same health benefits with less medicine or less time spent by doctors treating patients.  They mean that they have some scheme for preventing these costs from being charged directly to the patient. 

 If these politicians were really going to bring down the cost of health care, they would have to do such things as stop so many medical resources from being diverted to enriching lawyers who win bogus lawsuits against doctors, hospitals and pharmaceutical companies. They would have to stop giving blanket subsidies to people who waste doctors' time with trivial ailments that they would ask their local pharmacist about if they had to pay a doctor out of their own pockets. 

The same principles apply to energy costs and prices. Governor Palin warned of Spain's energy subsidy crisis nearly two years ago in a speech in India when she noted:

 So as government locks up land & we lose good jobs in the 'Conventional Resource' arena, you may hear that "green jobs" will be the saviour! But look around the world & try telling that to the thousands of English & Scottish workers who've lost jobs as a result of government investments in "green energy" projects. A recent UK study shows that for every "green job" created, nearly four jobs were lost elsewhere in the economy due to lack of affordable energy! Same story in Spain - investment in "green jobs" brought massive debt, skyrocketing energy costs & unemployment.  

 This push for 'green' at the expense of 'conventional, reliable' sources is not a credible energy policy or economic policy. It's "Social Engineering" by Central Government Planners. And it leads to nothing but more debt & more job loss. And taxpayers will be stuck subsidizing the failure and paying more for energy.

 Despite the lesson that Europe has taught America and that Governor Palin warned of two years ago, President Obama continued to push for more green energy subsidies in his recent State of the Union address, claiming that the price of solar energy has gone down. This may be the case relatively speaking, but even with those additional subsidies, solar energy will still more much more expensive that coal, nuclear and other more traditional sources of energy, and that's according to the President's own Energy Information Administration.  Even solar companies themselves are turning down subsidies from the government. In 2011, the world's largest solar company, Solar Trust, turned down a more than $2 billion loan guarantee from the US government because it would be too risky. That company went bankrupt in 2012, even though the Obama administration fast tracked their land permits for energy development.

Margaret Thatcher once said that Europe was built on history and America was built on philosophy. She is right. Our leaders would do well to learn from Europe's recent "green history" by eschewing the green socialism and corporatism of Europe and embracing again the pro market philosophy that founded this great nation  by engaging in unsubsidized development of proven resources and sound policies that protect our future.

Crossposted here and here.

A Busy Upcoming Oil Exploration Season Proves the Success of ACES

The Anchorage Daily News shares some good news for oil and gas development in Alaska, due in large part to Governor Palin’s oil tax legislation, ACES (emphasis added):

As Southcentral Alaska prepares for an increase in oil and gas exploration and development in the Cook Inlet basin, operators on the North Slope and nearshore Beaufort Sea are preparing for what promises to be one of the busiest exploration seasons since 1969, when 33 exploration wells were drilled after the discovery of the Prudhoe Bay oil field.

If all goes as planned, as many as 28 exploration wells could be drilled between October 2011 and mid-2012. It's a longer-than-normal North Slope exploration season because one company's wells can be drilled from old gravel sites along the Dalton Highway and therefore are not subject to off-road tundra travel restrictions.

Much of the stepped-up activity appears to be partly due to the exploration incentives offered by the state of Alaska, and partly because Alaska's governor is committed to fixing provisions in the state's production tax that could make development of any oil discoveries noncompetitive for investment capital with projects in other oil provinces.

The exploratory incentives are a key part of the oil tax legislation championed by Governor Palin, as the legislation included tax credits for companies to both encourage new development and to reinvest in the existing infrastructure of older development. As Governor Palin noted upon signing ACES into law in December of 2007, “[w]ith the signing of this bill, we can turn the page and look forward to a new era of stability and investment opportunities developing Alaska’s resources, creating new jobs and a strong economy for years to come”.

This is exactly what has happened since the passage of ACES. It has given Alaska a strong economy. During her tenure, Governor Palin had the 2^nd best job growth record in the country. Every year of her administration yielded a record high number of oil industry jobs in Alaska. This news of a very busy exploration season indicates that indeed ACES has ushered in a “new era of stability and investment opportunities for developing Alaska’s resources”.

The companies that are involved in drilling these new exploratory wells are mainly independent Alaskan companies and foreign companies. Governor Palin’s ACES oil tax structure replaced Governor Murkowski’s corruption tainted PPT oil tax structure which favored Murkowski’s cronies in the oil industry. Governor Palin’s legislation on the other hand provides opportunity for all companies to be engaged in resource development. This kind of policy is what led to, as of January, a doubling in the number of companies filing taxes returns with Alaska since the passage of ACES, indicating that more companies see Alaska as a great place to invest in oil development. In addition to the incentives for development that ACES provides, it also was negotiated and passed in a transparent manner without undue influence from lobbyists or only certain oil companies.

One of the foreign companies is the Spanish company Repsol, who announced in March that they would be devoting more than three-quarters of a billion dollars for development on the North Slope (emphasis added):

“This deal is a perfect fit in our efforts to balance our exploration portfolio with a lower risk, onshore oil opportunities in a stable environment,” Repsol CEO Antonio Brufau said in a statement.

ACES has provided a stable environment for Repsol to engage in exploratory drilling that includes 5 rigs and up to 15 wells. This speaks well of the state level policies that Governor Palin implemented. Additionally, though, the fact that a Spanish company is seeking to engage in oil development in America may be a result of what Governor Palin warned about at the India Today Conclave speech in April where she discussed the effects of a “green” economy (emphasis added):

So as government locks up land & we lose good jobs in the 'Conventional Resource' arena, you may hear that "green jobs" will be the saviour! But look around the world & try telling that to the thousands of English & Scottish workers who've lost jobs as a result of government investments in "green energy" projects. A recent UK study shows that for every "green job" created, nearly four jobs were lost elsewhere in the economy due to lack of affordable energy! Same story in Spain - investment in "green jobs" brought massive debt, skyrocketing energy costs & 20% unemployment.

Spain has proven oil reserves of about 150 million barrels. While this is nothing compared to the vast resources available in Alaska, it is certainly worth noting. Between 2005 and 2009, Spain’s oil production volume has decreased by nearly eight percent. Has a focus on “green” energy (leading to reduced oil production) also caused Spanish oil companies to seek development opportunities elsewhere because these areas are a “stable environment” as Repsol said of Alaska? Should not Spain’s example serve as an economic warning to America as Governor Palin indicated? Will an aversion to traditional fossil fuels development lead American oil companies to explore more profitable options elsewhere?

It has become increasingly evident that Governor Palin’s ACES legislation has done just what she intended it to do—spur economic growth, create jobs, and provide stability and continued oil development. It has not only provided opportunities for development by the likes of ExxonMobil or Shell, but it has also provided independent companies and foreign companies to invest in exploration. As our current administration seeks to create a “green” economy, the successes of Governor Palin’s administration should cause America to look north to the future in order to truly win the future.

Crossposted here and here.