I’m a gearhead. I like the sound a V8 or V12 makes when I mash down my right foot and those pretty butterflies open up.

But I am not unaware of the external costs of my hobbies. Which is why I found this research piece, titled Energy Subsidies Favor Fossil Fuels Over Renewables, rather interesting. It turns out, according to this one analysis, that the vast majority of federal energy subsidies are for fossil fuels rather than to renewables or new alternative technologies: $72 billion vs $29 billion over the same period. (These are direct subsidies, tax breaks, etc., and do not include things like the military budget).

The question I have is given how wealthy Oil and natural gas firms are, why on earth are we subsidizing them at all?

>

>

The vast majority of subsidy dollars to fossil fuels can be attributed to just a handful of tax breaks,

Note: Almost half of the subsidies for renewables are attributable to corn-based ethanol.

>

Source:
Estimating U.S. Government Subsidies to Energy Sources: 2002-2008
Environmental Law Institute, September 2009
http://www.elistore.org/Data/products/d19_07.pdf

Category: Digital Media, Energy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

57 Responses to “Subsidizing Fossil Fuels: $72 billion (vs $29 billion)”

  1. gordo365 says:

    I assume that the “why do we subsidize them?” is a rhetorical question.

    Answer with cynic mode turned on — because they have good lobbyists…

  2. NoKidding says:

    1) separate table: energy use by categories shown
    2) scale size of subsidy to size of market for each category.

    3) TAX REVENUE generated from each category. The taxes collected on gasoline alone is larger than all subsidies on that chart combined.

  3. Thor says:

    NoKidding – smart cookie ;-)

  4. Moss says:

    The whole world subsidizes them in some way either explicitly or implicitly. The external costs are mid bogging as well.

    Whyt don’t we subsidize these guys: MWTT

    http://www.youtube.com/watch?v=oaWXKiDAbOY

  5. litw3030 says:

    It’s very simple:

    Low energy costs = Higher standard of living;

    High energy costs = Lower standard of living.

  6. BTUR says:

    “The question I have is given how wealthy Oil and natural gas firms are, why on earth are we subsidizing them at all?”

    http://www.ritholtz.com/blog/2010/07/2009-lobbying-expenses-3-49-billion-dollars/

  7. Tarkus says:

    Not sure about the “gas tax” argument – like they couldn’t just shift the tax they are charging us to renewable fuels consumption.
    Seems more like just profit protectionism. The ethanol nonsense is just a giveaway to agribusiness too.
    If they flipped the amount of subsidies for 10 years, it would be interesting to see what the result was.

  8. dead hobo says:

    Proof positive that you can still buy a a decent blow*ob from Congress for a metaphorical 25 cents.

  9. srvbeach21 says:

    @NoKidding:

    Gas taxes are intended to fund highway infrastructure, though at this point they are no longer sufficient even for that.

  10. inessence says:

    BR…I too get a rush when I hammer the throttle on my ’05 FLHTC…the torque pulls like a damn freight train. The answer to your question of why are they so heavily subsidized is simply the massive campaign contributions that flow from this industry to these administrative and congressional whores.

  11. IS_LM says:

    The taxes collected on gasoline alone is larger than all subsidies on that chart combined.

    Irrelevant. The excise tax on petrol is a Pigouvian tax meant to internalize the negative externality of pollution. In principle, it should not be collected to subsidize production. In practice, the revenue raised from the tax goes to road maintenance and building, which is an indirect demand subsidy.

    Barry’s question is valid. Too bad “capitalists” won’t answer it.

  12. crunched says:

    Desperate, blatant attempt to close the market positive underway by all the usual suspects who manipulate the casino. SPY up a dollar in fifteen minutes…

  13. VennData says:

    Hey “It’s very simple”

    …if we subsidize, then guess what? The costs are really high. Got that? Subsidies aren’t from the GOP tooth fairy to big business. they come from your Payroll tax payments that they use to cover the deficit every year.

    Tell me please, what is the GOP plan to get us off foreign oil?

  14. J Kraus says:

    Interesting that you enjoy the sound of both a V8 and a V12.

    As they are almost polar opposites on the exhaust sound scale, most enthusiasts like one or the other. A V12 has the precise, powerful sound of a full orchestra working their way through a Wagner opera. A V8 has a guttural sound more reminiscent of a heavy-metal band banging out power chords.

    The exception is the Ferrari V8′s, which utilize a “flat” single-plane crankshaft in lieu of the normal 4-plane design. While this sacrifices some smoothness for the sake of power, it also completely changes the exhaust tone (due to more frequent consecutive firing of cylinders on the same bank) so that it more closely resembles the smoother sound of a V12.

