The Cost of Energy

Basically, there are two schools of thought in the renewable energy world on government energy subsidies. First, there are those that believe that all subsidies should be removed, and that, as a result, a free-market economy will then pick and choose between available energy production methods to end up with only those energy sources that can stand on their own two feet.

On the other end of the continuum, there are those that think that governments have to be encouraged to allocate as much money as possible to solar and other renewable energy resources (including increased efficiency), in the hope that these funds will help renewables more quickly catch up to where the conventional energy sources are.

A logical, practical implementation of these beliefs would be to work hard to decrease the subsidies for less favorable technologies and then to work even harder toward leveling the playing field by increasing the subsidies for renewables and energy efficiency. At this point in time, it would not make sense to consider having equal or no subsidies as a level playing field. Infrastructure decisions and other investments have long been based on past subsidies, and these market effects could linger for decades after the subsidy itself is eliminated.

In the US, the historical pattern of federal subsidies for energy refutes the notion that there is a free market in energy. If this damaging pattern is not broken, the United States may fail to achieve its energy, environmental, fiscal, and economic goals [5].This statement is based on 1989 figures, the most recent year for which complete and reliable data could be obtained: 58% ($21 billion) of all energy related subsidies directly promotes the use of fossil fuels and 30% ($11 billion) is earmarked for nuclear, while energy efficiency receives only 3% and emerging renewable sources account for only 2%.

This energy subsidy pattern is damaging in several areas. First, it represents a heavy tilt toward conventional energy supply and away from energy efficiency. It is becoming increasingly apparent that efficiency and conservation are the cheapest and most environmentally effective means of meeting our future energy needs. Second, it favors mature energy resources like fossil fuels, nuclear fission and hydroelectric that should already be able to stand the test of the market over emerging technologies that could truly use a boost to get going. Third, it represents poor environmental policy because it strongly favors polluting and environmentally risky technologies over safer energy sources. And last, this subsidy pattern can be translated to lower energy bills for consumers (at least in the short run). But adding on any associated tax burdens to the public, the heavily subsidized technologies end up being pricier in the long run. The artificially inexpensive energy rates could discourage the development of new technologies which may prove to be cheaper.

Other Costs of Energy

And then, there are the hidden or societal costs of energy. Though hard to specifically identify and just as hard to put in financial terms, these hidden costs include damage to the environment, environmental illness as the direct result of pollution from energy industry activities, economic and employment effects, damage to each country’s buildings and infrastructure as a result of acid rain, and the costs of military efforts to protect U.S. control of the world’s oil supplies.



(in $/year)


(in $/year)


(in $/year)

Per resident

(in $/year)


$43.3 Billion

$55.2 Billion

$49.3 Billion


Health impact

$11.8 Billion

$82.0 Billion

$46.5 Billion



$14.6 Billion

$54.0 Billion

$34.3 Billion



$30.6 Billion

$30.6 Billion

$30.6 Billion


Radioactive waste

$4.30 Billion

$31.2 Billion

$17.8 Billion


Crop loss

$2.50 Billion

$7.50 Billion

$5.00 Billion



$2.00 Billion

$2.00 Billion

$2.00 Billion



$109.5 Billion

$262.5 Billion

$185.8 Billion


Table 1: Annual Hidden Cost of US Energy [6]

The free market economy would operate best when both the buyer and the seller have complete knowledge of which choice will benefit them the most. Obviously, when most of us make our energy choices, we are thinking of our immediate out of pocket expense. Who stops to consider when they pay their utility bill, that sulfur dioxide from coal burning plants cost Americans $82 billion per year, that farmers are suffering $7.5 billion per year in crop damage, or that it will cost us $31 billion per year to deal with nuclear plant decommissioning and radioactive waste? [6] If the true costs of energy were more closely associated with our individual energy needs, the best long-term solutions would more likely result in increased energy efficiency, conservation, and, of course, renewable energy use.

When the annual US government estimated subsidies for energy is added, it is found that the total budget is around $109–$262 billion [6], an absolutely staggering figure. This figure comes to over $1000 per U.S. citizen per year!

On the other side, motorists today do not directly pay anything close to the full costs of their driving decisions. The net effect is to make driving seem cheaper than it really is and to encourage the excessive use of automobiles and trucks. The hidden and subsidized costs of driving are at least $300 billion per year [7]. When you figure that Americans drive two trillion miles per year, this comes to an additional average cost of 15 cents per mile. If you estimate that the average mileage on an American owned vehicle is 20 miles per gallon, that means that our society is paying an additional $3 for every gallon of vehicle fuel consumed.

If gasoline prices at the pump were to be increased by $3 per gallon, what effect would this have on drivers decisions? Mass transportation, bicycling, and even just staying at home would begin to look much more attractive. So, when people go out and buy your remote energy system or electric vehicle or bicycle instead of paying the energy industry for their standard fare, they can feel good about their decision for more reasons than just becoming energy independent. They can truly justify their decision based on realistic economic figures, as long as they consider more than just their immediate out of pocket expenses. The only problem with this analysis is that we all are still paying big bucks for others’ less sound decisions.