Many Americans who support the use of alternative energy in the United States believe that subsidizing the cost of producing alternative energy will lead to more alternative energy use.  That may be true in the short run, but in the long run, it might not be the case.  Instead, the subsidies on dirty fossil fuels should be eliminated.

Subsidizing alternative energy use, in the short run, will of course lead to increased use of alternative energy.  If it is more profitable for firms to enter the industry, more firms will enter.  Because subsidizing, all else equal, leads to increased profits for a firm, subsidization of alternative energy will lead to more firms entering the energy sector.  Because more alternative energy firms enter the energy sector, competition will cause prices for alternative energy to drop, so consumers will consume more alternative energy.  The caveat here is that perhaps a subsidy is needed to get a particular industry off the ground.  Well, hasn’t that happened already?  Solar, wind, hydro, and nuclear power are all supposed to be somewhat competitive cost-wise with coal and oil when you net away the subsidization of coal and oil.

However, in the long run, this might be problematic.  Subsidies from the government must be paid by someone, because, as economists like to say: there is no such thing as a free lunch.  How long are American taxpayers willing to pay subsidies?  Additionally, subsidies may allow types of alternative energy that are not actually cost-efficient (read: corn-based ethanol) to stay in the industry when the production of that energy is actually costing society more than the benefit it creates.

Of course, for alternative energy to have any hope, in addition to the elimination of subsidies for alternative energy sources, subsidies for dirty fossil-fuel sources must be eliminated as well.  I don’t know why we’re subsidizing oil or coal anyways.  We have to pay the cost one way or another, why not pay it when we buy it instead of tricking ourselves into thinking its cheaper?  That just leads to overconsumption…

Ideally, if the environmental cost of dirty sources of fuel could be taken into account, as well as the elimination of all subsidies, we could truly choose the best energy source objectively.  However, that’s hard to do…

Wow this is a rambling article.  Please post your thoughts so I can clear mine up.

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