Sustainability Subsidies, Solar Power, Trains and Glorious Bastards

Much has been made of the $5.3 trillion global fossil fuels subsidies and many have vilified subsidies in the process.

It is well known that not all subsidies are equal, nor is there consensus on which ones are good and which are not.

The more conservative among us tend to be fine with defense or industrial agriculture subsidies but balk at “green” subsidies, pointing accusatory fingers at the not-so-long-ago Solyndra debacle as evidence of left-wing nuttery.

The smarter response to Solyndra is, however, not fewer, but more green subsidies.

Why?

Well, because subsidies are meant to mess up markets, change the game, dismantle barriers, shake up the status quo, and in the process build new economic roads down paths to places better than where we are headed now.

Subsidies done well don’t just disrupt markets for new market development sakes either. They are meant to have substantial net public benefits as well, or just what our predominately unsustainable economies need.

Some bad for a lot of good?

Take US government railway subsidies at the turn of the 20th century. Many howled at the truly unconscionable concentrations of wealth and power resulting from enormous land subsidies given to Rail Barons of the day.

Those guys were a decidedly not a nice lot. Subsidy fueled wealth lead to all types of nasty, from fraudulent stock schemes, to outrageous labor exploitation, to oligopolistic and egregious use of power, to bribing judges and legislators, to perfecting the art of kickbacks etc.

Yet it’s plain to see that modern economies were founded on subsidized railway expansion, despite these Glorious Bastards.

And just as the US government worked in the late 19th century to curb the excesses of railway riches (not to mention oil, steel and banking), it is now time to do so with all the bad that comes with fossil fuel wealth by turning subsidies towards something decidedly more sustainable.

Subsidies and Sustainable Development

There are no readily available global statistics on subsidies aimed at creating sustainable economies except to know that they are much, much less than those supporting “business as usual” in industrial agriculture, defense, and a host of other industries.

The figures that are available though, are instructive.

Take incredible fact that a modest US$18 billion in subsidies helped create enough solar power capacity to provide Germany with almost 50% of its electrical needs mid-day on May 26 2012! Of this, an amazing 46% was generated by individuals: the so called big four German power utilities provided less than 5%.

On the other side of the world, the top five solar companies in China alone received $31 billion in subsidized loans from China Development Bank and other government agencies. The US, by contrast, provided around $3.2 billion in solar subsidies between 2010 and 2013 with the largest beneficiaries receiving much less than the Chinese companies (e.g., Evergreen Solar, $22 million and Solyndra, $535 million).

Not surprisingly, the USA’s share of the $10 billion and rapidly growing global solar panel market fell from 30% in 2000 to 7% today while China’s share grew from 2% to 54%.

Doubly bad for the US is that for the near future only an estimated 6% of “total global solar installations will be done without any incentives at all.” This means any US commitment to alternative energy via solar will need to continue subsidizing consumption without the added economic multiplier effects of profits and production jobs.

China certainly seems to have outsmarted America when it comes to this green economy subsidy. But it’s not just energy markets we need to mess up, nor the only sector where opportunity lies.

Socially and environmentally beneficial disruptive subsidies can be applied in many parts of the economy. Again, just watch the Chinese. Driven by lousy product and truly horrid emissions health and safety scares, they are subsidizing green materials, organic/natural food production, energy recovery, clean transportation and more.

Sustainability subsidies need not be costly, nor do they necessarily require subsidizing production.

Nudging the market to do what it already wants to do is much more efficient. Given demand for more sustainable consumer and investment options, it may be faster and cheaper to amplify sustainability market signals (recall some 25% to 50% of all consumers want to make more sustainable purchases).

Supporting market information providers such as the Global Reporting Initiative, Sustainable Accounting Standards Board, social investment information providers, and, a favorite of mine, consumer product sustainability labeling initiatives, would be the least costly means — financially and politically — of “subsidizing” stronger sustainability market signals.

We need to get over the fact that subsidies, while sleek in theory, are sloppy in practice, with all manner of unanticipated, often undesirable outcomes.

Spectacular fails like Solyndras will come and go. Given the stakes, we must accept the messiness of it all and, like our steadfast Germans friends with solar panels on their roofs and farms, stay the course for more and better sustainable subsidies.

PS Please note the true cost of subsidized railways can never ever be calculated as positive in moral, ethical or even economic terms, given the land was not ours to give away in the first place.

 

 

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