Friday, May 15, 2015

The US Should Eliminate Fossil Fuel Subsidies

By Nick Lawton, Staff Attorney

As I have blogged about for the last several months, legislatures in various states are considering repealing or weakening their Renewable Portfolio Standards. The most common argument for these proposals is that renewable energy mandates function as subsidies, and that government should not be in the business of subsidizing energy sources. This op-ed from the Heartland Institute typifies the argument. The problem with this argument is that it completely ignores the fact that all forms of energy generation are the products of heavy government subsidies and regulatory choices. Current policies that promote renewable energy through mandates or subsidies are not at all historically unusual. In fact, in comparison to fossil fuels, renewable energy receives too little funding: fossil fuels have received far greater subsidies than renewable energy, and continue to do so.

The U.S. government has subsidized every form of energy generation for more than a century. According to a study of energy subsidies from DBL Investors, federal subsidies in the United States over the last century have totaled at least $700 billion. During this period, subsidies for fossil fuels have dwarfed subsidies for renewable energy in every important metric. On an annual basis, fossil fuels received nearly $5 billion each year from 1918 to 2009. Meanwhile, the annual subsidies for renewables from 1994 to 2009 were merely $370 million. According to the investor report, renewable energy subsidies have also grown more slowly than most other energy subsidies. In the words of the DBL Investors report, “Renewable subsidies trail all others by a significant margin,” and even at their highest level, renewable energy subsidies “barely equaled the lowest subsidy years” of fossil fuels.

The historical trend of subsidizing fossil fuels more heavily than renewables is continuing to this day. The Guardian recently reported that “the world’s biggest and most profitable fossil fuel companies are receiving huge and rising subsidies from US taxpayers.” In contrast, Congress has allowed the Production Tax Credit, which promotes wind energy, to expire four times in the last fifteen years. As the American Wind Energy Association reveals, each expiration has caused investment in the industry to decline between 76% and 92%. 

Ohio offers a good example of the disparity between fossil fuel and renewable energy policies. The Guardian reports that the state of Ohio offered Marathon Petroleum a 15-year tax credit worth $78.5 million, even though Marathon posted a profit of $2.4 billion. (The Republican Governor John Kasich was the top recipient of oil and gas campaign donations in that same year.) Nominally, this special tax credit for Marathon aims to retain and create jobs. Meanwhile, Ohio became the first state to freeze its Renewable Portfolio Standard in 2014. The state’s RPS freeze has led to devastating consequences for the solar industry, despite the fact that the solar industry was one of the nation’s top job creators in the same year.

It is terrible public policy to favor fossil fuels over renewable energy even as the climate changes and sea levels rise. It is well past time to end fossil fuel subsidies and promote far greater investment in renewables. Christina Figueres, the director of the U.N. Framework Convention on Climate Change, has said that fossil fuels are an unwise investment, according to ClimateWire. Meanwhile, the World Bank has proposed a strategy for the world to achieve carbon neutrality by the end of the century, a key part of which is ending subsidies for fossil fuels. The United States has an opportunity to lead the way. A group of seven U.S. Senators has proposed a national renewable portfolio standard. This policy would set a floor for renewable energy in the nation but still allow states to implement more rigorous standards. Congress should act quickly to pass this legislation and should eliminate U.S. fossil fuel subsidies.

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