Tag: "federal subsidies"

Addressing Texas High Speed Rail Concerns

The proposed new high-speed rail (HSR) project in Texas has become a lightning rod for criticism. While the project is different from the now cancelled publicly funded HSR projects in Florida, Michigan, and Ohio and the ongoing project in California, critics remain concerned.

The Texas project supported by Texas Central Railway (TCR) is fundamentally different from the U.S. public government approach in several ways. First, it focuses on one specific corridor (TCR chose one out of 97 it had identified). HSR succeeded in France and Japan because both countries build their first HSR lines on the most optimal corridor, not the most shovel-ready. Contrast that with the Obama Administration’s plans to give money to nearly 40 states. The TCR project is focused on true 200 mile-per-hour high-speed rail while the government program has a multitude of aims:

  • build HSR
  • improve existing rail
  • build political bridges
  • develop passenger rail

Second, the Texas developers are seeking advice and parts from the Japanese, who operate the most successful HSR line in the world. TCR plans to use higher-speed Japanese Shinkansen trains which will travel fast enough to offer 90-minute trip times. Many of the government-funded rail lines are upgrades of existing lines with top speeds of 110 miles per hour.

Third, TCR’s line will link two of the quickest growing metro areas in the country. The metro area populations of Dallas and Houston are expected to double. Contrast that with Los Angeles and San Francisco that are seeing little if any growth in population.

Fourth, both are privately funded. While TCR will not accept grants or subsidies, it will consider existing federal credit assistance such as Railroad Reinvestment and Financing (RRIF) or Transportation Infrastructure Finance and Innovation (TIFIA) loans. TIFIA financing requires an investment-grade rating while RRIF is being strengthened to include similar provisions. TCR might also seek DOT approval to issue tax-exempt private activity bonds (PABs), which are widely used on highway P3 concession projects. Such bonds are backed solely by project revenue. Taxpayers are not on the hook in case the project defaults; only the bond-buyers are.

Project opponents have raised legitimate concerns but none of them should delay the project. Some farmers and ranchers are concerned that their properties will be acquired through eminent domain. However, TRC only needs about 100 feet of eminent domain. Additionally, the agency plans to use eminent domain (as other private parties including pipelines companies and electric companies do) as a last resort and only after making market-value offers. Further, if there are abuses of the system, Texas has a detailed appeal system already used for the Keystone Pipeline.

Others are concerned that taxpayer subsidies will be required. Whether TCR can build its project within the budget estimated is an open question. Given the challenges of breaking even on HSR in a low-density state such as Texas, skepticism is appropriate. However, as long as taxpayer funds are not used, project sponsors should be allowed to try to build the train. If the project later requires taxpayer subsidies, Texas taxpayers should kill it. While the financial realities are a legitimate concern for those who invest equity in the program or buy bonds, the program should receive the same level of legal and regulatory scrutiny as any other private railroad project.

A Bumpy Ride for Germany’s Green Energy

The aim of the German Energiewende (also known as Germany’s Energy Transition) is to decarbonize the energy supply by increasing access to renewable energy and improving energy efficiency. A key part of the Energiewende is the outright rejection of nuclear power as an alternative to fossil fuels and the complete shutdown of nuclear facilities by 2022. The German government has also taken a stand against carbon capture and storage, calling it expensive and unsafe. The strategy focuses instead on wind, biomass (using landfill gas and agricultural waste products), hydropower, solar power, geothermal and ocean power.

So, how does Germany expect to transition to renewable energy so quickly?

  • Germany has been focusing on increasing wind power generation since the early 1990s. In 2014, onshore wind power provided 8.6 percent of the country’s power supply.
  • By 2020, Germany plans to triple the amount of energy produced by wind (both onshore and offshore).
  • Germany is aiming to have 6.5 gigawatts of installed offshore wind power by 2020.
  • Germany expects to increase citizen ownership of renewable sources, limiting the influence of large corporations, through the use of feed-in tariffs.
  • Increase “energy cooperatives” ― community-owned renewable projects, which have already garnered more than 1.2 billion euros in investment from more than 130,000 private citizens.