  15. Michel Caldwell says:

    As a totally naive individual let me ask the following question.
    “Why not take some of the motor fuel subsidies and use them to fund a tax credit for convenience
    store / service stations that sell gas to pay for an ANSI standard designed charging station?” I
    realize an electric car may need to be recharged every 40 miles and it would still be impractical
    to drive cross country in one, but an abundance of charging stations would remove the worry of
    being caught in town with a drained battery and no place at all to charge it. If electric cars adoption
    is a chicken and egg problem, this might help provide the egg. (Please skip the comments about this
    being a bird-brained idea.)

  16. IS_LM says:

    Tell me please, what is the GOP plan to get us off foreign oil?

    Sarah Palin.

  17. Petey Wheatstraw says:

    We are subsidizing them because they are a major player and profit center in our corporatist scheme.

    Our entire culture (including our economy), since roughly 1905, has been built around the gasoline powered automobile and, increasingly, on petrochemicals. Our way of life is now dependent on getting oil out of the ground: transportation infrastructure, zoning, suburbs, the food supply, packaging, plastics, jobs (in the auto, oil, chemical and related industries, as well as commuting for those employed elsewhere), foreign policy, fiscal policy, and the military-industrial complex.

    News flash: China is kicking our ass on wind and solar power:

    http://www.npr.org/templates/story/story.php?storyId=121512377

    http://www.npr.org/templates/story/story.php?storyId=121244275

  18. S Brennan says:

    Didn’t China just green light a 12 BILLION grant to ONE Chinese firm to build an advanced photovoltaic plant.

    But look at these sums and compare that to the 2.3 TRILLION spent on the financial sector and you realize how post partisan pols in Washington DC are essentially a bunch of whores street walking for their corporate pimps.

    With pimps and whores running this country China should have no trouble relegating this nation to history’s ash bin.

  19. Petey Wheatstraw says:

    Michel Caldwell:

    How about pre-charged batteries, like they do w/propane tanks?

  20. beaufou says:

    NoKidding,
    I guess with your reasoning we should also invest heavily into Phillip Morris and Budweiser.
    Mind you, you have a point, we do also subsidize banks who are in dire need of our help.

  21. RadioFlyer says:

    I think one point NoKidding was alluding to – it would be far more interesting to compare the subsidy dollars per market value, or even better, per energy unit (e.g. – per BTU, per kWh, etc.). Based on that infographic, I think you’d find that the subsidies are far lower on the fossil fuel side, than the “renewable” side. I believe US energy production in 2008 was about 83% fossil fuel, and about 7-8% “renewable”.

    Anyway, the question of why we’re subsidizing them (fossil, or renewable) at all – that’s the real question.

    On other point – the Environmental Law Institute may consider itself non-partisan, but it certainly isn’t unbiased.

  22. radioman says:

    The absolute biggest and most insidious subsidy isn’t even mentioned: the cost of all military and diplomatic efforts to force exporters to send oil to us, protect its transportation, and sell it in dollars instead of some other currency.

    If oil companies had to do their own diplomacy, supply their own protection, and pay for oil in whatever currency the exporters demanded, the cost of gas and oil products would be so high, that a free market would promote the development of affordable alternatives and an oil-free life style.

  23. d4winds says:

    But we need energy. Reducing what you call a subsidy would be the same as increasing taxes! Socialism!!! ….Yada, yada, yada. I can hear all the whining now. The noise level from the echo chamber would be deafening.

  24. NoKidding says:

    A grant for an advanced photovoltaic plant is a complete misallocation of resources.

    China today gets 80 percent of its electricity from coal.

    1) What percentage is this solar plant expected to contribute?
    2) Over its lifetime what is the cost per MWH?
    3) If you ignore the entire initial capital cost, will it generate enough energy to pay for its own operation?

  25. Porsche87 says:

    The best connected/most lobbyists win. It’s not just oil. Explain why corn, wheat, rice, cotton and soybeans get massive federal subsidies, yet generate less revenue, than fruits and vegetables? Big agribusiness, like big oil, is well connected.

  26. constantnormal says:

    Butterflies? What butterflies? Everything is fuel-injected these days, and has been for quite some time …

  27. RadioFlyer says:

    A little data to support my point. From the DOE: Federal Financial Interventions and Subsidies in Energy Markets 2007 http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf

    Not too long a report, but has some good info (at least, on 2007). For example, Table ES5 shows Subsidies and Support to Electricity Production.

