Fossil fuel subsidies 12 times more than renewable energy subsidies - what's wrong with this picture?

Let's clarify the topic and discuss what oil we're talking about. With approximately one-fifth of the world's proven oil reserves and some of the lowest production costs, Saudi Arabia is expected to remain the world's largest net oil exporter in the near and long-term.

Even some portion of the cost of our military presence in the Gulf is typically included in the "oil subsidy" figures:

"Quantifying the national security costs associated with ensuring the safe and reliable delivery of foreign oil is difficult. The Congressional Research Service estimated in 1997 that those costs may be anywhere between $0.5-65 billion, or 1.5 cents to 30 cents per gallon for motor fuel from the Persian Gulf. Agreement about the extent of the military’s 'oil mission' is difficult because military and foreign policy expenditures are generally tasked with multiple missions and objectives, and oil security is simply one mission of many. Analysts disagree about how to divide those missions into budgetary terms."

http://www.cato-at-liberty.org/2007/01/18/how-larg...

Due to the Bush family's close ties with the Saudi royal family, for the past 2 decades much of the energy policy and foreign policy in the United States has been centered around doing favors for them, like inexplicably attacking their enemy Iraq, even though it was 15 Saudis who attacked America on 9/11.

Once the war broke out, Saudi Arabian citizens continued to attack us where we were closest and most convenient... in Iraq.

"Of 1,200 suspected suicide bombers arrested by Syrian authorities since the beginning of the war in 2003, 85 percent have been Saudis." (2005)

http://www.militaryphotos.net/forums/showthread.ph...

So why is the U.S. doing all of this? You can be sure that out of those billions in oil subsidies allocated by our elected officials, a healthy flow of cash returns to line their pockets in the form of so-called "campaign contributions" which they are free to pocket and use as they please.

"I summon my blue-eyed slaves anytime it pleases me. I command the Americans to send me their bravest soldiers to die for me. Anytime I clap my hands a stupid genie called the American ambassador appears to do my bidding. When the Americans die in my service their bodies are frozen in metal boxes by the US Embassy and American airplanes carry them away, as if they never existed. Truly, America is my favorite slave." King Fahd Bin Abdul-Aziz, Jeddeh 1993

So how much does it cost to buy an oil-friendly, Saudi-friendly Congress?

A while ago I ran across statistics stating that Senator James Inhofe alone had accepted over $500,000 from the fossil fuel industry. Do you suppose that his vote on oil subsidies might possibly have a statistically significant alignment with those contributions? Hmm, I wonder...

Lets live in the real world for a moment, and not kid ourselves and dream that this is about right or wrong.

We either need to outlaw bribery and properly categorize it as treason and a hangable offense, or the renewable energy industry needs to ante up and pay off all of Congress in an amount competitive with the fossil fuel industry's payoffs. Half a mil to every outstretched hand, requiring a budget of roughly $300 million, may be required before renewable energy can be seriously discussed at the bargaining table.

Of course our Saudi benefactors and other cumulative forces of Big Oil would respond and raise the stakes, and our civil servants will draw out the battle for years to milk the competition for all its worth before doing anything that might end their windfall cash flow. So the total budget required to see this issue through to the first healthy discussion will probably be over $5-10 billion, just in politician payoffs (not counting additional tens to hundreds of billions in pork barrel projects they'll require as well on any related bills, to additionally reward their friends and donors).

Let's face it, our current system of government is extremely corrupt, and the disconnect between politicians and the public good is only getting worse. You'll have to change the system (start by outlawing bribery) before you'll get any different results. What have you done to move that sort of change forward?

Political parties are simply a red herring to give us teams to root for; aside from their propaganda and marketing slogans, they're identical. Neither party proposes to do anything about illegal immigration and the associated rampant identity and healthcare fraud which is bankrupting us. Neither party cares that 400,000 ADDITIONAL H1-B visas are issued for a term of 3 years, easily extended to 6, to legally put up to 2.4 million Americans out of work each year, simply because that foreign labor costs less.