One of the most key impacts of Germany’s energy transition has been the democratization of energy resources. Turning traditional consumers into additional producers of energy has meant enacting generous support subsidies for renewables. This method seemed effective and by 2012 citizens and co-ops owned 47 percent of renewables, while energy suppliers controlled 12 percent and institutional and strategic investors owned 41 percent. In Freiburg, Germany, for example, citizens of the town of about 220,000 people funded a third of the investment cost for four turbines, with the rest coming from banks loans.

In 2014, the plan seemed to be on the right track and electricity from fossil fuels (including natural gas) hit a 35-year low. However, the German energy transition has hit a few bumpy spots along the way. Offshore wind has not taken off as it was supposed to and most Germans see it as a big business scheme. At the end of 2014, only 1 gigawatt of the total 6.5 gigawatts desired had been installed, with only 923 additional megawatts under construction.

The rush into renewables was also poorly timed and coincided with increased investments into traditional energy production by utility companies. The increased generation from both renewables and fossil-fuel power plants has overwhelmed demand causing prices to fall and hurt profits. Additionally, Germany had guaranteed above-market prices for newly installed renewable energy, to incentivize investment. The surge of renewables on the market are subsidized directly by a surcharge on customers, which increases in parallel with the addition of more renewable kilowatt hours. In the end, utilities have been forced to return to coal-powered plants due to the squeeze on profits.

Lauren Aragon is a research associate at the National Center for Policy Analysis

SOTU NCPA: Energy Forecast or Lack of One

With the State of the Union Address tomorrow night, we can expect the president to talk about energy and environment ― much more about environment than energy. The president’s actions show how low of a priority our national security and energy independence is on his list of “top issues.” Besides speaking at international climate summits around the world and having a climate change researcher siting with the first lady tomorrow night, the president lists energy #7 out of his 7 top issues. With a listing after climate change, the energy and environment section is then split in half between energy and environment topics with the other half covering climate change.

Here are the very few energy topics listed:

  • Reducing Our Dependence on Foreign Oil ― the administration admits to current increased amounts of domestic oil production as the factor that is reducing our foreign oil dependence. Increasing that production is the solution, not decreasing carbon emissions and more renewable energy sources.
  • Safe and Responsible Domestic Oil and Gas Production ― the plan is to aggressively regulate oil and gas production, hydraulic fracturing, artic drilling and rail safety. Regulations will increase inefficiencies and costs.
  • Carbon Capture and Sequestration Technologies ― more regulations targeting new and existing coal-fired power plants. Already costing billions to implement, such regulations will greatly increase costs for plant operation, weaken the economy and burden taxpayers.
  • Advancing Clean Energy ― a series of renewable usage in homes goals, tax credits and subsides. All government interference in the energy market is artificial and ends up harming everyone.
  • Advancing Energy Efficiency ― the administration’s view of energy efficiency is cutting down carbon emissions and reducing the demand for U.S. oil. Energy efficiency should actually be how well developed our energy production, transportation and delivery are with the president’s help. Looks like the president has not been interested in true energy efficiency.
  • Developing Clean Fuels ― biofuels are extremely costly, unnecessary and weaken the automobile industry that has to keep up with the outrageous Renewable Fuel Standards.

Our energy independence is a geopolitical/national security issue that should be critical to our nation. We must do all we can to let our energy companies produce and export refined and unrefined energy resources. Only then will we be able to keep ourselves off of foreign oil dependence, keep gas prices low for the poor, increase our role in the global energy market and boost our economy.

Still Too Early for Solar Energy

Many are claiming that solar energy is both great for the environment and a good investment. The focus has been on solar panels that are mounted on top of homes. Several nations and some states in the U.S., have been utilizing this renewable energy resource. However, solar energy is too new of an energy source to invest in at this time.

How can we tell? If the government is still giving any kind of financial incentive, then that means that the market has not caught up and it is still overpriced. Currently, the U.S. federal government gives a 30 percent tax credit for installing a solar energy system at home. On top of that, cash is also given directly to new solar systems ― Utah gives out $2,000 in cash incentives.

