At the Cato Institute, Travis Fisher explains how government intervention in the energy markets will demand more money and ultimately cost taxpayers more than they would have paid if the government just kept out of the energy sector. He cites Ludwig von Mises, who noted in A Critique of Interventionism that “In a private property order isolated intervention fails to achieve what its sponsors hoped to achieve. From their point of view, intervention is not only useless, but wholly unsuitable because it aggravates the “evil” it meant to alleviate…. If government is not inclined to alleviate the situation through removing its limited intervention and lifting its price control, its first step must be followed by others.” Fisher writes:
A previous post showed that the total cost of the Inflation Reduction Act’s (IRA’s) energy subsidies could reach $3 trillion. Subsidies so large cause a lot of problems—one being that advocates of a robust electricity infrastructure, like me, are now skeptical of using federal policy to expand the transmission system, which is the network of high‐voltage wires and substations that make up the backbone of the power grid.
Before committing to large‐scale transmission expansion, Congress should eliminate the open‐ended generation subsidies in the IRA. Energy producers can’t capture the IRA’s lucrative production tax credits until they connect their new energy projects to the grid, so more transmission without amending the IRA means more subsidies at enormous cost to taxpayers.
The Green Transition Requires Transmission
Experts across the electricity industry argue that we need more transmission—bigger networks and massive transmission development—and we need it immediately. For example, the U.S. Department of Energy under President Biden and academic advocates of “net zero” policies are calling for aggressive expansion of the transmission system. Proponents of aggressive transmission expansion have a catchphrase: “There is no transition without transmission.” That is certainly true in the case of a transition to generation resources like wind and solar energy, which tend to be located far from demand centers.
However, heeding their call without first addressing the potential to spend $3 trillion on electricity generation subsidies is not a conservative or free‐market approach. Congress should remove the IRA subsidies for mature generation technologies like wind and solar to encourage smart transmission investments that leave electricity customers and federal taxpayers better off. If the IRA subsidies remain in place through a period of rapid transmission expansion, the cost to American taxpayers and electricity customers will escalate.
The required amount of transmission is not small or cheap. Transmission advocates at Americans for a Clean Energy Grid cite the Princeton Net Zero report, which indicates that “high voltage transmission will need to double by 2030, at a cost of $360 billion, and triple by 2050, at a cost of $2.2 trillion, to achieve a zero‐carbon future by 2050.” Keep in mind this estimated cost of $2.2 trillion is in addition to the $2.5 to $3 trillion in subsidies for generators.
Some investment is necessary to maintain the existing transmission system. However, calls to double or triple the high‐voltage transmission are a far cry from the $15–20 billion spent annually by utilities on operating and maintaining the grid. Further, transmission spending has already been on a steep upward trend for several years, not just from increased operations and maintenance costs but also from an increase in spending on new projects, as illustrated by data from the U.S. Energy Information Administration below.
Major Transmission Expansion Will Increase the Burden on Taxpayers
Policymakers need to understand that transmission expansion can have serious costs because it is the missing link between subsidy‐hungry developers of generation projects and the $3 trillion pot of cash from Congress.
Today, the lack of available transmission is a barrier to new generation technologies eligible for the tax credits in the IRA—for example, generators can only claim the Production Tax Credit (PTC) if they are able to produce energy and deliver it to the grid. Further, the IRA subsidies for electricity production all become PTCs beginning in 2025, so the pressure to expand transmission will only grow in the coming years. But “removing” that barrier by expanding the transmission system would be bad for taxpayers because it would put the PTC on steroids, at taxpayers’ expense. This fits with Ludwig von Mises’ observation that government intervention in markets begets more intervention—in this case, subsidies for generation beget federal intervention in transmission.
Read more here.