    Coal = $0.44/MWh
    Gas = $0.25/MWh

    All renewables averaged = $2.80/MWh
    (Solar is $24.34 and Wind is $23.37)

    Ummmm….we aren’t subsidizing renewables enough?!?!?? Right.

  28. Petey Wheatstraw says:

    NoKidding Says:

    1) What percentage is this solar plant expected to contribute?
    _________

    Go read the articles I linked to, your question is answered there.

    yes, China is primarily dependent on coal, but the concentration on wind and solar isn’t just for show — it’s smart and forward looking.

  29. RadioFlyer says:

    @Constantnormal – I’m hoping (Barry being a self-proclaimed gearhead) he means the butterflies in a GTO. Whether it be a ’64 Pontiac GTO Tri-Power, or a ’64 Ferrari 250 GTO. Still lots of places to see/hear/drive carbuerated goodness – thank god!

  30. Petey Wheatstraw says:

    constantnormal:

    BR is into antiques. Here’s a photo of him, standing next to his latest toy:

    http://www.tribbleagency.com/wp-content/uploads/2008/11/great-depression-selling-car1.jpg

  31. plantseeds says:

    “Tell me please, what is the GOP plan to get us off foreign oil?”

    nat gas and nuclear energy

    http://www.criticalbias.com/2010/07/01/the-next-generation-energy-security-act-s-3535/

  32. Ilya says:

    Two choices come to mind. Put glasspacks on your Civic or clothes pin playing cards on the struts of your bicycle wheels.

    Aren’t most of the energy ‘subsidies’ composed of depletion allowances?

  33. S Brennan says:

    China 12 BILLION to build an advanced photovoltaic plant.

    File under, Why do I bother?

    NoKidding Says: A grant for an advanced photovoltaic plant is a complete misallocation of resources, China today gets 80 percent of its electricity from coal. What percentage is this solar plant expected to contribute?

    A: This is a plant to grow crystals for hi-yield PV’s…a manufacturing plant to use the technology garnered from the foreign plants producing PV cells in their country. IE this is a manufacturing plant…get it…it makes…things, not financial instruments, or rent collecting commodities. I agree this is a point few Americans can comprehend because manufacturing things goes against the religious doctrine of economics

    China fears that as Consumer Class Rises it’s pollution levels will lead to wildly spiraling medical expenses [Remember, China intends to copy Taiwan in health insurance delivery]. I agree this is a point few Americans can comprehend because externalizing all costs possible is the religious doctrine of economics in the USA

  34. constantnormal says:

    So long as we’re being precise, I mean about the gas tax fed revenue, we ought to also count the amount of money that is borrowed to buy foreign oil for use by our federal goobermint … I rather think that tips the scale back in the other direction …

  35. olephart says:

    They left out the biggest subsidy of all, Defense and Wars. Why else would we be concerned about piles of sand on the other side of the World except for the need to control the oil? That comes to about a trillion per year or $7 per gallon in subsidies.

  36. Robespierre says:

    NoKidding Says:
    July 15th, 2010 at 3:20 pm

    3) TAX REVENUE generated from each category. The taxes collected on gasoline alone is larger than all subsidies on that chart combined.

    In your calculations please include an oversize defense budget which main mission is to ensure that production comes from friendly puppet governments.

    litw3030 Says:
    July 15th, 2010 at 3:27 pm

    It’s very simple:

    Low energy costs = Higher standard of living;

    High energy costs = Lower standard of living.

    This is just silly we still pay the full price a percent directly and the rest via taxes to pay for the subsidy.

  37. godot10 says:

    Fossil fuels are NOT subidized on a NET basis.

    The net tax revenue from all sources that they generate for government is multiples of the “subsidies” they receive back.

    This is NOT true of alternative energies.

    The “subsidies” the fossil fuel industry receive are basically just a revenue transfer from the wildly profitable producing part of the industry to the risky exploration part of the industry. i.e. the transfers help make the fossil fuel industry sustaining and to smooth out the boom and bust cycles of a typical commodity industry.

  38. AGG says:

    “Father,” he asked, “are the rich people stronger than anyone else on earth?” ‘Yes, Illusha,” I said. “There are no people on Earth stronger than the rich.” “Father he said, “I will get rich, I will become an officer and conquer everybody, the Tsar will reward me, I will come back here then no one will dare…” Then he was silent and his lips still kept trembling. “Father, he said, “what a horrid town this is.”

    –(Dostoyevsky, “The Brothers Karamazov.”)

    AND THAT IS THE ANSWER, BARRY. You are a man of conscience. How long will your pragmatism be blind to the rife corruption and greed that is destroying our society? Gearhead? Come on. Barry. Those are distractions. You know we need to pay attention to the crime in our midst. Yes, it’s dangerous and may get you targeted and you may lose your money. If I thought those were your main priorities in life, I wouldn’t waste my ‘breath’ writing this. Fight these bastards for your children and grandchildren’s sake.