The day that tax credits and direct money incentives disappear, is the day that renewable energies, such as solar power, are priced closer to a solid and efficient energy market. That is the day you should invest in solar energy for your home ― if it is at a good price.


Volcanos as a Source of Renewable Energy

Harnessing the power of lava for energy sounds like a herculean task, but a group of researchers in Iceland think they are up to the challenge. Iceland ― which already fills a quarter of its electricity needs with geothermal energy ― is looking to expand its geothermal energy production with the Iceland Deep Drilling Project.

Geothermal energy, obtained by tapping into and converting underground reservoirs of heat into energy, is touted by the U.S. government for its availability, low emissions, and long-term sustainability.

Given the technological advancements coming up and Iceland’s success, why does geothermal energy only account for 0.41% of U.S. electricity production?

The answer is simple: costs. The start-up costs for geothermal energy are extremely high.  To get a geothermal energy plant off the ground in the U.S. costs a minimum of $2500 per installed kilowatt. In comparison, construction costs for a coal-fired power plant range between $1,000 and $1,500 per installed kilowatt, and construction costs for a gas-fired power plant range from $400 – $800 per kilowatt.

The high start-up costs are not just limited to the U.S. The exploratory borehole for the Iceland Deep Drilling Project cost a minimum of $22 million. The Geothermal Energy Association estimates that the average cost of a 20-megawatt geothermal power plant stands around $30 million.

Until renewable energy sources ― and geothermal energy in particular ― can be cost efficient without large government subsidies, they will remain a drop in the bucket for U.S. energy production.

Solar Energy Company Requests a Bailout to Pay Federal Loan

Typical of Obama administration supported renewable energy projects, yet another one is failing. Back in 2010, President Obama said that Ivanpah Solar Electric Generating System would put 1,000 people to work and power up to 140,000 homes. However since last February, Ivanpah has been only producing one-fourth the amount of energy that was predicted. The excuse for this is that there have been fewer sunny days than were predicted.

Some basic facts about Ivanpah Solar System:

  • Owned by NRG Energy, Google and BrightSource Energy.
  • Used a $1.6 billion federal loan to help build the solar plant.
  • Now is requesting a $539 million federal grant to help pay off part of the federal loan.
  • Federal grant would help pay to pay off federal loan of a failing business.

The Obama administration pushed numerous renewable energy projects with high risk and at the cost of the American taxpayers.

Evergreen Solar ($25 million)  SpectraWatt ($500,000)   Solyndra ($535 million)   Beacon Power ($43 million)   Nevada Geothermal ($98.5 million)   SunPower ($1.2 billion)   First Solar ($1.46 billion)   Babcock and Brown ($178 million)   EnerDel’s subsidiary Ener1 ($118.5 million)   Amonix ($5.9 million)   Fisker Automotive ($529 million)   Abound Solar ($400 million)   A123 Systems ($279 million)   Willard and Kelsey Solar Group ($700,981)    Johnson Controls ($299 million)   Schneider Electric ($86 million)   Brightsource ($1.6 billion)   ECOtality ($126.2 million)   Raser Technologies ($33 million)   Energy Conversion Devices ($13.3 million)   Mountain Plaza, Inc. ($2 million)   Olsen’s Crop Service and Olsen’s Mills Acquisition Company ($10 million)   Range Fuels ($80 million)   Thompson River Power ($6.5 million)   Stirling Energy Systems ($7 million)   Azure Dynamics ($5.4 million)   GreenVolts ($500,000)   Vestas ($50 million)   LG Chem’s subsidiary Compact Power ($151 million)   Nordic Windpower ($16 million)   Navistar ($39 million)   Satcon ($3 million)   Konarka Technologies Inc. ($20 million)   Mascoma Corp. ($100 million)

Reckless investments such as these should be reserved for individual/private investors. Taxpayers cannot afford to throw any more money away.

