The Subsidy Game: Page 3 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

The Price We Pay for Energy

Most examinations of government energy subsidies don’t factor in what economists call “externalities,” side effects or consequences of activities that affect other parties without being reflected in the costs involved. With energy production, some of the biggest externalities are the social, health, and environmental effects of pollution.

Externalities can be difficult to quantify, especially when it comes to energy. However, according to the National Academy of Sciences’ July 2011 “Report to the President/Sustaining Environmental Capital”:

Just the damages from [fossil fuel energy’s] external effects [that] the committee was able to quantify add up to more than $120 billion for the year 2005. (These are damages related principally to emissions of [oxides of nitrogen, sulfur dioxide, and particulates] relative to a baseline of zero emissions from energy-related sources for the effects considered in this study.) Although large uncertainties are associated with the committee’s estimates, there is little doubt that this aggregate total substantially underestimates the damages, because it does not include many other kinds of damages that could not be quantified for reasons explained in the report, such as damages related to some pollutants, climate change, ecosystems, infrastructure, and security.

Soil, air, and water pollution—and its effects on human and environmental health—costs our society significantly. Besides not assessing fees for polluting industries’ externalities, the federal government also shields certain energy generation from liability. The Green Scissors 2011 report, promoting federal environmental and fiscal responsibility, notes that:

…the Oil Pollution Act of 1990 caps industry liability for offshore drilling accidents at a paltry $75 million, but they can cost taxpayers billions of dollars. The cleanup of the British Petroleum’s 2010 Deepwater Horizon spill in the Gulf of Mexico has already topped $6.8 billion, which has been paid for by the federal and state governments.

Nor do most examinations of government energy subsidies factor in national security costs. In Reinventing Fire: Bold Business Solutions for the New Energy Era, energy-efficiency expert Amory Lovins examines the true costs of the nation’s addiction to oil, some of which can easily be considered industry subsidies.

  • “Of America’s $0.9 trillion oil bill in 2008, $388 billion went abroad. Some of this money paid for state-sponsored violence, weapons of mass destruction, and terrorism.
  • “In 2010, a Princeton study pegged the cost of U.S. forces just in the Persian Gulf in just one year (2007) at half a trillion dollars, or about three-fourths of the nation’s total military expenditures. That’s similar to the peak expenditure rate for the Cold War. It is also about 10 times what the U.S. typically pays for all the oil it imports from the Persian Gulf.
  • “[T]he economic costs of oil dependence, plus U.S. military expenditures for Persian Gulf forces (and minus the cost of the oil itself), total roughly $1.5 trillion a year, or 12% of GDP—far more than our total annual energy bill.”

Was the Iraq War about oil? Former Defense Secretary Donald Rumsfeld said the U.S. invasion of Iraq had “nothing to do about oil.” Yet former Federal Reserve Chairman Alan Greenspan, writing in his memoir, said, “It is politically inconvenient to acknowledge what everyone knows. The Iraq War is largely about oil.”

Nobel economist Joseph Stiglitz of Columbia University and Harvard University budget expert Linda Bilmes estimate the eventual cost of the Iraq War at $4 to $6 trillion. For perspective, the recent U.S. financial bailout cost $4.6 to $8.7 trillion. Even adjusted for inflation, World War II cost a mere $3.6 trillion.

The cost of America’s oil addiction can also be measured in human lives. As of May 29, 2012, 4,409 U.S. troops have been killed and nearly 32,000 wounded. Not to mention the approximately 655,000 Iraqi fatalities, according to The Lancet, a British medical journal. 

Not a Level Playing Field

Many direct government subsidies for the coal, oil and gas, and nuclear industries are buried deep in permanent provisions of the U.S. tax code. Once embedded, a provision of law is hard to remove. In contrast, most government subsidies for wind and solar come in the form of short-term provisions that expire after a period of time. The wind and solar lobby, which is far smaller than the lobby machine for Big Oil, has to continuously use its resources to seek extensions to renewable tax credits. With the financial and political states of the nation, the best they can do is get extensions to last just a few years. Meanwhile, the fossil fuel and nuclear industries can lobby to maintain the status quo and be successful.

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