Last week I had an interesting conversation with a friend of mine, who, with motive of the “Earth day” was arguing and moaning against all types of fossil fuels and its harmful effects on the planet. Furthermore than he invented all the data he was exposing, one thing called my attention even more, and certainly made me laugh, yeah you might be imagining it… he blamed and shouted as if we were 100 meters apart from him that one day the oil peak will end, and that day we will all blame ourselves for not having cared enough about “green energy”. I responded him, that if the oil peak was true, and in fact not a myth invented by ecologists, it would be a larger peak than the Himalaya itself!, because we have been warned of the oil peak since the 1950´s, and oil was first expected to be ended by 2010, following the predictions of ecologists at the time… But the greatest part of all was when he mentioned that governments, and specially the Spanish one, hadn’t supported the renewable energies industry enough! No of course for them is never enough… just 12,000 million euro in subsidies; even some people call it otherwise; has been the greatest missed investment from the government in the last few decades.
I have always been one of the greatest defenders of clean energy in my circle of contacts, and in economic debates I always propose reducing the use of petrol for certain activities, but who doesn’t? Nobody would like to live in a polluted planet with hardly capacity of breathing, but overall as you might know, I’m hardly opposed to subsidies and government intervention into market fluctuations, as the system should always correct itself, being the unique way of reaching an efficient allocation of resources. The best way to achieve a strong renewable energy industry in Spain, is just creating a self sufficient and harsh capacity system fully independent from government intervention, and yes, of course intervention also includes taxes; which are one of the greatest impediments for the growth in the mean term of energy generator firms and its main distributors, reducing competition in the market and causing an oligopoly to exist. Because we can’t be defending and covering certain companies, keeping their benefits hold as they were precious jewels to later on chill the very narrow of our bones, when our electricity tariff shoots up by more than 35% in a month! And most important of all, we, all consumers should be aware that 52% of the total tariff we are paying every month are pure taxes… just try it one day, when you turn on the light look at the lamp firmly, I assure you that you’ll be able to see Montoro’s face on it!
IN THIS GRAPH WE CAN OBSERVE THE INCREMENT IN SUBSIDIES TO RENEWABLE ENERGIES THROUGHOUT THE YEARS:
But don’t just blame the Spanish government for the fiscal pillaging and disastrous management, because the US did as well, or as bad, exactly the same. In the fifteen year period after 1994, the US government provided oil and gas industries; (yes oil, you have read well…) a total amount of subsidies of more than 446 billion dollars, of which nearly 10 billion were giving to renewable energy. And you might think that’s not much, but remember that this was before the real party started in 2009, for when until nowadays, renewable have received the fresh amount of 185 billion dollars. There’s many people that support providing subsidies to certain small companies when they are recently born, but more than half of the enterprises which received the money were already established, and offering subsidies to reduce costs into an inefficient industry will just perpetuate it and eliminate its search for efficiency and innovation, as id “Daddy State” provides us with the money, why work? And it is not an invention of mine, as the same occurred in 1930 with the subsidies to the American motor industry, until the fully renovated and 3 times more efficient Japanese cars entered the market, and then of course GM washed itself over, and became ready to compete.
Good and exemplified companies are never dependent on subsidies as they have succeeded due to an efficient business model in a competitive environment. Lazy and low profiting firms tend to require subsidies for their internal growth, which is hardly ever reflected into the market. Products don’t need to be magic, as if they are well designed or useful and at reasonable price they’ll always overlap competitors and attract consumers’ demand. The energy sector has been historically one of the most intervened due to their of energetic scarcity and leaving aside the poor, but let me tell you that this feelings come from previous examples of occurrence in intervened systems, always intervened. Real profit margins in a competitive industry might be lower, but overall revenues will be much higher, as if many companies are competing for a certain group of costumers on an inelastic product; as electricity is, the one with the best Value For Money (VMF), offering better prices will certainly succeed, creating a turndown effect on prices due to innovation into competition, where the most benefited ones will be consumers and later on enterprises, leaving aside the government.
It’s and has always been deeply dangerous governmental investment in companies directly, as administrations have always manipulated and dominated several enterprises from the shadow to later on cripple them down, or if not, why are there several politicians with no idea about energy, seated at the right of the main energy CEOs in Spain? Political administrations always fail to deduct the basic mistakes and thresholds in the market, because they are that… politicians. We can find a clear example in this week’s expropriation of Electricaribe in Colombia, we’ll see in a few months… As well, many State managed enterprises are the perfect focus to shoo away investors and make them do their luggage and calmly take a flight to another country, as the use of public management for private resources has never been and never will be a guarantee of success or profitability.
In Spain, our renewable energy market is clearly strong, and consumers are willing to see prices decrease to shift their demand towards this new non- pollutant industry and leave aside the typical oil companies they’ve always depended on. Technology should be therefore used in search of a cleaner and safer planet, through innovation in search of efficiency in renewable energy generation, looking always forwards to reduce costs. Globalization has minimized prices and increased profit margins all over the world, so just taking the energetic industry out of hands of politicians and giving its lead to an open, free and global market will be the solution for an efficient and clean energetic future. But for that first of all we should end up with subsidies to renewable, but not just to renewable, and to coal, to carbon, to oil, to gas, to methane, to coke, to kerosene… in definitive, we; the market should kill subsidies and governmental perpetuation. As Michael Pollan; am American author puts it: “The correlation between poverty and obesity can be traced to agricultural policies and subsidies.”