Are energy subsidies really in danger?
A while back, Washington Monthly ran a provocative piece by Jeffrey Leonard arguing that all energy subsidies should be eliminated. I wrote a two-part response. In the first, I argued that while subsidy reform is certainly needed, the libertarian ideal of an energy market with no government involvement is neither possible nor desirable. (I’m quite fond of the post — go read it!)
In the second, I argued that, as a political matter, comprehensive energy subsidy reform is extremely unlikely because nobody actually cares about the deficit. In 99 out of 100 cases, politicians’ professed concern over the deficit is thin cover for an effort to advance pre-existing policy goals. In practice, all pols like subsidies that go to their constituents and contributors and are unlikely to sacrifice them in the name of the deficit, which, just to repeat myself, they don’t actually care about.
Has subsidy reform become more likely since I wrote those posts? Washington Monthly editor Paul Glastris has a blog post up arguing that it has. He says …
… enough has happened in the last few days to give me hope. First, on Tuesday, a measure sponsored by Sen. Tom Coburn to cut ethanol subsidies almost passed — it was killed on a procedural vote, but not before garnering 34 GOP votes. Then, today, the same measure passed, 73 to 27. It was an amendment to a spending bill that itself might not make it. Still, it’s pretty stunning that a majority of Senators voted to eliminate ethanol subsidies. Also noteworthy is Sen. Lamar Alexander’s announcement yesterday that he is putting together legislation to cut energy subsidies across the board. Again, hard to know where all of this will ultimately end up, but things are clearly moving in a direction that few people thought possible six months ago.
Brookings’ Mark Muro has a similar post, arguing even more strongly that subsidy reform will be “forced by budget necessity.”
Like I said, I agree with both Glastris and Muro that subsidy reform is direly needed and could be done in a rational way that raises revenue and produces better energy outcomes. But I still think they’re indulging in wishful political thinking. Call me a cynic, but I don’t think substantial, rational subsidy reform is any more likely now than it was a year ago.
First: yes, Obama has pushed for the removal of (some) oil subsidies. It even caught a little traction and got a little press attention. But Congress decisively rejected it, because Congress very much likes oil money. You’ll note that the very same people wringing their hands about the deficit one day were wringing their hands about tax hikes and lost jobs the next day. They do not care about the deficit. (Did I say that already?)
Second, the Coburn amendment, it seems to me, is less about energy subsidies generally or even ethanol specifically than about Coburn trying to outmaneuver Grover Norquist and open up a space for Republicans to support raising revenue by tackling tax expenditures. Should Coburn win this battle — and it’s way too early to say he has — that may lead to an interesting conversation about subsidies. But there’s no reason to believe Coburn is motivated by sensible energy policy or that tackling ethanol subsidies (which are unusually vulnerable right now) will lead to tackling oil, gas, or nuclear subsidies.
Third, as for Lamar Alexander’s plan … feh. Feh, I tell you! Alexander is a clown and his plan bears absolutely no resemblance to Muro’s vision. The main impetus behind Alexander’s gambit can be found in this hilarious quote: “Why are we talking about Big Oil and not talking about Big Wind?” (Since 1990, the oil and gas industry has given $238.7 million to political candidates and parties, the alternative energy industry, $4.6 million.) You see, Lamar Alexander hates wind power. Hates it. It’s one of the more bizarre boutique obsessions you will find in the U.S. Senate, and that’s saying something. Alexander’s thinking is, well, if they’re going to take oil subsidies away, let’s take ‘em from wind too!
Is this some kind of market purism, a devotion to a “level playing field”? Ha. Even as Alexander is trying to strip wind subsidies, he is stumping for subsidies to electric cars. And remember his climate plan? It was to build 100 nuke plants! That would have been the mother of all subsidies. Like every other pol, Alexander wants to subsidize what he likes and is happy to kill subsidies for what he doesn’t like.
So, I don’t see the momentum against energy subsidies that Glastris and Muro see. I see a bit of opportunistic flailing connected to this particular budget debate. There is no “budget necessity” for intelligent subsidy reform or any other status quo-threatening policy. It looks like we’re headed for default anyway!
Stepping back, though, the bigger problem that lurks behind this entire debate is that there are subsidies and there are subsidies. Renewable energy subsidies tend to be extremely visible, since the industry is new and subsidies tend to come in the form of explicit cash grants or tax exemptions. Oil gets some of that too, but the real oil subsidies are woven deep in the fabric of U.S. law, code, and infrastructure. Start, of course, with unpriced externalities, principally CO2 and oil wars. Then of course there’s the U.S. highway system, perhaps the biggest oil subsidy in the country’s history. That’s to say nothing of the ongoing power of the politically entrenched road-building/real-estate complex, which continues to bias land use, transportation, and funding decisions toward gasoline. Hell, the entire modern economy co-evolved with oil. The same situation — implicit subsidies woven into a century of law and infrastructure — obtains for coal. Nukes and natural gas only have about a 50-year head start.
These buried and implicit subsidies are in no danger. The greatest danger is to the top-line subsidies, the visible ones. Taking those and only those away would be no boon to renewables or any other fledgling industry challenging the energy status quo; it would simply cement current structural imbalances into place. I smell a set-up.