Tayler H. Bingham: Hidden fossil fuel costs

April 26, 2014 

The April 21 Point of View “ Why green energy mandates don’t work” argues that society is worse off with cost subsidies and mandates for green energy because the market prices of fossil fuels are below those of renewables.

When market prices reflect all the costs of production, a substantial case can be made that prices can be an effective guide to the production and consumption of commodities. However, this is not the case for fossil fuels.

A recent study shows that special tax provisions for U.S. oil, gas and coal amount to $4.9 billion annually. Further, the extraction, transport and use of these fuels results in costs that are not reflected in their market prices. Most obviously, these external costs include the injurious effects on human health and the ecosystem as well as their impact on weather and climate. Remove the tax provisions and add in the external costs and the prices of fossil fuels would be significantly higher providing a better guide to resource decisions.

We have grown accustomed to energy prices that do not reflect these costs. In this setting, subsidies for renewables can be viewed as an attempt to place the relative prices of fossil fuels and green energy sources closer to their economically efficient relationship.

Tayler H. Bingham


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