One often hears opponents of clean energy say that renewable sources are too expensive; they can’t get by without subsidies; they can’t compete in a “free market.” One of the many reasons this is a daffy argument is that there is no such thing as a free market, certainly not in energy. Existing energy sources, fossil fuels, have benefited from a century of subsidies and supporting infrastructure — and are still subsidized lavishly relative to their scrappy little competitors.
This is a point enviros often make, but a new report from the Environmental Law Institute and the Woodrow Wilson International Center for Scholars puts some teeth in it. “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008” makes a fairly simple point, captured in this graphic:
As you can see, fossil fuels received the vast bulk of federal subsidies during 2002-2008. This is true in terms of direct spending, but especially true in terms of tax breaks. Conservatives, of course, don’t want to acknowledge that tax breaks are subsidies. They want to call them “incentives” and accuse anyone who proposes repealing them of “raising taxes.” It happened during the debates over the 2007 energy bill — a version that would have rolled back some oil industry tax breaks was filibustered to death by Republicans under the guise of fighting “new taxes.”
Industry takes the same line. Jack Gerard, head of the American Petroleum Institute, is outraged anyone would call into question his precious
subsidies incentives. Based on his statement, his defense is that, well, taxpayers get a good bargain for all those subsidies!
Expect that battle to heat up soon. As Steve Kretzmann reported on Grist last week, a leaked letter (PDF) from an Obama advisor to the other members of the G20 reveals that the administration plans to push for elimination of fossil fuel subsidies. Says the letter: “The G-20 should commit to take the lead in eliminating non-needs based fossil fuel and electricity subsidies and to provide technical assistance to non-G20 countries taking steps to reduce fossil fuel and electricity subsidies.” Obama reinforced the point yesterday in his speech before the UN, in which he said, “Later this week, I will work with my colleagues at the G20 to phase out fossil fuel subsidies so that we can better address our climate challenge.”
We’ll see how that goes.
A few stray notes
- This report is actually quite conservative. It did not include any number of things that could be considered indirect or implicit subsidies. It didn’t include military spending to defend oil in the Middle East, spending on the electricity grid, or transportation spending. Those things don’t go exclusively to fossil fuels, but if there was a way of including the share that goes to fossil fuels, the fossil subsidy number would go way, way up. Infrastructure spending has more or less exclusively supported fossil fuels for decades now.
- While the main thrust of the report is the predominance of fossil fuel subsidies, obviously another lesson is that corn ethanol receives subsidies wildly out of proportion to its usefulness. But we already knew that.
- The report also didn’t include nuclear power — would be very curious to see where it ended up.
- In his speech Obama touted his work with the World Bank to finance clean energy, but it’s worth noting that the World Bank is still heavily funding dirty energy projects. Obama needs to lean on them.