The Subsidy Game: Page 2 of 4

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Intro image.
Energy subsidies have shaped how the U.S. uses—and chooses—its resources. A deeper look into the history & future of renewable energy & fossil fuels.
Energy Source: Oil
Energy Source: Oil
Energy Source: Natural Gas
Energy Source: Natural Gas
Energy Source: Coal
Energy Source: Coal
Energy Source: Hydro
Energy Source: Hydro
Energy Source: Hydro
Energy Source: Nuclear
Energy Source: Solar
Energy Source: Solar
Energy Source: Geothermal
Energy Source: Geothermal
Intro image.
Energy Source: Oil
Energy Source: Natural Gas
Energy Source: Coal
Energy Source: Hydro
Energy Source: Hydro
Energy Source: Solar
Energy Source: Geothermal

Disbursements “are direct financial subsidies such as grants.” (In the table, the negative number in this column for the nuclear industry represents a $18 billion surplus due to the nuclear industry having paid into a fund for waste disposal that hasn’t been tapped.) A huge flaw in the Management Information Services (MIS) methodology for evaluating federal energy incentives for nuclear power—and therefore the numbers—is the way it accounts for the $16 billion that the nuclear power industry has paid into a federal fund to help pay for permanent waste storage. As the federal government has yet to open a high-level nuclear waste repository, MIS treats this number as a subsidy to the federal government from the nuclear power industry. However, the current estimated cost to build and operate such a facility at Yucca Mountain, Nevada, is $96.2 billion. That facility has been built, but has not yet received a license to operate, due to safety concerns.

Even though this study was funded by the nuclear power industry, the report’s evaluation of other energy sources is generally credible. Other analysts have come up with similar results. Nancy Pfund is with DBL Investors, a venture capital firm that specializes in investing in solar and energy-efficiency companies. Although she’s not a disinterested analyst of energy subsidies, Pfund’s analysis is well worth considering. As the graph (above) shows, the older the industry, the greater the subsidies.

Government subsidies to the coal industry began earlier than the rest and continue to this day. However, Pfund’s analysis focused on government subsidies of various energy sectors during their early days. The farther back in time, though, the harder it is to obtain actual numbers. “Suffice it to say, domestic coal did not arrive on the scene as a mature, low-cost, and competitive fuel source. Rather, government support over many years helped to turn it from a local curiosity in Schuylkill County, Pennsylvania, into the dominant fuel source of its time,” says Pfund.

In her report, Pfund shows that the oil and gas and nuclear industries were subsidized far more during their early development—both in real dollars and as a percentage of the federal budget—than wind and solar. Cumulatively, oil and gas has received $447 billion since 1918; nuclear, $185 billion since 1947; biofuels, $32 billion since 1980; and other renewables, $6 billion since 1994 (all in 2010 dollars).

In a 2010 study, the Tax Foundation, a nonpartisan educational organization that lies on the conservative end of the political spectrum, could only manage to find fossil fuel subsidies of $2.8 billion per year, while “green energy” subsidies were found to be $11.3 billion per year. The Foundation’s main point is that the American oil companies pay way more taxes than they receive in subsidies. True, as often they have huge profits. In the first half of 2011, the six largest companies (aka “Big Oil”) had profits that totaled $88.1 billion. Of course, the taxes they pay are supposed to be their fair share for the government services that all of us receive; it’s not supposed to be the mere moving of nickels from one corporate pocket to another.

However, as a July 3, 2010, article in The New York Times noted, “an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.” It continues: 

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9%, significantly lower than the overall rate of 25% for businesses in general and lower than virtually any other industry.

…for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits. These companies’ returns on those investments are often higher after taxes than before.

This is another way of saying that not only did such companies pay no taxes, they actually made profits from the government.

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