Energy Conundrum - Political Fog

Last weekend I announced on Facebook that I was planning to write a few blog posts about energy and power plants to give people an idea of the issues involved in the debates over energy production over the next century. Great idea, right!? Everyone needs energy and has to pay for it, and with things like climate change and the burning of fossil fuels being considered such a big deal, understanding the costs to your wallet and the environment can only be a good thing...

But there’s a VERY big problem trying to put together a study like this. Politics!

I’m maybe half way done researching this stuff (power planets, cost of energy production, etc.), but thanks to the massive amount of politics and government interference (for better or worse) in the energy markets, this study has been an absolute nightmare to put together. None of the studies I’ve done so far (on my blog or otherwise, and I’ve done some seriously political studies in the past) have ever been so full of misdirection, dramatically different statistics and a huge amount of information “masking”. Pretty much everywhere you look the information is overflowing with politically motivated deception and bias. It’s very sad to see and very frustrating to try and get any sort of straight answers.

Government Subsidies, Fines And Taxes

One huge pain in trying to figure out the costs of various types of energy production (power plants) is that cost can change dramatically depending on how much and in what way the government has its fingers in the mix. “Green Alternative Energy”, instead of carbon fuel, is the supposed saviour of the planet because it severely reduces Carbon Dioxide emissions, as well as other expelled gas pollutants. Because of environmental lobbyists pushing hard for green energy to be the way of the future, there are MANY high subsidies on green energy and heavy fines and taxes (which seem to grow with each passing year) on fossil fuels.

Subsidies are massive government hand outs (from collected taxes) that are given to companies that promise to “go green”. It’s an incentive to push this technology forward, because otherwise this technology and source of energy production would be mostly ignored, being far too expensive. The extremely high cost of building such alternative energy power plants makes the business largely unviable, unless the government hands out money to push the industry along.

To give you an example of how this system works, imagine two different companies competing for business. Company A sells chocolate bars and Company B sells health bars. Now let’s imagine that chocolate bars are cheap to make and cheap to sell, and a ton of people gleefully buy and consume them (not caring much that they’re unhealthy). Health bars, on the other hand (in this hypothetical example), are quite expensive to make, and so Company B must charge a lot of money for the health bars or else they can’t make any kind of profit. Unfortunately, the taste comparison between the two bars (chocolate vs health) and the cost to buy either of the bars means that there is very little competition between the two since most people consider the chocolate bar to be a much better value for their money.

The government decides to step in and fix this disparity between the two companies because clearly basic consumer-based capitalism is going to crush the healthy bars into non-existence. To solve this problem the government enacts subsidies and tax incentives because it considers the continued sales of health bars by Company B to be very important (it’s healthy!).

The government gives Company B millions of dollars to help build up its business in any way it can (advertising, stores, production, expansion, research, tax write offs, expenses, etc.) in order to make the business more profitable to keep Company B running. The chocolate bar company, Company A, complains that this isn’t fair because it doesn’t get “hand outs” from the government. The government argues that Company A doesn’t need the hand outs because they make money fine without needing government assistance. Then, to make matters worse for Company A, and to further “level the playing field” between Company A and Company B, the government hits Company A (the chocolate bar company) with fines and extra taxes for selling unhealthy junk food.

Is this fair? No. The idea is that the government knows best (it might, or it might not) and is looking out for everyone’s best interest (in this case, our health). To get what it wants, the government and the people behind the government manipulate the playing field.

These sorts of practices are very common in financial, investment, and government circles. Government often tries to influence how business operates. Sometimes it’s through giving tax breaks to certain types of business. Sometimes it’s done by passing laws and regulations that make it more difficult for businesses to operate as they wish. And sometimes the government hands out loans or even gifts of money to help increase the incentive for people to get into a business that the government deems to be beneficial to society. This can be a bad thing, but it can also be a very good thing. The outcome really depends on what the reasons for these measures are all about.

For example, governments often give tax breaks and money to farmers because the farming industry is crucial to society (producing food). Without these incentives and tax breaks, many farms could not turn any kind of profit, and would thus shut down, depriving us of much needed food. The alternative is for farmers to charge huge sums of money for the food they produce, making the cost of food far too high for most of the population to afford. To prevent that from happening, the government subsidizes the farming industry to help make sure the cost of food stays down.

Because energy is such an essential need and because environmental studies and lobbyists speak of dire consequences if we keep burning fossil fuels for energy, governments all over the world are playing a very difficult balancing act. They want to encourage long term energy security, affordable energy, and environmental care, but it’s not at all a simple matter of black and white or good and bad. It’s a lot more complicated and the politics surrounding the topic makes it that much worse.

What’s The Reality?

When trying to calculate the costs energy, all of the political and government interference contaminates and dramatically alters the picture. The information that’s out there is all over the map and hard to pin down. You might find one place that says that energy provided by coal power plants costs $50 per Megawatt per hour and somewhere else you might find a study that says it costs $300 per Megawatt per hour. Who’s telling the truth?

In their own way, everyone is telling the truth, and no one is. Most of these studies seem to be heavily biased for or against fossil fuels depending on who put the studies together. The more accurate and helpful studies will explain their methodology for calculating costs and expenses, while others will often ignore or gloss over very serious issues so that they can push and promote their political stance at the cost of factual accuracy or clarity.

What’s the lesson in all this? Take all the information, the studies, the research, the projections, the cost analysis and everything else with a massive helping of bitter salt instead of sweet tasting sugar. Don’t just swallow it blindly. Don’t trust the information until you test and really examine it because chances are good that what’s being presented is not entirely honest. Everyone has bias and personal opinion and it very easily clouds a person’s viewpoint on debatable topics. Read between the lines, analyze the sources, compare arguments and data sets, and try to put together the most accurate truthful picture of reality that you can.

Hopefully this week I’ll have it figured out enough to write a helpful blog post or two about power plants and energy so that you (the reader) can have an accurate and truthful understanding of how fossil fuels and green energy compare against each other. This is a very important topic as the costs of energy continue to rise and the debates over man-made climate change and pollution continue to rage.