The New York Times had a great article yesterday about the over-subsidization of alternative energy. But the authors fail to mention the biggest problem with these kinds of direct subsidies for alternative energy. They are addictive and create long-term corporate dependency on public subsidy. They anticipate and therefor reward failure. What happens when the subsidies run out, when the government goes broke, budgets get cut, as they did in Spain? Complete collapse of these kinds of subsidized industries. They blow away like chaff in the wind.
There is only one sustainable way to support alternative energy, only one way that rewards success, not failure, where the disappearance of the incentive does not spell disaster: supply side tax cuts for green energy. That means elimination of corporate taxes, capital gains taxes, sales taxes and estate taxes for clean, renewable energy investments. Investors would be encouraged to invest in such businesses because their profits will be tax free, a huge advantage over other investments. But that benefit is only realized by successful companies that can make a profit. Only then does investment becomes keenly focused on finding and developing economically successful, competitive alternative energy business models, not unprofitable subsidy addicts.
We have directly subsidized enough alternative energy start ups in the United States. It is clear we have already rewarded failures like Solyndra. Now we need to separate the wheat from the chaff. It is time to switch the incentive structure to find and reward the winners. With supply side tax cuts for green energy, the most competitive, profitable alternative energy models will survive and thrive and attract private investment on their own merits, and unsustainable models will disappear.
The problem is not just over-subsidization. It is the wrong incentive structure entirely.