Texas Wind Energy’s Expensive Wait and See Experiment

Wind energy subsides and other public incentives cause “Wait and See Experiment” in Texas. The state is now home to one of the largest sources of wind energy production in the world.

  • Texas has invested about $7 billion in a sprawling wind power network that spans nearly 4,000 miles.
  • Alternative energy projects have benefited mostly from generous public investment, including direct subsidies and tax incentives.
  • More private firms, like Google, Walmart and Microsoft have also channeled resources into the emerging wind sector.
  • Analysts point out that the slow trickle of capital reflects the maturing of wind power, even as alternative energy still remains very reliant on public support.
  • T. Boone Pickens was forced to abandon a massive wind farm initiative in 2012 knocking him off Forbes 400 list of richest Americans the very next year.

Texas is taking a huge risk by diving so deep into wind technology. Relying on the alternative energy subsides and other incentives, many investors in this new technology are running a risk of entering too early into the market or competing in the wrong market all-together. Subsides can have a negative impact to the economy by working against free markets.

Fair and Equal Energy, GOP Proposes Ending All Tax Breaks

Senator Mike Lee (R-UT) recently proposed new legislation that would end all $16 billion dollars in subsidies on energy, restoring a free market energy sector.

Ordinarily, when legislation such as this is mentioned it is directed at the renewable sector only, allowing oil companies to retain the billions they receive. However, this bill will end all oil and gas subsidies as well, allowing competition to return to the sector. Now the government will be unable to pick winners and losers in the market.

60 years of energy

Source: “60 Years Of Energy Incentives,” Management Information Services for the Nuclear Energy Institute

Credit: Alyson Hurt/NPR

Since 1950, the U.S. government has provided and astonishing $837 billion for energy development, over half of that being oil and natural gas. However, his bill also reduces taxes for these companies which could prove balanced out in the long run.

This is not the first time something like this has been tried. In 2012, Congressman Mike Pompeo of Kansas attempted the same plan and ultimately was referred to the House Subcommittee on Energy and Power. Senator Mike Lee has quite a few more tricks up his sleeve as he currently has 34 sponsors on the bill. He does have opposition however in that many senate democrats and republicans want to extend biofuel subsidies for at least one more year. In order to have a truly effective bill, all government assistance has to be cut.

While renewables were once viewed as the future of U.S. energy, the recent oil and gas boom has taken over the economy. In 5 years alone, oil production on state and private lands has soared an astonishing 61 percent, and natural gas production has risen 33 percent.

A Way Out of The Endangered Species Mess

Too many environmental issues are seen as crime and punishment problems.  The bureaucratic process that implements the Endangered Species Act (ESA) is one of the results. That process produces too few environmental benefits, too many economic losses, and an unnecessary infringement on individual liberties. Far more species go extinct waiting to be listed as endangered or threatened, and after being listed, than are upgraded to a less threatened status or delisted (true success).

The current process is unsuited to the real issue, which is how to efficiently accommodate competing users (people, plants, and animals) of land. That is being increasingly recognized, even by mainstream environmental activists. With the implementation details of each case now in the hands of government employees, the science of species listing and recovery is tainted by politics. Since the ESA’s official goal of preserving our biodiversity enjoys strong public support, we must develop news, more productive ways of pursuing it.

With appropriate property rights, market mechanisms will protect threatened plants and animals much more efficiently than the current bureaucratic process. Private property rights can be strengthened to make listed plants and animals more valuable to individual landowners (50% of endangered and threatened species occur only on private land) as they become more scarce. It will cause landowners (including public landowners) to ‘set aside’ enough land to recover and sustain each listed species. The key details are the definition of habitat, how much is enough, and how much actual and restorable habitat exists; facts that are already required by the existing process.

‘Set aside’ should not mean outright purchase in most cases. Most species can co-exist with human activity. Indeed, they must. There is not enough money or land to provide every threatened species with its own exclusive refuge. The viable terms of that co-existence determine the type of easement that landowners that eliminate habitat must purchase (perhaps subsidized?) from landowners that maintain habitat. The market price of such easement arrangements will depend upon development pressures (demand), the scarcity of existing and potential habitat, and the biological requirements of the species (supply).

