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12/10/2013

A New Playing Field for Tomorrow's Energy Game

Believe it or not, back before the government shutdown, before Ted Cruz became a household name, before talks of default, before the "defund Obamacare" chants, there were other issues concerning the 2014 federal budget. Fossil fuels and renewable energy were once part of this discussion.

Let's start with a new report by the International Monetary Fund. It reveals that in 2011 global fossil fuel direct, "pre-tax" subsidies (where governments just hand out money) totaled $480 billion. "Post-tax" subsidies including negative externalities totaled $1.4 trillion, or, a whopping 2 percent of global gross domestic product (GDP). Negative externalities are things that one benefits from at the cost of another, and those that benefit don't have to compensate those that lost. These damages are sometimes called the social cost of fossil fuels. These costs are paid by our environment and health resulting from the spills, the fires, the air and water contamination, and the disease caused by extracting and burning dirty fuels. The United States led the world in pre and post-tax totals, with a total $502 billion in subsidies. This is followed by China at $209 billion. Again, at least (I say least because some, like David Roberts over at grist.org take it a step further, here.) 2 percent of global GDP is dedicated to propping up dirty fuels.

President Obama has stated, "As we continue to pursue clean energy technologies that will support future economic growth, we should not devote scarce resources to subsidizing the use of fossil fuels produced by some of the largest, most profitable companies in the world." He subsequently looked to repeal over $4 billion in direct subsidies for these companies.

The group Oil Change International has estimated the direct subsidies going to the dirty fuel industry at around $10 to $52 billion annually. Compared with the $118 billion dollars in profits the big five oil companies (BP, Chevron, ConocoPhillips, ExxonMobil, and Shell) made in 2012, $4 billion was a drop in the bucket. Still, fossil fuel companies and representatives of energy producing states fought tooth and nail to prevent the loss.

Many like to pretend that cutting subsidies to fossil fuels impedes the free market. But along with the lack of carbon taxes, subsidies are what have kept the fossil fuel prices artificially low, while we still pay the difference in actual cost with our health and damage to our environment. These subsidies allow the fossil fuel industry to escape paying the full price for their goods.

While the industry tries to muddy the waters with distinctions between subsidies and tax breaks, the bottom line is that fossil fuel companies are passing the true cost of their dirty energy to the taxpayer.

And while subsidies for fossil fuel companies are usually written into the tax code, subsidies for renewables have expiration dates, creating uncertainty that hinders investment and productivity. The playing field is far from even, favoring dirty fuels over renewable energy.

Last year, Congressman Keith Ellison of Minnesota and Senator Bernie Sanders of Vermont introduced the End Polluter Welfare Act, which endeavored to rein in some of the subsidies and expenses enjoyed by the fossil fuel industry (no more deductions for $6.792 billion in oil spill costs anyone?). By cutting off subsidies to oil, coal, and gas companies, the bill would save $113 billion over 10 years. While it's unlikely that cuts to heavy fossil fuel subsidies are just around the corner, the breakdown of the bill gives us insight into where our money has been going.

In his book Hot, Flat, and Crowded, economist Thomas Friedman states that we need to systematically move from fossil fuels to renewable energy, and that the ripple effect of American innovation will spur the rest of the world to follow. Even with the subsidies stacked against them, renewables are making gains today. Evening the subsidy playing field could be a game changer.

-- by Leigh Scudder


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