Tag Archives: fossil fuels

Energy Subsidies

A significant argument against sustainable energy supplies such as wind and solar is that they are not cost competitive with fossil fuels without significant subsidies in the form of tax breaks. It is true that there are various subsidies that favor clean energy. Wind energy producers get a production tax credit and purchasers of solar energy production equipment get a purchase tax credit. There are even purchase credits for buying hybrid vehicles because of their greater energy efficiency.

The argument of course is that sustainable energy sources are the future and giving them a leg up with the competition moves us more in the direction of where we know the future is. Of equal importance is that these clean energy sources don’t contribute to the release of pollutants that impact our health and the stability of the planet’s climate.

If a level playing field is desired however, consideration must be made of the subsidies afforded the fossil fuel industries. And they are significant. Tax deductions abound.

Tax deductions to the oil and gas industry are given to lower the cost of intangible drilling costs. These deductions are for the costs associated with the development of the drilling site. The costs cannot be recovered if the well produces no oil or gas. The purpose was to lower the risk to investors and constitutes a considerable subsidy to wildcatters. Basically the tax payers take the risk but the oil and gas companies take the profits.

The depletion allowance is an especially sweet deal. It is a tax deduction based on the idea that exploiting a finite resource is costly because it goes away. The more successful one is at production, the less one has left to produce. This subsidizes the oil, gas, and coal industries by hastening the exploitation of limited resources. Tax payers assist the industry in profiting from exploiting a resource. Keep in mind that there is no depletion associated with extraction of energy from wind and solar resources.

Tax deductions for accelerated write-off of the expenses are afforded to the oil and gas industries, with respect to the costs of exploration for these resources. Tax payer money is used to assist these industries to find the resources from which they profit.

The arguments in favor of this corporate socialism is that if we lower the costs of exploration for and production of the energy sources, then we all benefit from lower costs; that is, the purchase prices for the fuels. This is more of the old trickle down economics.

The subsidies cited above are for tangible, direct costs. There are other costs born by taxpayers known as externalities. These include but are not limited to health care costs to individuals, insurers, and federal and state programs to help ameliorate these health costs. There also are indirect costs born by taxpayers for environmental degradation. Abandoned coal mines and spoils, polluted drill sites, and structural damage due to hydraulic fracturing all create costs born by tax payers. Finally there are near incalculable costs due to global climate change.

If we are to remove subsidies from clean, sustainable energy sources we need to do the same for those non-renewable, dirty industries. Then and only then will we truly level the playing field.