Isn’t it Time Fossil Fuels “Stood on Their Own Two Feet?”

by Mike Casey, Tigercomm President

I got sick and tired a long time ago of hearing from the fossil fuel lobby about how clean energy sources need to give up smart policy support and “stand on their own two feet” in the marketplace. To hear them tell it, smart policies that support clean energy are a waste of tax money. The underlining theme is that you’re not “legit” if you get any support from the government.

So, I’ve been wondering lately: what does the “stand on your own two feet” crowd have to say about the latest documentation of fossil fuels’ century-long support from taxpayers?

Well, next to nothing, it seems. In fact, watching them squirm on this subject any time it comes up is cognitive dissonance on display. These self-styled, conservative, “free-market” advocates can’t bring themselves to face the real-world reality that highly profitable, mature forms of energy have been on the public dole for decades, even a century or more.

Scott Nyquist’s recent (and encouraging) post about why an oil guy is bullish on solar is a case in point. Mr. Nyquist touches on the oil companies' taxpayer support (which is massive), but then declares, “In principle, solar cannot perpetually depend on the government’s helping hand; it needs to make its case in the market, which it is beginning to do.”

Wait. Isn’t it more important to insist – as an oil guy – that it’s embarrassing that the most powerful and profitable industry on earth can't seem to get itself off corporate welfare – like, right now?

There’s a derogatory term for able-bodied people who stay on welfare for a long time and don’t need it: the stereotypical “welfare bum.” However, in the case of fossil fuels, the term fits like a glove.

The recent OECD’s Inventory of Support Measures for Fossil Fuels 2015 documents the extent to which fossil fuel companies sit on the corporate welfare rolls. If you want to know how taxpayers’ money around the world gets wasted, you could do a lot worse than starting here. Data from the inventory don’t just document this outrageous waste of taxpayer money the world over, but lay bares the sheer stupidity of underwriting the destructive industries:

1. Fossil fuels are driving climate change. "The combustion of fossil fuels is a leading contributor to climate change," and we need to "achieve zero net emissions from fossil fuels globally by the end of this century."
2. Fossil fuel subsidies are "lose-lose" because they aren’t needed and they help to drive climate global climate disruption. They badly need to be reformed. "Central to tackling climate change must be concerted efforts to reform 'lose-lose' fossil fuel subsidies."
3. Fossil fuel subsidies are inefficient and wasteful. "By distorting costs and prices, fossil-fuel subsidies create inefficiencies in the way we generate and use energy. They are also costly for governments, crowding out scarce fiscal resources that could be put to better use, such as strategic investment in the education, skills, and physical infrastructure that people most value in the 21st century."
4. Fossil fuel subsidies damage human health by increasing pollution. "But most importantly, fossil-fuel subsidies undermine efforts to make our economies less carbon intensive while exacerbating the damage to human health caused by air pollution."
5. Most people are not aware of the extent to which fossil fuels are subsidized, which increases the urgency of making these fossil fuel subsidies transparent to the public. "Transparency matters" on this issue, so citizens "understand how the taxes they pay are spent," and also so "best practices and sound policy" can spread widely.
6. That's what the OECD has done. The OECD has been hard at work, "identifying and documenting almost 800 individual policies that support the extraction, refining, or combustion of fossil fuels in OECD countries and large emerging economies," amounting to "between USD 160-200 billion annually over the period 2010-14" in the 34 OECD member countries, plus six big emerging economies (China, India, Brazil, Indonesia, Russia, South Africa).
7. Once put in place, these subsidies tend to not go away, and many have been in place for years or decades. "The results reveal a certain degree of inertia, as policies supporting fossil fuels tend to stay in place for protracted periods of time. Most measures (about two-thirds of them) seem to have been introduced prior to 2000, at a time when climate change was not deemed a concern among policy makers and political and economic circumstances were by and large different."
8. There are hundreds of examples of fossil fuel subsidies from OECD database. In the U.S., for instance, they range from fossil fuel R&D to accelerated depreciation of natural gas distribution pipelines to expensing of fossil fuel exploration and development costs. In other countries, they range from consumer subsidies of all types to a wide variety of producer subsidies. For instance, Australia allows tax deductions for oil, gas and coal exploration costs, as well as extraction of those fossil fuels.
9. One major category of fossil fuel subsidies worldwide is "tax expenditures" that subsidize/encourage the extraction and production of fossil fuels. For instance, "accelerated-depreciation allowances for capital expenditure, investment tax credits, additional deductions for exploration and development expenses, and preferential capital-gains treatment for particular fields."
10. Another even bigger category is consumer subsidies for diesel fuel, gasoline and other petroleum products. According to the OECD, these are the most common fossil fuel subsides, accounting for "more than 80%" of total fossil fuel subsidies, particularly in countries that aren't major fossil fuel producers. Producer support is greater in countries that are major fossil fuel producers (e.g., 42% in the U.S. from 2012 to 2014).

We contacted Earth Track founder Doug Koplow, one of the world's leading experts on counting up the wide array of corporate welfare doled out to the fossil fuel industry, for his thoughts on the OECD 's new report. According to Koplow, this new study represents "an important and integral part of the move towards transparency in fossil fuel subsidy reporting around the world." Koplow is pleased that the OECD looked not only at national subsidies for fossil fuels, but also at  "state and provincial government support as well where data were available." Finally, Koplow makes an important point, noting that even as thorough as the latest OECD inventory is, it still "captures primarily tax expenditures and direct government support," and not all of the vast array of taxpayer-funded corporate welfare flowing to the fossil fuel industry.  Which is why Koplow says that, "For the 2017 update, my hope would be that government subsidies via credit markets, indemnification, and preferential market rules (e.g., dispatch order that puts coal plants first) would also be captured."

We'd also note that the OECD report doesn't even attempt to capture the massive health, environmental and other negative impacts ("externalities") of fossil fuels that are not incorporated in the price of those fuels. Those "externalities" essentially allow the fossil fuel industry to dump its pollution into the air and water legally and for free, to boot.  Add in those costs to the price of fossil fuels, and they quickly become non-competitive with clean, renewable energy.

By the way, a recent study demolished, yet again, the fossil fuel lobby’s talking point that we need to burn more fossil fuels - and pollute more - in order to have a rapidly growing economy. Instead, the study found, "From 2004 to 2014, OECD countries grew their economies by 16% all together, while cutting fossil fuel consumption by 6% and reducing greenhouse gas emissions by 6.4%, according to the report."

In turn, cutting off subsidies - which make fossil fuels artificially cheap and tilt the economic playing field heavily in their favor - will almost certainly help the economy, while simultaneously spurring a more rapid transition to clean energy that allows us to avoid the worst impacts of climate change.

We'll end on a positive note.  According to the OECD, "Compared with the previous edition released in January 2013...total support for fossil fuels in OECD countries clearly exhibits a downward trend." That's good, and we hope that trend accelerates, until we hit zero subsidies for highly mature and profitable fossil fuel sectors as rapidly as possible.