US Subsidizes Fossil Fuels To The Tune Of $4.6, $27.4, Or $649 Billion Annually, Depending On Source
Credit to Author: Michael Barnard| Date: Wed, 21 Aug 2019 00:45:05 +0000
Published on August 20th, 2019 | by Michael Barnard
August 20th, 2019 by Michael Barnard
There are frequently complaints bandied about by the usual suspects about the horrendous subsidies for renewable energy, along with claims that renewables would die without them. It’s worth looking at the state of energy subsidies in the US in that context.
There are a set of increasing numbers that are worth considering. Congressional research puts the minimum number at $4.6 billion annually. An NRDC G7 annual analysis puts the number at $27.4 billion annually. An IMF full accounting including negative externalities related to health and global warming puts it at $649 billion annually.
Per the International Monetary Fund (IMF), the US subsidizes fossil fuels to the tune of $649 billion annually, above the non-war defense budget (wars get special funding).
The IMF found that direct and indirect subsidies for coal, oil and gas in the U.S. reached $649 billion in 2015. Pentagon spending that same year was $599 billion.
The study defines “subsidy” very broadly, as many economists do. It accounts for the “differences between actual consumer fuel prices and how much consumers would pay if prices fully reflected supply costs plus the taxes needed to reflect environmental costs” and other damage, including premature deaths from air pollution.
The IMF, by the way, is an international organization of 189 countries including the US, founded in 1945 with the primary purpose of ensuring the stability of the international monetary system — the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. It’s a very serious global organization.
Direct fiscal support for fossil fuel extraction and production in the US comes in a few forms. There are numerous permanent tax code funding credits available for fossil fuel exploration and extraction, adding up to $4.6 billion annually, per a 2019 Congressional Research report on energy subsidies. That report is the smallest estimate of fossil fuel subsidies, yet historically they indicate that total fossil fuel subsidies have exceeded renewables subsidies since 1978 and in 1982 exceeded the highest annual subsidies for renewables in any year.
Graph courtesy of US Congressional Research Service
The Natural Resources Defense Council (NRDC), Overseas Development Institute (ODI), Oil Change International (OCI), and the International Institute for Sustainable Development (IISD) publish an annual scorecard of fossil fuel subsidies in the G7 countries. They put the US total number higher, at $27.4 billion. All G7 countries pledged to eliminate fossil fuel subsidies well over a decade ago, but the worst performer in terms of removing them has been the USA.
The United States ranked last on progress in removing fossil fuel subsidies, due to the massive amount of subsidies for fossil fuel exploration and production, as well as for backtracking on previous pledges to end support to fossil fuels.
And using the G7 measures of fiscal incentives for energy, it’s clear that the US has provided vastly more support to fossil fuels than it has to renewables.
Of course, none of these studies tries to calculate the geopolitical costs of US military action related to defending oil supplies. That’s a thornier problem, but it’s clear that the US military has spent a lot of its global budget specifically in regions which provided the US with a lot of fossil fuels for politically strategic reasons which are now going away.
The United States, unlike many countries, doesn’t have a direct consumption subsidy for fossil fuels, which is what some defenders of the industry use as the basis of their false claim that there are no subsidies. The International Energy Agency tracks direct consumption subsidies in material it publishes annually, and the United States doesn’t show up in that list. Iran, Saudi Arabia, and China lead the pack in terms of those subsidies, but China is tracking well in terms of reducing subsidies across the energy space, including on fossil fuels.
It’s worth comparing and contrasting this to the subsidies that wind and solar energy get in the USA. Unlike fossil fuels, these subsidies aren’t in the permanent tax code but in a temporary code category.
The Production Tax Credit for wind energy has been an on and off credit per kWh for electricity generated from wind farms. In late 2015, it was extended through 2020 starting at $21 per MWh for the first ten years of production with a 20% reduction for new wind farms each year, ending in 2019. That means that a wind farm built in 2019 would get about $4 per MWh for the next decade, but one built in 2020 will get no tax credits.
The Investment Tax Credit (ITC) for solar had a different trajectory. It was extended through 2022 and offered 30% tax credits for home, commercial, and utility projects. In 2022, that will be reduced to 10% for commercial solar and utility projects only, with no tax credits for home projects. That’s obviously reduced substantially in a calculated stepdown as well.
That’s right. In 2022, new wind energy will get zero financial assistance of any kind and new solar will get very little, while fossil fuels will continue to get $4.6 billion annually in the best possible accounting, $27.4 billion in a reasonable accounting and $649 billion in a full accounting including negative externalities.
Chart courtesy US EIA
As the EIA chart on the impacts of different scenarios for the PTC and ITC shows, there are substantial upsides for the US grid to extending the PTC and ITC, just as there are substantial upsides for elimination of fossil fuels subsidies.
It’s worth noting that the deal that extended the PTC and ITC came about because Congressional deal makers gave (mostly) Republicans a very specific, fossil fuel win. The deal removed the US restriction on exporting crude oil, a policy which was put in place around the OPEC Oil Crisis for energy security reasons. So the ITC and PTC temporary extensions came with the USA being able to ship more fossil fuels of different types to other countries, permanently.
And it’s also worth noting that nuclear generation also has permanent tax code breaks worth $1.6 billion annually as well. That excludes the insurance liability cap on nuclear plants which the United States taxpayer is on the hook for in the case of a Fukushima- or Chernobyl-scale incident. Anything over $13 billion is the responsibility of the US government, hence taxpayers. Since Fukushima’s total economic costs are likely to be closer to a trillion USD than not if everything is counted in, $13 billion doesn’t look like a lot.
Michael Barnard is Chief Strategist with TFIE Strategy Inc. He works with startups, existing businesses and investors to identify opportunities for significant bottom line growth and cost takeout in our rapidly transforming world. He is editor of The Future is Electric, a Medium publication. He regularly publishes analyses of low-carbon technology and policy in sites including Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, and his work is regularly included in textbooks. Third-party articles on his analyses and interviews have been published in dozens of news sites globally and have reached #1 on Reddit Science. Much of his work originates on Quora.com, where Mike has been a Top Writer annually since 2012. He’s available for consulting engagements, speaking engagements and Board positions.