    For those who think I’m a fool for advocating this, read the first paragraph AGAIN until you figure it out. Any ‘confusion’ as to what is wrong with our society is blatant complicity so spare me the bullshit. You still don’t get it? Well, here it is: The ‘me first’ attitude and thinking is destroying our country AND the world ecosystem. Thanks a lot for helping to rid the planet of a pathogenic species (homo SAPiens).

  39. radioman says:

    We’re not actually paying the cost of subsidies when the government uses deficit funding. Someday, maybe in a few years or in a few decades, some generation will either pay the bills or everything is just going collapse. When that happens, the dividend-recipients won’t be the ones paying the bills nor will they be the ones suffering under a collapses. For the rest of us, our only hope is to join their class!

  40. Tom K says:

    How about no subsidies for any of them?

    And NoKidding makes an excellent point. How much in tax revenues do traditional fossil fuels generate compared to the other quadrants?

  41. willid3 says:

    plantseeds Says:
    July 15th, 2010 at 4:38 pm

    “Tell me please, what is the GOP plan to get us off foreign oil?”

    nat gas and nuclear energy

    —–

    I don’t think this will do it. unless we electrify the car completely some how and add stations that dispense it (turns out natural gas isn’t as good for a car. not enough BTU to make it go far, which means the MPG is really poor, maybe a few miles. if that.. and to electrify the car would require charging stations too ). and even that won’t help. as if every car in the US used some thing else beside oil, we would still be importing.
    Oil is used in whole bunch of products, like pharmaceuticals , materials (plastics etc), fertilizer, and hundreds more.
    we would need to replace all of oil fired electric plants. natural gas does work for this but

    install natural gas pipelines
    rework all of the heaters that on oil on the east coast and where ever else they are.
    the easiest of these GOP solution is nukes and gas to generate electricity. but we don’t have charging stations. but it won’t remove the need to import oil.

  42. formerlawyer says:

    Even if the “government subsidies” were magically removed. We are still funding, read subsidizing, the consumption of fossil fuels.

    Highway construction? Airport runways and support infrastructures? Land zoning laws to encourage suburban spread? Tax deductability for mortgages to support McMansions? Tax treatment of leased vehicles versus owned vehicles? I am struggling to find a railroad comparison since they are the only transportation that has to pay for and maintain their right of way (I am a train nut – what can I say).

    As to ethanol subsidies, two words: corn lobby – I am not going to go there.

    Cheap oil is a structural issues. In the absence of price indicators, how do you incentivize alternative energy?

  43. philipat says:

    Like BR, I am ambivalent on this one. My head says let’s stop the madness, but my heart can’t get in synch when it hears that sound. (Especially an F1 2400 cc generating 900 BHP)

    SIgh…………………….should stop watching “Top Gear”

  44. Thor says:

    SBrenan – “I agree this is a point few Americans can comprehend because manufacturing things goes against the religious doctrine of economics”

    When’s the last time you looked up who the largest manufacturing nation in the world was? That would still be us.

  45. Petey Wheatstraw says:

    Ethanol has a very limited future. We don’t have enough fresh water to produce enough ethanol to make much of a difference. Looks like the People’s Central Planning Committee fucked up again.

  46. larry says:

    And who said the USA doesn’t have an industrial policy?

  47. philipat says:

    Actually, the US could import all the Ethanol it needs from Brazil where sugar cane allows a much betters COGS. However, that would be “Un-American” or something? My bet would be on the “Or something”

  48. S Brennan says:

    Yeah Thor, spare me the clutching pearls routine,

    the United States is the largest manufacturing nation, with an output of approximately $1.83 Trillion. This is followed by China at $1.79T, with these two nations far outstripping any other nations (Japan $1.05T, Germany $767B and Italy $381B). The rate of growth in manufacturing in China far outstrips that of the US, with its manufacturing industry growing more than an order of magnitude in the last two decades, during which the US has not even doubled its output.

    http://wiki.answers.com/Q/What_country_has_the_largest_manufacturing_industry_in_the_world

    overall US trade gap for goods and services rose nearly five percent to 42.3 billion dollars from 40.3 billion dollars in April, the Commerce Department reported.

    Imports climbed nearly three percent to an 19-month high of 194.5 billion dollars in May, while exports rose 2.4 percent to a 20-month high of 152.3 billion dollars.

    http://www.france24.com/en/20100714-us-trade-deficit-widens-18-month-high

  49. [...] And see the Environmental Law Institute (via Barry Ritholtz) for this outrage: $70B subsidies for fossil fuels. $12 B for conventional renewables (and $17B for [...]

