Just Can’t Get Enough: Fossil Fuel Subsidies Continue to Grow

The International Energy Agency announced recently that global financial incentives for fossil fuels have increased by $110 billion in one year. For those counting, that’s a whopping $409 billion in total.

While the petro-oligarchies in Iran and Saudi Arabia are the worst offenders, the United States continues to push fossil fuels, especially oil, despite the threats they provide to the nation’s economy, security and environment.  Even the era of tightened government spending and “not picking winners and losers” is no match for the political might of the fossil fuel industry.

It all goes back to 1913 with the ratification of the sixteenth amendment to the United States Constitution, allowing the federal government to levy an income tax.  Not only did the federal government have a new source of revenue at their disposal, it had an extremely powerful policy tool.  Just a few years later in 1916 the federal government began using its newly minted tax – or more specifically, ways to cut that tax – as a vehicle to encourage individuals and corporations to drill for oil.  Suddenly, the nascent industry could write-off most of the costs of bringing an oil well into production, and if you came up dry, no problem, just write it off.

These were simple times when the federal government lent a financial hand towards oil exploration.  Other forms of energy, in turn, received government assistance including hydroelectric dams built during the 1930s with federal financing,  tax breaks for coal companies beginning in 1932 and the nuclear industry’s federal research monies beginning in the 1950s.

Then the 1973 oil embargo hit and things got real weird real fast.  Almost overnight, Americans found they could no longer rely on cheap, plentiful energy supplies.  To address the new energy realities, President Nixon and his successors reorganized old, and established new, federal agencies like the Federal Energy Regulatory Commission and the Department of Energy.  In addition to providing simple tax cuts or direct subsidies to energy interests, the federal government became a  little more creative and, for example, exempted some industries (like the fossil fuel industry) from particular regulations, thus saving them money.

The fossil fuel industry in particular has managed to win bigger and better tax cuts and federal assistance at nearly every level of their business.   It’s estimated that between 1950 and 2003, the federal government provided $644 billion in subsidies for energy development.  Of that, the fossil fuel industry raked in $470 billion, or nearly 75 percent, with a staggering $258 billion in tax incentives.  Renewables, on the other hand, pulled in just $5 billion in incentives over that period.

What qualifies as a subsidy?  That’s an extremely complex question.  Sure, tax cuts, grants and loans are fairly easy to account for, but what about military deployments to secure foreign oil supplies, or infrastructure costs like roads and transmission lines, or the seemingly endless stream of external costs linked to carbon emissions, toxic air and water pollutants, higher health care costs and missed work days?  (And don’t forget that we're paying for much of these subsidies through deficit spending, so be sure to tack interest onto the final bill.)  Aren’t those also subsidizing fossil fuels?

Suddenly that $470 billion estimate looks very, very conservative.

What’s the key detail lacking from all of these subsidies purported to ensure a “safe and secure” energy future?  Sustainability.  No matter how you define that nebulous term, fossil fuel subsidies are about increasing supply, not encouraging efficiency or reducing the external costs to human health and the environment.  The good news is that renewable energy subsidies for wind, solar, geothermal, hydropower, and non-corn based biofuels and biomass have been growing in recent years, but still only account for about 17 percent of all energy subsidies between 2002 and 2008.

Thanks to the recent Solyndra bankruptcy, some people are casting federal investments into renewable energy as wasteful.  But despite what comparably little the renewable energy industry receives from the federal government, those incentives have been effective in significantly decreasing the costs of generating electricity from solar panels and wind turbines.  This federal spending is essential because as several recent studies suggest, switching to a carbon-free energy future is possible, but only if we're willing to make major investments in the advancement of renewables and energy efficiency.

We shouldn’t pick winners and losers in the energy industry?  Too late, because fossil fuels have been the federal government’s winner of choice for close to a hundred years, subsidizing a mature and hugely profitable industry.  It’s time to ramp up more investment into cutting edge renewable energy technologies and help the industry finds its footing, just as it did for the fossil fuel industry all those years ago.