Renewable Energy Industry Could Suffer From EIA Miscalculation

The Energy Information Administration’s (EIA) latest report on federal energy subsidies, released on Monday, under-reports direct and indirect federal subsidies to the nuclear and fossil fuel industries, creating an inflated view of the subsidies that benefit renewable energy and efficiency programs, according to the Union of Concerned Scientists (UCS).

Although EIA concedes its methodology doesn’t account for all subsidies that benefit conventional energy sources, its consistent under-reporting over the years has enabled advocates of fossil fuel and nuclear technologies to falsely claim they benefit from very few federal energy subsidies compared with renewable energy technologies.

"Thanks to reporting omissions, the nation’s most highly subsidized, polluting industries will be able to use the EIA’s flawed analysis to claim they receive far fewer subsidies than emerging, clean energy technologies," says Ellen Vancko, manager of the UCS Nuclear Energy and Climate Change Project. "Recent independent analyses show that nothing could be further from the truth."

The problem with EIA’s methodology stems from the fact that the agency adopted a "snapshot" approach to measuring subsidies by only looking at a single year: 2010.

By doing that, Vancko points out, the agency failed to count the massive federal subsidies the fossil fuel and nuclear industries have enjoyed for decades – benefits they will continue to receive unless Congress acts to limit them. Conversely, relatively new subsidies for wind and other renewables will only last for a finite period – 10 years – after those facilities begin operation.

Unlike fossil fuels, most energy efficiency "subsidies" came through stimulus grants (Recovery Act). These are one-time bumps in spending, unlikely to be repeated given the fiscal constraints the country now faces.

The Democratic Congress chose the grants as attractive targets for stimulus spending because they were initiated quickly, supported many small scale projects – often at the household level and often by small firms – and resulted in permanent cost-savings for lower-income citizens.

The EIA also fails to count subsidies that are approved for the oil, gas, coal and nuclear industries but haven’t been used yet because the projects haven’t been built. 

For example, Congress has enacted numerous large new subsidies in recent years, such as loan guarantees and production tax credits, that would especially benefit new coal and nuclear plants, but because EIA doesn’t include them in calculations until projects are built. As a result, the EIA missed the enormous influence these programs have on the economics of new energy investments.

Last year, UCS calculated the benefit of new, uncounted subsidies for new nuclear reactors under the Energy Policy Act of 2005 to be as much as $5 billion per reactor. 

A February 2011 UCS report, "Nuclear Power: Still Not Viable Without Subsidies," shows the industry has benefited greatly from subsidies since its inception over 50 years ago – and the EIA report leaves them out as well. "Extremely generous existing and new subsidies mask nuclear power’s considerable costs and risks," says Vancko, "yet they are not accounted for in EIA’s latest report."

This is not the first time the EIA has produced a flawed analysis. A 2010 report by Doug Koplow of Earth Track, "EIA Energy Subsidy Estimates: A Review of Assumptions and Omissions," for example, identifies numerous omissions in EIA’s 2007 federal subsidies report that undercounted billions of dollars in direct and indirect subsidies to conventional energy sources. Koplow identifies a number of problems with EIA’s methodology, ranging from using a limited number of sources to ignoring many energy sector subsidies.

"In combination, problems of estimation and omission in EIA’s work render a picture of subsidies that has more to do with the scope and manner of its research than with the actual impact of policies in place," the report concludes. Although Koplow provided EIA with a list of detailed recommendations to correct these deficiencies, the agency’s methodology in its new report closely tracks what it used previously.

"We need to address climate change quickly and in the most cost-effective manner possible," Vancko says. "This requires a logical and economic transition away from carbon-intensive fuels and an accurate accounting of the subsidies provided to all energy sectors. The EIA needs to improve its energy subsidies accounting work if we are to properly evaluate the distortions that existing policies cause. Any future work the EIA carries out on the topic of energy subsidies must be free of political interference, include a systematic and consistent assessment of all types of subsidies over a long period of time, and ensure that the analyses are done with greater transparency and broader public input."

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