Energy and Subsidies

From the conclusion of a recent paper by Jarvis, Deschenes, and Jha [PDF]:

Our analysis indicates that the phase-out of nuclear power comes with an annual cost to Germany of roughly $12 billion per year. Over 70% of this cost is due to the 1,100 excess deaths per year resulting from the local air pollution emitted by the coal-fired power plants operating in place of the shutdown nuclear plants. Our estimated costs of the nuclear phase-out far exceed the right-tail estimates of the benefits from the phase-out due to reductions in nuclear accident risk and waste disposal costs.

In the United States, nuclear energy–like fossil fuels and renewables–receives a great deal of subsidization from the federal government every year. Fortunately, from my perspective, energy subsidies in total have fallen precipitously since 2013, from $29.3 billion to $15 billion.* I absolutely favor the trend of phasing out subsidies for energy.

However, I don’t favor the trend of phasing out technologies (like nuclear, but also fossil fuels) because they are politically unpopular, particularly if 1) doing so yields increased costs to consumers**, and 2) doing so unnecessarily causes human suffering. In the case of Germany, where consumer prices also rose 3.9%, such phasing out has resulted in both of these negative outcomes.

*Interestingly, the U.S. Energy Information Administration reports that certain fossil fuels had a negative net subsidy (i.e. they brought in revenue for the government) of $773 million in 2016.

**Were subsidies utterly abolished, consumers would see an increase in their electricity bills for some period of time. I’m not against this kind of rise in consumer prices because subsidies lead to over-consumption by consumers and inattention to costs by providers, mitigating the effectiveness of prices qua resource scarcity information. Absent subsidies, prices would eventually adjust downward toward a natural equilibrium.