  50. Jack O says:

    “Tell me please, what is the GOP plan to get us off foreign oil?”

    If you except that oil is a limited resource, why would you want to use up “our” oil first. Wouldn’t it be more logical to use more foreign oil now and save “our” oil for the future when when the scarcity has increased?

    Besides, increased production in the US lowers the worldwide price of oil. The benefits are widespread but the risks are local.

  51. litw3030 says:

    Robespierre,

    Yes, subsidies AND taxes raise the cost of energy. We probably also agree that virtually all subsidies in the US energy market are rent seeking outcomes implemented by politicians seeking votes. Problem is that there are so many good and useful things we can do with the money raised through a little tax here and there on energy production and use.
    So, it is useful (and not silly) to remember that whether the total cost of energy is increased via direct tax or indirect subsidy, the resultant higher price impacts the overall quality of life by increasing the cost of living (heating, farming, travelling, etc).

  52. somethoughts says:

    I’m skeptical about the raw numbers for oil production subsidies. As I understand it, most of what are considered to be “subsidies” for oil and gas production are the laws for accelerated depreciation of exploration costs. But although the accelerated depreciation does have an economic value due to the time value of money, the only associated cost is merely the time value of money invested, not the gross depreciation.

    It is rather humorous to note that, according to yesterday’s WSJ, the Obama administration is preparing to allow trial lawyers to expense their up-front costs for class action litigation as they are incurred. This is exactly analagous to the treatment oil producers now receive. Meanwhile, Obama wants to eliminate accelerated depreciation for oil producers.

    One must conclude from this that Obama believes that trial lawyers are far more important to our economy than oil producers.

  53. willid,

    @your 19:05 post..

    this: “…not enough BTU to make it go far, which means the MPG is really poor, maybe a few miles. if that…”, on NatGas, is highly erroneous.

    see:
    http://socalgas.com/ngv/residential/fuelcomparison.html

    the “GGE” measure takes, specifically, the BTU-delta, between the fuels, into account..

    also, not only is the ‘at the Pump’-Price lower, but, also the Total Cost of Operation is lower for a # of reasons..(longer Oil life, lower/less-toxic emmissions/domestic sourcing…)

    further: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=CNG+vs.+Gasoline
    (as well, note the “Clusters”)

  54. cheapstocks says:

    This is the typical example of someone with a view trying to (mis)represent facts to make a point.

    What does the US spend on fossil fuels net? Zero. The US collects hundreds of billions per year in excise and income taxes, not to mention lease income from the oil and gas industry. HUNDREDS. Just open up the annual report of any major oil and gas company and look at the income statement for goodness sakes.

    What they call “subsidies” are mostly ways for the companies to deduct the capex they spend on exploration more quickly so that we encourage more domestic production of oil and gas, so we don’t have to buy more from overseas. These aren’t tax “credits” as you see in the land of renewables, where the taxpayer literally writes a check.

    So the author of this chart equates literally providing free money (grants or loans with no hope of repayment or actual tax credits) on renewables to a slightly lower or mostly delayed tax rate (i.e. no cash out from the government) for fossil fuels as equivalent. It’s just not comparable.

  55. and, there’s an aspect of this:
    http://cryptogon.com/?p=16423

    that, in this context, I believe, needs to be contemplated..

    further..

    by Sterling D. Allan
    Pure Energy Systems News
    Copyright © 2010

    Terawatt Research LLC (TWR) of Irvine, California, USA is a company replete with paradox in comparison to other players in the renewable energy sector, especially in the exotic free energy field. They have one of the most promising free energy technologies, and they go about their work quietly.

    Of all the exotic technologies I’ve seen, they have some of the very best evidence supporting their claims by two of the most reputable testing organizations in the world: TÜV Rhineland of North America and Underwriter Laboratories (UL). Both data plots clearly show performance frequency ranges in which much more energy is produced from the system than what is required to drive the system – at least three-fold….
    http://pesn.com/2010/07/14/9501672_Terawatt_Research_LLC_defies_free_energy_stereotypes/

    and, if you’re unfamiliar with http://www.level4group.net/ you may not want to, continue, (to) be..

  56. [...] The Big Picture, Barry Ritholtz http://www.ritholtz.com/blog/2010/07/subsidizing-fossil-fuels/ This entry was posted in Oil. Bookmark the permalink. ← Relief [...]

  57. DeDude says:

    How much of this special treatment subsidy is handed to BP ?