fascinating details on energy subsidies

Nice point here that subsidies are a means to an end:


and then I started to look at the linked EIA report:

http://docs.wind-watch.org/US-subsidy-2010.pdf [pdf]

Rarely do we have a discussion of real data on subsidies that have helped develop the industries we can’t imagine living without (beyond energy, think about the interstate highway system, etc).  This EIA report provides some insight at the beginning of the document by pointing out subsidies that are not estimated or included in their report.  Some of these are substantial.  The first one I’ll mention was the one recently targeted (unsuccessfully) by the democrats during the most recent gas price spike:

For example, Section 199 of the American Jobs Creation Act of 2004, referred to as the domestic manufacturing deduction, provides reductions in taxable income for American manufacturers, including domestic oil and gas producers and refiners. The value of the Section 199 deduction in FY 2010 is estimated at $13 billion and approximately 25 percent is energy-related. While domestic oil and natural gas companies utilized this provision to reduce their 2010 tax liability, other industries, including traditional manufacturing sectors and other activities such as engineering and architectural services, sound recordings, and qualified film production, also took advantage of it.

Here is another interesting one that seems impossible to quantify:

Another potential subsidy source not addressed in this report is associated with energy-related trust funds financed by taxes and fees. Examples include the Black Lung Disability Trust Fund, the Leaking Underground Storage Tank Trust Fund, the Oil Spill Liability Trust Fund, the Pipeline Safety Fund, the Aquatic Resources Trust Fund, the Abandoned Mine Reclamation Fund, the Nuclear Waste Fund, and the Uranium Enrichment Decontamination and Decommissioning Fund. By tying trust fund collections to products and activities responsible for the damages they address, the cost of programs for remediation and prevention of those damages can be reflected in the market price of energy use and production. If the fees or taxes collected by trust funds have been set appropriately, the funds will have sufficient resources to meet their obligations with the result that no subsidy is involved. However, if the fees or taxes are set too low, energy companies are receiving an implicit subsidy. These potential subsidies are not addressed in this report because of the difficulty in determining the sufficiency of the funds to meet potential liabilities and the fact that there is no direct federal budgetary impact in FY 2010.

As the author of the greentech media article points out, most of the subsidies to the renewable industry are a result of short lived ARRA funds (biofuels mostly come from the soon to be eliminated VEETC tax from EISA 2007):

subsidies by type

Hopefully this is enough to kickstart these industries, but R&D takes time, and investment in new technologies takes time and sustained long term policy support, neither of which we have much of in the US right now.  In any case, the point is that subsidies are a means to an end.  As a society we need to choose where we want to go, and how to get there.

This is just from the executive summary – if you are interested in more details, take a look at the rest of the report.

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5 Responses to fascinating details on energy subsidies

  1. I enjoyed this article. I agree that data are largely ignored when talking about subsidies. This article puts renewables and subsidies in perspective, but I wonder how long government is willing to support renewables, especially when there is so much R and D needed before building out huge biorefineries that can supply a substantial amount of fuel. Lastly, what is the effect when a company like Range Fuels takes subsidies and then declares bankruptcy?

  2. Paul says:

    I wouldn’t quite call loan guarantees subsidies – hypothetically the loan guarantees never need to be tapped into. A more recent examples is the solar firm Solyndra, and it seems their failure is not deterring other loan guarantees from going forward:
    There are risks with these programs like everything else, but we shouldn’t give up just because some don’t work out. That is sort of the nature of leading edge R&D & innovation, and we have supported these ventures through various policies (not only subsidies). Most often it seems through the DoD and in the name of national defense.
    How long are we willing to support it? Short answer: as long as the public believes the potential success is there. Maintaining this support is really up to people like us (or maybe congress?) to decide if it is a worthwhile goal or if our money and effort is better spent somewhere else. All my opinions, I guess. What do you think?

  3. John says:

    “As a society we need to choose where we want to go, and how to get there”


  4. Pingback: more on subsidies for renewables | Energy and the Future

  5. Pingback: IMF report on energy subsidies, implications for a carbon tax & energy security | Energy and the Future

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