Survey Says...
Show of hands. Who thinks we should subsidize oil companies? Nobody? In this diary, I will show you why these subsidies aren't going away any time soon. The truth is that you likely support some of them yourself, and the real reason we can't get rid of them is that people don't know the sorts of things that are classified as fossil fuel subsidies.
I decided to write this article following a a recent discussion in a CleanTech discussion group on the social networking site LinkedIn. The person who started the discussion asked the question "Why is it so Hard to Kill Fossil-Fuel Subsidies?" The discussion was prompted by a recent article by environmental activist and author Bill McKibben called Payola for the Most Profitable Corporations in History. In the article McKibben proposes "five rules of the road that should be applied to the fossil-fuel industry." But McKibben himself demonstrated in his article that he doesn't really understand the nature of these subsidies -- and this sort of misunderstanding largely explains why so many people are outraged that they persist.
So let's take the original question on subsidies and ask it in a different way: "Should farmers be allowed a fuel tax exemption for the fuel they use on the farm?" Maybe?
Or how about: "Should low-income families who struggle to pay their heating bills be helped with programs like the Low Income Home Energy Assistance Program (LIHEAP)?" The irony in this question is that some of the people who are the most vehemently opposed to fossil fuel subsidies will argue that this is an important program that helps keep poor people from freezing to death in winter, and thus it would be inhumane to eliminate it.
Yet unless you answered "No" to these questions then you support programs that have been identified as fossil fuel subsidies. Bill McKibben himself indicates sympathy for subsidies when he wrote: "Many of those subsidies, however, take the form of cheap, subsidized gas in petro-states, often with impoverished populations -- as in Nigeria, where popular protests forced the government to back down on a decision to cut such subsidies earlier this year." However, he then incorrectly asserts "In the U.S., though, they’re simply straightforward presents to rich companies, gifts from the 99% to the 1%."
That's just not true, and a failure to understand this is why there is so much outrage over fossil fuel subsidies in the U.S.
During the course of the LinkedIn discussion, a link was provided to Oil Change International, an organization devoted to pushing a transition away from fossil fuels. On their site they have a page on fossil fuel subsidies, which includes a link to a spreadsheet compiled with data from the OECD breaking down various fossil fuel subsidies. The summary of oil-related subsidies for 2010 totals $4.5 billion. That is a number often thrown out there; $4 billion a year or so in support for those greedy oil companies.
But look at the breakdown. The single largest expenditure is just over $1 billion for the Strategic Petroleum Reserve, which is designed to protect the U.S. from oil shortages. The second largest category is just under $1 billion in tax exemptions for farm fuel. The justification for that tax exemption is that fuel taxes pay for roads, and the farm equipment that benefits from the tax exemption is technically not supposed to be using the roads. The third largest category? $570 million for the Low-Income Home Energy Assistance Program. (This program is classified as a petroleum subsidy because it artificially reduces the price of oil). Those three programs account for $2.5 billion a year in "oil subsidies." So the next time you hear someone express outrage over oil company subsidies, you may want to ask them exactly which ones they are talking about.
Oil Subsidies that Liberals Love
So why do we still have fossil fuel subsidies? Because almost nobody -- not even Bill McKibben -- wants to get rid of all of the programs that are classified as fossil fuel subsidies. I suspect McKibben would not advocate eliminating the Low Income Home Energy Assistance Program. Two of the most outspoken Democratic opponents of oil subsidies have strongly defended this particular program -- even though it has been identified by the OECD as the 3rd largest petroleum subsidy. When Republicans tried to cut funding for the program, Sen. Chuck Schumer, D-N.Y., called the proposal an "
extreme idea" that would "
set the country backwards." Rep. Edward Markey, D-Mass, states on
his website that he is a "
longtime Congressional champion of providing assistance to low-income families to heat and cool their homes."
In fact, look at the reaction from Democrats when President Obama tried to reduce funding for the program. Rep. Markey's office said: “If these cuts are real, it would be a very disappointing development for millions of families still struggling through a harsh winter.” Sen. Jeanne Shaheen, D-N.H., noted her opposition: “The President’s reported proposal to drastically slash LIHEAP funds by more than half would have a severe impact on many of New Hampshire’s most vulnerable citizens and I strongly oppose it." Sen. John Kerry, D-Mass., wrote a letter to President Obama that stated in part: "We simply cannot afford to cut LIHEAP funding during one of the most brutal winters in history. Families across Massachusetts, and the country, depend on these monies to heat their homes and survive the season." Each one of these Democrats was defending a program that has been identified as a subsidy to Big Oil.
Conclusions
Of course there are other tax deductions that do more directly benefit the oil industry, just like every taxpayer has tax deductions that benefit them. But it is important to be informed as we discuss elimination of these tax deductions. We need to ask three questions: 1). What is the purpose of this "subsidy?"; 2). Is it working as intended?; and 3). What is the projected impact from eliminating it?
If we are to have a productive discussion of fossil fuel subsidies, it is important that participants understand what they are, their intended purpose, and what the impact of removing them is projected to be. Because of misleading political rhetoric, people imagine these subsidies as cash payments to oil companies. But, these subsidies are not what people think they are, and in many cases they are benefiting people who have nothing to do with the oil industry.
That is why it is so hard to get rid of them; a majority of the population likely supports at least some of them. And until those who are loudly screaming that we must eliminate these subsidies actually take the time to understand what they are -- as well as the impact of removing them -- we can expect there will continue to be much heat and little light on this topic.
Cheers, Robert Rapier
Author of Power Plays: Energy Options in the Age of Peak Oil.