In the well-known, expensive Edwards Aquifer-Endangered Species situation of South Central Texas, pumpers could be habitat eliminators during severe droughts. An approach analogous to land easements would be to levy a small pumping fee and use the revenue to maintain aquatic habitat. Depending on cost comparisons and conditions, a number of measures could be funded. They include springflow purchase, springflow augmentation, and artificial habitat maintenance for the inevitable times of severe drought. Past attempts (the 1995 Texas Legislature’s revision of 1993’s SB 1477) to address the problem are very expensive, they limit pumping too much, they do not ensure that the springs the endangered species depend on will not go dry, and therefore do not ultimately fully address the possibility of federal sanctions that supposedly justify the costly measures.

All landowners would be better off under the proposed easement purchase process than under the expensive, open-ended, indeterminate process that exists now. Landowners contemplating land uses that would eliminate some habitat would enjoy lower known costs and no species habitat-related delays. The existing process is fraught with uncertain high costs and long delays, and often ultimate denial of permission. It is especially hard on small landowners, for whom the existing process can easily cost much more than their land is worth.

Under the easement purchase proposal outlined above, land developers would have an incentive to minimize their destruction of habitat, and other landowners would have an incentive to protect and restore habitat, and advertise its existence. Habitat owners would profit from the chance to sell the easements. Habitat owners would be better off under the proposed market approach than if there was no public interest in maintaining a sufficient level of species habitat. Contrast that with the existing incentives. Now most landowners fear (and take steps to prevent) the discovery of habitat of potentially threatened species on their property, because it could cause property values to fall, and land use restrictions could lead to forfeiture. Species also suffer from the existing process because it creates incentives to destroy habitat, and no incentive to maintain it.

In closing, it is important to summarize the role of government in the proposed market approach to species protection. The government would no longer engage in case-by-case ‘consultations’ (the root of the problem). Biological data would be used to define the terms of easements, and how much protected habitat is enough. The government would enforce compliance with the terms of the easements just like it enforces other contracts. If the requirement that habitat eliminators acquire easements constitutes a ‘taking’, public funds could be used to subsidize easement purchases.

The “Inequality” of Federal Wind Energy Subsides Distribution

President Obama has been famously outspoken about “a dangerous and growing inequality” in our economy that has “jeopardized middle-class.” He was so adamant about our private sector’s misallocation of income away from a majority of Americans and towards a fortunate few that he proclaimed, “I believe this is the defining challenge of our time: making sure our economy works for every working American. It’s why I ran for President… It drives everything I do in this office.”

Apparently, the President’s concern for fairness in the distribution of public sector benefits across society does not seem to drive his support for federal renewable energy policies, many of which tend to favor some U.S. states at the expense of others.

For example, the Institute for Energy Research (IER) released a study at the end of last year that examines the federal allocation of wind energy subsidies across the country. Their analysis estimates the net value of Wind Production Tax Credits (PTCs) distributed across the states by comparing the federal wind-subsidy tax burdens paid by the citizens of each state to the percent of PTCs received by that state. The IER then examines the allocation of those net PTCs across our fifty states.   

The IER estimates that in 2012, ten states received over 72% of the total PTCs during that time frame, with many states receiving nothing. The table below notes some net winners and some net losers:

Net Losers   Net Gainers  




New York








New Jersey


  North Dakota







These numbers do not correlate with population, per capita incomes or any other characteristic commonly used to justify redistribution efforts. Yet, if one were to ask the President or his Cabinet members to justify this policy of inequitable allocation of federal wind energy subsidies, their response would surely be: in America’s diverse geographic environment, those states that are capable of producing more wind energy for the country will naturally receive a greater share of federal wind subsidies.

The irony is that one might say the exact same thing about the American private sector: in our nation’s diverse business environment, those individuals who are capable of bringing more value to the economy will naturally receive a greater share of our nation’s income. Perhaps meritocracy can justify only public sector benefits allocations, rather than the private sector benefits allocations.