Energy Markets Serve National Security Better Than Favoritism
On June 12, the Senate Energy and Natural Resources Committee held a hearing on the Trump administration’s proposal to require utilities to purchase electricity from coal and nuclear power plants that are at risk of closing. The administration claims that these plants are vital for U.S. national security because they provide baseload power and can store months’ worth of fuel on cite, making a disruption in electricity supply less likely.
More likely, however, President Trump is utilizing his position to pay out favors to his supporters. There’s an unfortunate pattern to U.S. energy policy regardless of who is in office: politicians using subsides to political allies rather than allowing the market to determine which sources “win or lose.”
In defense of his proposal, Trump cites the rising danger of cyberattacks and concerns about the country’s ability to recover from natural disasters, both of which could interrupt electricity supply. But the Rhodium Group, a consulting agency that focuses on energy issues, found that 96 percent of power outages between 2012 and 2016 was due to severe weather. So it is rather difficult to see how subsidies to coal and nuclear plants would prevent outages because it has been the transmission system, not the plants themselves, that has been the problem.
Trump’s misguided bailout proposal should not come as a surprise. The political logic shines through when the recipients of the benefits are considered: coal companies. Trump loudly campaigned throughout coal country, promising to “put our miners back to work.” Now as president, Trump seeks to repay his political supporters with policy.
It is unlikely that keeping these coal and nuclear plants online will promote U.S. national security. They are generally older plants that have simply become uneconomical to operate. For example, while it is true that coal’s decline has not been helped by more environmental regulations, the real problem for coal in the power market has been the widespread availability of cheaper, cleaner, and more efficient natural gas.
In contrast to Trump’s attempt to protect his political allies, competitive electricity markets provide a clear incentive to keep our supply safe from disruptions of any kind. Americans of course do not pay for electricity that never reaches them, meaning that if power lines are down or a cyberattack prevents delivery, power generators receive less revenue.
Coal’s failure in the face of natural gas also shows how Trump’s efforts cannot really save coal. As Jason Bordoff, the director of the Center on Global Energy Policy at Columbia University, points out, “The repeal of environmental regulations may slow coal's further decline, but it won’t bring coal back.” At best, Trump’s efforts will temporarily boost areas that depend on coal mining, but his plan will not offer lasting positive change. The owners of some of the retiring plants who would benefit from the plan, for instance, have already said that they will still be retiring the plants soon. So even with subsidies, these units will not be around much longer than just a few years.
Besides being unable to promote national security or aid coal country, Trump’s bailout for coal and nuclear is very expensive. Estimates vary but range from $300 million to almost $12 billion annually. Whatever the cost, it will ultimately fall back on the average American and the middle-class workers that Trump claims to champion to foot the bill. Subsidies, no matter who gets them, still come from the taxpayer’s wallet.
Indeed, politicians must remember that American consumers pay for their electricity twice. The first time is obvious: electricity bills. The second time, however, is hidden in the taxes that fund public subsidies to fossil fuels and alternative sources alike.
In conclusion, instead of using policy to court supporters, politicians should remove all subsidies for energy sources that just work to favor a select few. Ultimately, competitive energy markets are much more likely to keep prices low while also ensuring that the entire system stays safe from attack and natural threats.
Camille Harmer and Josh T. Smith are master’s students in economics specializing in energy and environmental issues at Utah State University. Their work has been published in Newsweek and Newsday.