Subsidies and Energy Costs
Subsidy is a transfer of money from government to an individual or a firm to stimulate undertaking a particular activity. Subsidies and subsidy-like programs are major parts of energy policies. However, such energy grants are only one example of government aid and not the most important examples. The basic economic principle that people respond favorably to financial incentives implies that such transfers stimulate the action that is aided.
More broadly, subsidy can comprise any government policy that favors an action. Such assistance includes tax provisions that lessen the burdens on some activities, and regulations designed to promote an activity. Government ownership with regular deficits, whether or not consciously planned, is another subsidy mechanism. Particularly in the United States, where the government is a major landowner, access to government property at below-market prices is another possible form of subsidy. An additional source of subvention is regulation causing the affected firms to favor (cross-subsidize) some customers.
Conversely, in principle but not in practice, completely nongovernmental subsidy could arise in energy. Private subsidies do occur, as with parental support or patronage of the arts. These illustrations suggest that the incentives to private aid are limited.
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