"Rather than expand government, public policy should end preferential subsidies for politically favored energies and privatize such assets as public-land resources and the Strategic Petroleum Reserve. Multibillion-dollar energy programs at the U.S. Department of Energy should be eliminated. Such policy reform can simultaneously increase energy supply, improve energy security, reduce energy...
Impact of Renewable Generation Subsidy
"The short-run economic welfare implications are also shown in Figure 1. The large light red rectangle is the economic value transferred from producers to consumers. The small dark gray trapezoid is the actual gain in consumer surplus. When renewables and green jobs advocates talk about price 'suppression,' they are referring to these changes in consumer surplus. It is important to note, however, that the vast majority of the 'benefits' of price suppression are not benefits in any economic sense. Rather, they represent an income transfer — and an economically inefficient one at that — from producers to consumers. Green jobs studies often conflate such economic transfers with 'benefits.'
A key question, therefore, is whether the real gain in consumer surplus shown in Figure 1 can ever be greater than the cost of the subsidy. In other words, can a subsidy increase the overall economic value of a market? The answer is no. To convince yourself of this, consider the following: If the renewable generator R cannot compete in the market without a subsidy, then it requires a price greater than P* to be economically viable. Thus, to be economically viable with a subsidy and a market-clearing price of PSUB, the subsidy must be greater than (P* − PSUB) per MWh produced by the generator. If the renewable generator produces R MWh, then the total cost of the subsidy is greater than R × (P* − PSUB). That amount is always greater than the actual gain in consumer surplus shown in the figure. Thus, the subsidy reduces the overall economic value of the market."