Something that has gotten lost in all of the debate and discussion (if you can call it that) over the debt ceiling and the economy as the election cycle ramps up is energy production in the United States. As gas prices are likely to be quite volatile during economic uncertainty in the EU and the US, the price of heating oil will likely be a detriment on the economy this winter. With all of the recent discussion of budget cuts, something that was surprisingly absent from the discussion was cuts to subsidies and tax breaks for oil companies. The absence of these cuts on the chopping block is probably due to several reasons.
First, in the middle of the worst recession since the Great Depression, removing oil subsidies would hurt the average consumer. As of right now, the average family still relies on oil-based resources for electricity, heating, and transportation. The only alternatives that have seen fairly widespread adoption among energy companies have been hydroelectric, nuclear, and primarily coal. However, especially for heat in the winter, petroleum based products provide most of the energy to the average person. Making the cost of something as essential as electricity and heating increase is definitely bad for the prospects of an economic recovery. However, I don’t think this is the primary reason it was not discussed in the debt ceiling discussion though. For all of the reasons just pointed out, eliminating oil subsidies would be politically unpopular. With the 2012 election around the corner and the current “constant campaign” mode in Congress, very few elected officials would risk any kind of politically unpopular move in their home district or state.
Political reasons aside, let’s look at the impact that reassigning oil subsidies to a more renewable source of energy. In this analysis, let’s see the impact that investing the money from oil subsidies into the solar industry. The Christian Science Monitor estimates the total amount of the subsidies given to oil companies at $41 billion. Meanwhile, the California government estimates that the average cost of solar power to be approximately $214 per MWh (wiki source). For comparison, coal is $81 per MWh. So, it is a fairly straightforward calculation to see that investing $41 billion at that price would produce 191.6 million MWhs.
That is a lot of power, so much that it is hard to grasp how much it actually is. To give an idea of what that number means, we can calculate the number of households that could be powered from that investment. The average household in the US uses about 10,000 kWh of electricity each year. That means that the investment in solar could power a total of approximately 19.2 million households. For some more perspective, the US Census Bureau has the current number of households in the US at right around 130 million. So, being able to power 19.2 million of them equates to powering 14.7% of all households in the US. That is equivalent to powering all of California, Arizona, and Nevada combined. That is pretty significant, especially considering California is the most populous state in the Union.
So, as the election cycle heats up, something to keep in mind is energy policy, although very little will probably be said about it with the global economy teetering on the brink of another collapse.