4 Ways Get Clean Energy Off the Subsidies Treadmill

One constantly hears that in the world of energy, government shouldn't pick winners. Get the feds out of the way and let the market work its will.

People in the know understand, of course, that the emperor is prancing about in his altogether. Government has been picking winners since the republic's early days. There is no such thing as a Randian free market in energy and there never has been. The oil depletion allowance, for example, is the gift that keeps on giving since its enactment 96 years ago.

Brush aside the bumper sticker slogans, however, and it's clear that the salad days of federal funding for "clean tech"—carbon-free renewables and nuclear—are coming to an end. Spending is projected to fall from a high of $44 billion in 2009 to $11 billion in 2014. Renewables tax credits will expire at the end of this year and next, and the prospects for renewal are problematic. The Solyndra debacle gave loan guarantees a bad name.

A recent joint report by the center-left Brookings Institution, the environmental think tank World Resources Institute, and the iconoclastic Breakthrough Institute makes clear that the non-carbon technologies will never thrive in a world of boom-and-bust tax preferences and "perpetual subsidies."

Time for a new approach, the report said. The top problem the non-carbon players face is they can't beat the price of natural gas or coal. The three think tanks recommend a suite of reforms to help the non-carbon competitors get their costs down and improve their technological performance.

One of the recommendations is tripling federal R&D. This is not a new proposal. The American Energy Innovation Council, a group of high-powered executives such as GE's Jeff Immelt and Microsoft's Bill Gates, made a similar recommendation two years ago. In the world of R&D, energy is a tiddler compared to space, health, and defense.

A second is replacing federal loan guarantees with a more flexible array of financial tools—insurance, for example—to help new technologies traverse the "valley of death" between small-scale promise and full-scale commercialization.

A third is using military procurement to stir demand-pull for technologies that have both security and environmental advantages.

A fourth is better math and science instruction. Education reform is an encyclopedic topic in and of itself, but suffice to say there is a crying need for greater scientific literacy across the board. 

The report didn't stretch beyond its terms of reference, but wholesale tax reform that wipes away loopholes, drops rates, and includes a carbon tax to buy further cuts in income or payroll taxes ought to be on the table.

The shale gas surge has turned old assumptions inside out. It would be tempting for the U.S. to relax and put all its energy eggs in the cheap gas basket as a way to build energy security, light a fire under the economy, and clean up the nation's energy portfolio. Tempting, but not wise. Today's assumptions might not necessarily be tomorrow's assumptions.