Get the Energy Sector Off the Dole
by Jeffrey Leonard (Washington Monthly) Why ending all government subsidies for fuel production will lead to a cleaner energy future—and why Obama has a rare chance to make it happen.
…If President Obama wants to set us on a path to a sustainable energy future—and a green one, too—he should propose a very simple solution to the current mess: eliminate all energy subsidies. Yes, eliminate them all—for oil, coal, gas, nuclear, ethanol, even for wind and solar. It will be better for national security, the balance of payments, the budget deficit, and even, believe it or not, the environment. Indeed, because wind, solar, and other green energy sources get only the tiniest sliver of the overall subsidy pie, they’ll have a competitive advantage in the long term if all subsidies, including the huge ones for fossil fuels, are eliminated. And with anti-pork Tea Partiers loose in Washington and deficit cutting in the air, it’s not as politically inconceivable as you might think.
…Energy subsidies take many forms. …Most are in the form of tax benefits, such as the deduction for “intangible drilling costs” (labor, repairs, hauling, you name it) in oil exploration—a notoriously abused provision of the tax code.
…But one thing about them is easy to summarize: they are heavily tilted toward fossil fuels. Government statistics show that about 70 percent of all federal energy subsidies goes toward oil, natural gas, and coal.
…None of these estimates account for continuing support to the nuclear industry, estimated to be about $1 to $2 billion…
…There are plenty of hidden subsidies, too. We place a cap on liability for accidents (like the BP oil spill). We offer the nuclear industry large loan guarantees. And, of course, we maintain an immense military embroiled in the Middle East and elsewhere as it tries to secure access to energy resources around the globe.
…The single biggest energy subsidy, worth some $2.2 billion per year to the oil industry, doesn’t even support domestic production. It is a tax break, first inserted into the Internal Revenue Code in the 1950s, that allows American oil companies to subtract the royalty payments they make to foreign governments from the corporate income taxes they owe at home. This is a super-sized benefit, since a royalty is paid on the total value of oil extracted, while income taxes are paid on only the profits after all expenses. Even worse, of course, the tax break creates an incentive for oil companies to import petroleum, only increasing and perpetuating our dependence on foreign oil.
…Emphasizing the elimination of existing subsidies and the creation of a level playing field would benefit green energy sources by enabling them to fit into rational long-term energy supply strategies pursued by public utilities, while also allowing the whole energy sector to respond better to price signals and consumer demands.
…Government has a legitimate and vital role to play in dramatically accelerating this evolution. It should invest heavily in long-term research and development to hasten the progress of new energy technologies. It should stiffen regulations on coal use and all fossil fuels so that the fuel’s environmental and health costs are born by industry and reflected in its price. It should make sure that natural gas produced from hydraulic fracturing techniques is environmentally responsible. And eventually, when the political climate is right, it should impose a tax on carbon.