American fossil fuel subsidies can be traced to the rise of OPEC and the 1973 oil embargo. At the time, these subsidies raised fears that the United States was too dependent on foreign oil and needed to increase domestic energy production. But policies that might have made sense when Richard Nixon was president and oil was $3 a barrel are drastically outdated today. The Environmental Law Institute conducted a comprehensive report on the cost of these subsidies – a smorgasbord of tax and royalty relief measures – during fiscal years 2002-2008 and contrasted it with government support for renewable energy during the same time period:
Subsidies to fossil fuels—a mature, developed industry that has enjoyed government support for many years—totaled approximately $72 billion over the study period, representing a direct cost to taxpayers. Subsidies for renewable fuels, a relatively young and developing industry, totaled $29 billion over the same period… Most of the largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.
The fact is we are long past the time when the nation’s burgeoning gas, coal, and oil industries needed government help. BP, for example, took in $14 billion in profit in 2009, which was actually down 45 percent from 2008. The oil industry is beyond a doubt the poster child for the inefficiency of fossil fuel subsidies. “I will tell you with $55 oil,” President George W. Bush, an oilman himself, said in 2005, “we don’t need incentives to the oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent.” Since then, U.S. oil prices hit a record $147.27 per barrel in July 2008 and settled at roughly $75 per barrel as of this writing. Of course, the billions of taxpayer dollars spent on oil subsidies over the years have had little effect, regardless of the price of oil: domestic production remains relatively unchanged since the 1950s, as can be seen here.
Pledges to reduce fossil fuel subsidies have been oft-repeated by world leaders – including President Obama – with the G20 committing to doing so at the 2009 Pittsburgh summit, only to reaffirm the commitment at the 2010 Toronto summit after little progress in the intervening year. But governments are finally putting their money where their mouths are. The European Commission, the ruling body of the European Union, recently voted to phase out coal subsidies:
On [July 20], in a preliminary victory for environmental groups and for green-minded regulators, the commission said that cash handouts for loss-making coal mines should end within four years — by Oct. 15, 2014 — rather than being allowed to continue for more than a decade as originally planned. The decision, if approved by the European Union’s 27 governments, would mainly affect mines in Germany, Spain and Romania.
Coal subsidies for German and Spanish mines this year were estimated at 2 billion euros and 1 billion euros, respectively. India, too, is following through on its promise:
The Indian government on [June 25, 2010] reduced popular fuel subsidies, a long-delayed change that will help policy makers reduce a big budget deficit…Policy makers said the government would stop subsidizing gasoline. Diesel, kerosene and natural gas would continue to receive support at a slightly lower level. India spent about $5.6 billion to subsidize fuel in the last fiscal year, which ended in March. State-owned energy companies added the equivalent of an additional $4.4 billion by selling fuel below its cost.
Here at home, President Obama deserves credit for previously proposing to end subsidies for oil and gas companies, as does Senator Bernie Sanders (I-VT), who introduced an amendment to repeal $35 billion in such subsidies and invest the savings in deficit reduction and an energy efficiency program. To be sure, the idea of ceasing fossil fuel subsides has been and always will be met with strident opposition from the recipients of taxpayer largesse – the initiatives of President Obama and Senator Sanders both petered out due to industry pressure. But with Europe and India now leading the way in ending the economic relics of the 20th century that are fossil fuel subsidies, doing so must also continue to be part of the national debate in America.
Daniel Goldfarb contributed research.
