Posts tagged “subsidies”
I often hear the comment — “If we only had an energy policy” — but what does that really mean? In this column I will provide three examples — originating with both Democrats and Republicans and impacting both renewable energy and fossil fuels — of how constantly shifting legislation makes it very difficult to plan and execute energy projects.
Imagine that you were considering buying a home. However, let’s say your income is inclined to wild swings and the mortgage interest deduction is only approved on a year by year basis. Perhaps it is allowed to expire on occasion. In a situation like this, you would be wise to be very conservative with your purchase, or to even forego the purchase altogether.
This is analogous to the way energy companies plan and execute projects. Decisions hinge on the economics of the project. These projects are large capital expenditures and they only pay out over many years. Thus, when considering the economics of a project, it is important to have a stable environment around regulations and tax policies. Failure on these two items makes for dysfunctional energy policy.
If you were to survey people and ask the question “Should we subsidize oil companies?” — the overwhelming majority would undoubtedly respond “No!” The notion that we are subsidizing oil companies generates outrage in many people, but in this article I will show why these subsidies aren’t going to go away any time soon. The reason may surprise you.
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.
It is clear that many people have a very simplistic — but wrong — view of the energy markets. This extends to politicians who believe they can usher in a return to $2 gasoline, as well as those who underestimate the difficulty of replacing oil with renewable energy.
For the average person, gasoline prices go up because oil companies are pulling strings, meeting in secret to set prices, or withholding product from the market. To top it off, we are sending them our tax dollars as subsidies while they are wallowing in cash! That’s the view from the man on the street. Somehow, I would have expected a USC business school professor to have a more sophisticated understanding of the situation — especially if he decided to write an article about it. But I would have been wrong.
Normally, when I read something like the following, I am more prone to just shake my head over the sad state of the person’s energy IQ. But I am making an exception here in the case of Professor Ira Kalb, a marketing professor at USC’s Marshall School of Business. The professor recently wrote the following article for Business Insider:
Were U.S. Taxpayers Subsidizing Ethanol Exports?
Over the past couple of years, U.S. ethanol exports have soared. Last year a news article in Financial Times charged that these exports were being subsidized with U.S. tax dollars. The U.S. ethanol industry strongly denied this, but I wrote several articles on the controversy:
To be clear, it wasn’t the exporting of ethanol that concerned me, it was the idea that taxpayers were potentially subsidizing the practice. Although many ethanol proponents denied it, I said at the time that we would know soon enough, because if ethanol exports fell once the tax credits expired at the end of 2011, that would be strong evidence that exports had indeed been benefiting from those tax credits.
The answer largely depends on your definition of a subsidy and what you mean by payoff.
I’d suggest that many, if not most, subsidies are a roll of the dice (crap shoot) when it comes to the purported pay off. They are social experiments without any guarantee of success, which is not to say they should not be undertaken as long as a mechanism is in place to end the subsidy in a timely manner.
There are many examples that have paid off royally, along with many that were (and are) a waste of time and money to varying degrees.
This Week in Energy is a weekly round-up of news making headlines in the world of energy. Most of these stories are posted throughout the week to our Energy Ticker page. The purpose is to stimulate discussion on energy issues, and community members should feel free to turn these into open thread energy discussions. Suggestions and news tips are welcome. I (Sam) can be reached at editor [at] consumerenergyreport [dot] com . NRC Report to Congress: Cellulosic Biofuel Mandates Unlikely to Be Met A congressionally requested study by the National Research Council — an arm of the National Academy of Sciences — concluded that next-generation biofuels are costly, and their impacts questionable. “Absent major technological innovation or policy changes, the… Continue»
Following my recent essay on the elimination of the VEETC, the major ethanol subsidy in the U.S., some ethanol supporters argued for continuing the subsidies because oil companies receive subsidies. There are many versions of the oil subsidy argument – some of them grossly in error – but I won’t argue about what is and is not an oil subsidy. I do believe that gasoline at the pump is subsidized in various ways. But these subsidies aren’t as simple as a credit based on the number of gallons of gasoline sold – as is the case with the ethanol subsidy. If they were, they would be much easier to eliminate. My solution to addressing these hidden subsidies would be to… Continue»
The Ethanol Rhetoric Ramps Up It has been interesting to watch the flurry of ethanol rhetoric since the recent elections. With the $0.45 per gallon subsidy (called the VEETC) and the ethanol tariffs both set to expire at the end of next month, both sides feel that there is a lot at stake, and they have really ramped up the rhetoric. One side will claim that ethanol is the greatest thing since sliced bread, then the other side claims it is an environmental disaster. Around and around the claims go. Misinformation abounds. Mortgaging the Future I am not going to argue in this essay that U.S. ethanol policy is good or bad, but I am going to argue that extending… Continue»
Company officials say they would be happy to give up the Volumetric Ethanol Excise Tax Credit provided it is eliminated across the entire industry.
Britain has 2,906 wind turbines spread over 264 sites with a further 7,000 turbines planned for the next 12 years.