The problem is rampant, systemic corruption, not one political party or the other. Solve the problem (campaign financing), then we can make some progress on the symptoms (including counterproductive resource allocation).

Hi Dana,

There’s a couple of important points that need to be taken into account – a) proportions and b) missing data.

It was hard to find a figure for the amount of energy that comes from renewable sources on a global basis. I could find figures for many individual countries but not globally, without having conducted the necessary long winded calculation, it would seem that about 15% of global energy comes from renewables.

If subsidies were distributed on a pro-rata basis then the renewable sector would receive $1 for every $5 going to non renewables. As it is the non renewable sector receives $12 – about two and a half times the amount of funding it would receive if subsidies were equally divided.

Of the $557 billion subsidies paid to the fossil fuel industry, much of this comes from the governments of the oil producing nations. Countries such as Iran, Iraq, Venezuela, Saudi Arabia and Russia for example; Iran has been identified as the country with the highest subsidies – some $101 billion.

The International Energy Agency report also found that by withdrawing subsidies to the fossil fuel industry global energy demand would drop by 5.8% and CO2 emissions by 6.9% over the course of the next 10 years.

One thing that’s not mentioned in the Bloomberg article is that the subsidies to the renewable sector have significantly increased this year. A specific figure doesn’t appear to be quoted but the subsidies are part of a $188 billion green stimulus package, with the report predicting “that the gap between fossil fuel and renewable energy subsidies should ‘narrow considerably’ this year”.

This would still leave a significant disparity between the subsidies paid to the fossil fuel industry compared to the renewable industry, but it does at least begin to level the playing field.

I would expect that in the wake of Kyoto2, which will become binding in 2012, there will be more of a shift toward investment in the renewable markets and that significant progress towards greener energy will follow in the ensuing 10 to 20 years.

More about the subsidies to the fossil fuel industry

http://www.businessgreen.com/business-green/news/2...

More from Bloomberg New Energy Finance

http://bnef.com/services/industry-intelligence-sla...

It's the picture of a broken government.

edit:

Wow, great answer from JS.

DrM actually has it correct. The entire growth economy of the world is based on resource extraction (be it mining or agriculture or fishing) and the value added to those resources. Or, you could say, the equity markets of the world are a giant Ponzi scheme based on the future value of resources. What happens when the resources run out? What happens when the resource base is poisoned and will no longer produce or even sustain? What cornucopian capitalism fails to recognize is that resources are finite, both in what can be extracted and the volume of waste that can be assimilated. The answer is a sustainable economy. I can't say what that should look like, but making socialism the bogeyman doesn't solve any problem, it only serves to perpetuate the current system of graft and inequity. If our social systems were transparent and fair, capitol holders would work to protect the commons instead of exploiting them for every last dollar.

JS has pointed out what is happening now and why. Vote third party, vote Green, vote anything but status quo.

In a rational world there would be no need for subsidies. People would choose perpetually clean free energy from the sun (free as in free from recurring cost) instead of finite and toxic energy from carbon, even if the up front costs were greater - because they would realize that the long term costs were far worse.

But we don't live in a fair transparent economy and in ignorance the we fall for the false choice.

The fossil fuel industry is the largest industry in the world, and interacts with the entire rest of the economy. Further, relatively few people wield power in the industry. This gives those people an enormous voice politically. The result is legislation around the industry that caters to its needs, rather those of the populace.

Subsidies are a favorite tool of governments in trying to influence their economy. Subsidies in the production of anything will result in its wasteful use and are I believe an unwise meddling with markets. Subsidies for capital-intensive infrastructure upgrades can encourage the more rapid implementation of newer technologies like LED traffic lighting or home insulation, and have been highly useful in the past - it's one reason that oil depletion allowances were introduced. They tend to stay around as an industry perq, though, messing with the market long after their actual utility is gone.

