The truth about U.S. energy subsidies

A new study from the Environmental Law Institute in partnership with the Woodrow Wilson International Center for Scholars titled “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008,” sheds light on U.S. energy subsidies.

The study finds that fossil fuels received almost two-and-a-half times more subsidies over the 7 year period than renewables: $72 billion for fossil fuels compared to $29 billion for renewables.

Of equal concern is that 58% of renewables subsidies ($16.8 billion) went towards corn-based ethanol, a fuel that’s carbon credentials are in question and has been linked to increasing world food prices.

Not only do fossil fuels get more subsidies, they also get better subsidies. Fossil fuel subsidies are primarily permanent provisions in the U.S. tax codes. Renewable subsidies, on the other hand, are usually tied in with energy bills and come with an expiration date.

This makes it harder for renewable industry firms to plan long-term, while oil and coal companies can be confident that their financial statements will be padded today, tomorrow, and in perpetuity.

Renewable energy is often knocked for relying on government assistance and, thereby, draining the economy. The rebuttal has always been that fossil fuels get direct and indirect government subsidies as well. These findings puts a face on that rebuttal for me, since I have not seen such a comprehensive study on the subject before.

“These figures raise the pressing question of whether scarce government funds might be better allocated to move the United States towards a low-carbon economy.”

Subsidies create a perverse incentive where more of a product/service is supplied (and demanded) than would be the case otherwise. This extra consumption of fossil fuels leads to more pollution and greenhouse gas emissions (negative externalities of consuming fossil fuels).

If these subsidies went towards renewable sources instead of fossil fuels, they would indeed push the U.S. towards a low-carbon economy as the studies authors suggest.

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