Energy solutions should be viable without government handouts.
This we know.
It's the song of those who rail against solar and wind: “It's too expensive,” the chorus. “Just look at Solyndra,” the refrain.
They want renewables to be as cheap as fossil fuels.
I couldn't agree more.
But those same people look at me cross-eyed when I say we should expect the same of oil, coal, and gas.
Down the Rabbit Hole
The Congressional Budget Office says the U.S. federal government spent $24 billion on energy subsidies in 2011.
About $16 billion went to renewables while $2.5 billion went to fossil fuels. Don't ask me where the other $5.5 billion went — it's Congress, after all.
But the CBO only counts direct subsidies: payments or tax breaks issued directly to energy companies.
The International Energy Agency, however, defines a subsidy as “any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by energy consumers.”
Use that definition and the IEA says government handouts to fossil fuels dwarf what is given to renewables.
Their most recent figures show oil, coal, and gas got $312 billion in 2009 — while renewables got “only” $57 billion.
Why such a great difference?
Well, we've never had to send ships to stop Iran from blocking solar shipments through the Strait of Hormuz. The Bureau of Land Management doesn't give away millions of acres of land to drill for wind turbines. And we've never used federal dollars to clean up an efficiency spill...
You get the idea.
Most people don't consider this type of spending before they jump to the conclusion that renewables are expensive.
Yet it's precisely this type of wasteful hidden spending that's led to our woeful budget deficits.
Last time I checked, $312 billion was five times more than $57 billion.
I don't tell you this to be preachy; I'm not trying to beat the drum for renewables.
To be a great investor, you have to know the truth and invest in the reality.
I just told you the truth, but the reality is that the misconception is mainstream.
So — and I believe this is one of society's greatest current problems — you have to invest in the misconception.
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What do I mean by that?
I mean that even though it's true solar energy is very close to competing with coal, we have to invest in the reality.
The reality is not many people know that.
So even though it's true that oil should be at $100 or greater in order for OPEC to invest in new fields, we have to invest in the reality that the herd thinks oil should be cheaper because of global economic woes.
And even though it's true that oil will soon be back to $100, the reality is we should wait until it sinks to $80 to buy.
In the short term, it's easy money. In the long-term, I believe it spells trouble for society and global markets, because this truth-reality dichotomy forces people who know better to invest in blatant falsehoods.
Eventually, the truth will come out.
The International Energy Agency has come out in full support of ending hidden fossil fuel subsidies.
More than a million people have signed a petition urging world leaders to end fossil fuel subsidies in conjunction with a UN meeting in Rio this week.
Just as the great energy transition will take years, so too will the phasing out of wrongheaded government giveaways.
As that happens, it's important to invest in the present while planning for the future...
So I'll still own stocks like these — even as I sit at the Renewable Energy Finance Forum today in the ballroom of the Waldorf Astoria.
I'll keep learning and spreading the truth while helping you invest in reality.
Call it like you see it,
Nick is the Founder and President of the Outsider Club, and the Investment Director of the thousands-strong stock advisory, Early Advantage. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.