Comment for the correctly-named Dr Mumbojumbo:

"wealth is created only by manufacturing, mining, or agriculture."

Services can't create wealth?

How about the free (paid for by charities) distribution of drinking straws that filter out guinea worm eggs - which has resulted in eliminating the drain on local communities from 3.5 million cases/year of guinea worm disease? Seems to me that this has created millions of man-hours of useful time while eliminating the costs of treatment.

An economics that denies wealth creation by addition of intellectual content, in a society where grade-schoolers have access to gene-splicing kits, is a bankrupt model.

There is absolutely nothing wrong with this picture. Fossil fuels account for the overwhelming usage of power consumption in the world. If you take the amount of kilo watts of energy that comes from fossil fuels and divide it by the amount of subsidies it receives then pro kilowatt the amount of subsidy is very low, way lower than alternative energy.

The problem with the analyses performed in the linked articles is that they are very very superficial.

Countries provide subsidies for a wide variety of reasons with respect to security of oil supplies, job stimulus, regional development, tax base stimulus on a local and national level, technology development and tax fairness. Eliminating "some costs" associated with drilling is kind of like saying "some costs associated with the initial capital outlay". All businesses get to deduct their Capital Cost base, in various fashions, from their taxable income.

One poster in this thread referred to a line in the US (?) tax code which provides a tax deduction for depletion of the asset. I have not heard of this but I am not in the uS. It is common however to allow Capital Costs to be depleted pro rata to your depleting reserve base. This is called Depletion, Depreciation and Amortization. It is simply a way of governing the depreciation of tax pools which are tied to Capital Expenditures. This is not a "tax subsidy" to the energy business, it is merely the deduction of capital expenses. If you wish to call this a subsidy, then all business related expenses are a subsidy and all business not permitted these deductions would invest capital elsewhere! It is like saying that your business related computer expenses are not deductible and are simply a sunk cost.

I do not believe in bogus subsidies any more than the next guy, and frankly many businesses have bogus deductions which should not be permissible, however that being said, you must determine whether you want investors to invest in your tax jurisdiction or elsewhere and in a more favorable tax environment.

Would you invest in capital costs in the US after having watched the US government dissalow sunk capital cost deductions? If you would then you would be a fool, since if they do it once they WILL do it again. Ask "investors" who had to leave Russia after attempting to invest in the post cold war era. They will not be back*! (*Except for BP who doubled down thanks to Bill Clinton and a massive loan through the IMF)

Get rid of all the subsidies. IF it's a good plan it will stand on it's own.

Clearly, Carson (who has mysteriously vanished) has never really thought about the depletion allowance.

The cost of drilling is a charge against profits, as it should be. IN ADDITION, you get tax relief for the oil you take out; in other words for the loss of value of your oil field because you are selling its products.

If that isn't a subsidy, what is?

Edit: Sorry, I can't resist this. Dr Mumble, who earlier claimed to be the chair of a University Department, now tells us "There are only three ways wealth can be produced, manufacturing, agriculture, and mining." Does he really believe that the only function of universities and education in general is to help people manufacture, farm, and mine, and that nobody engaged in medicine, entertainment, literature, art, transport, or non-vocational education is creating wealth?

If so, I am glad not to be part of his Department.

Government paying subsidies for anything is generally a terrible idea. What is the point of subsidies for "clean" energy. It seems more like a mechanism to hide the high cost of clean energy from consumers. What you are doing is taking money from consumers in taxes and giving it too clean energy producers so they can charge those tax payers less. Obviously clean energy cannot compete with fossil fuels. I don't think there is a significant problem with CO2 emissions, but assuming there was, I would rather see utilities simply pass on the cost than having government pick and chose winners and loser and assign subsidies to their favorites. That is how corn ethanol became so popular. Agriculture, another heavily subsidized industry with lots of hefty campaign donations, The winners and losers would tend to be those with the biggest political credentials.

its challenging not to make them prove that i am wrong all time so i work on it with them