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An argument in favor of the use of natural gas as an alternative fuel source

Blog Beyond the Debate: There is no question that renewable energy projects need finance to develop and commercialize. But where should this money come from? This article takes a look at the topic of renewable energy financing — specifically, under what conditions government intervention would be warranted, and what form such intervention might take. Why would the government invest in renewable energy? There are a few common reasons used to justify a government role in renewable energy investment, including energy security and affordability, the potential for job creation, future economic strategic positioning, and addressing environmental and other externalities.

But these problems and their related policy approaches need clarification. Yes, renewable energy could contribute to all of the goals above, but does that make it the best policy to achieve these goals? But in general for energy production in the US, domestic fossil fuels win out over renewables in terms of cost-effectiveness [3].

Domestic coal is abundant and cheap, and the availability of natural gas has skyrocketed in recent years, driving down prices that are likely to render this option affordable in the medium term [4].

In a recession the government might look to promote job creation through government expenditure targeted at specific industries, but in the long run the economy is at its optimum when industries are operating the most cost-effectively.

Again, if fossil fuel based energy is more cost-effective, that means investing in carbon-based fuels and their related job opportunities.

A longer-term view of investment in renewables is that it has the potential to position the US competitively in future clean-energy technology markets and industry.

Beyond the Debate: The role of government in renewable energy finance

This idea suggests that fossil fuels are being unfairly favored despite negative external impacts, and renewable options need a leg up to realize the social benefits that they could bring. Private investors are unable to gain the full social benefits of investment in renewable technology, so the government needs to step in to fill this gap.

What can the government do? If we acknowledge that investing in renewable energy can have social and environmental benefits beyond those that the private sector can capture itself, then the government and its policies can impact investment through: The federal government has traditionally used finance to promote the development of new energy sources and technologies, improve extraction and production of an energy source, or encourage domestic production of an energy source.

To achieve these goals the government has a host of potential financial tools, including: Over time, virtually all sources of energy have received some form of US government support. As far back as 1916 the government introduced tax incentives to encourage companies and individuals to drill for oil.

  • Co-firing is a process where natural gas is used as a supplemental fuel in combustion of other fuels like coal, biomass energy and wood;
  • Click to print Opens in new window Natural gas has been in the news a lot lately, being hailed as the solution to our energy problems on the one hand, and a potential environmental nightmare on the other;
  • What are the benefits of renewable energies—and how do they improve our health, environment, and economy?
  • It is also used as feedstock for the manufacturing of a number of chemicals and products and as a building block for methanol, which has a number of industrial applications;
  • Hydro usually will be slightly cheaper.

The graph below shows the value of preferential taxes e. It shows the decline in fossil fuel and the rise of renewable energy based tax preferences over time.

Congressional Budget Office 2012 What should the government do? Two sides of the story With these tools available to the government, what should the role of government be in financing renewable energy development in the US?

This is where it gets less clear, and there is a spectrum of views on how or if the government should invest in renewables. They highlight how the externality costs of fossil fuels are shouldered not by fossil fuel producers, but rather by wider society.

The presence of this gap is harder to quantify as investors search for investment opportunities across the spectrum of risks and timeframes, but maybe a constraint on investment in technologies that would bring substantial benefits to society. As the costs of PV technology, wind turbines, energy storage, and other clean energy technology have decreased over time, they have become competitive in their own right and it would have been inefficient for the government to invest in uneconomic technologies at an early stage.

Another argument is that the external cost of various energy sources is too uncertain, and the external costs of renewable energy could be equal or even greater than traditional fossil-fuel based technologies, e. The estimated impact of greenhouse gas emissions varies widely due to uncertainties about the future [9].

So where do we go from here? The source for most of this financing was the private sector, but the government and public sector still played an important role. While the investment opportunities for renewable energy continue to grow, the question is to what extent the government ought to finance such investment in the US. There is clearly some role for government policy to assist in a transition to clean energy, but the final say on how much should be spent rests on to what extent we think prices in the market do not reflect the true costs of non-renewables, and where the gaps in private sector finance lie.

In reality both sides of the debate can find evidence and reasoning for a larger or diminished role of government in the renewable energy sector, but the key is to first ask what the end goal is, and to develop policies accordingly. Bezdek and Robert M. An Assessment of the Uncertainties, Energy Policy 33, 2005, pp.