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Oil, gas, and coal enjoy their own subsidies. Both direct and indirect. Increasing these subsidies for fossil fuels will slow the transition.

by ghouse 10y ago

CountSessine 10y ago
I always hear these vague allusions to oil and gas subsidies, but never concrete examples. In fact, we actually tax the hell out of oil and gas at retail, so it seems a bit strange that we would actually be subsidizing it at the same time. What kind of/magnitude of subsidies does oil and gas enjoy?
- smallnamespace 10y ago
  https://en.wikipedia.org/wiki/Energy_subsidies#United_States https://en.wikipedia.org/wiki/Energy_subsidies#United_States $3.2bn / year for fossil fuels, about half of what went to renewables
  - CountSessine 10y ago
    Those figures seem to come from here: https://www.cbo.gov/publication/43993#section0 https://www.cbo.gov/publication/43993#section0 In particular, the $3.2bn/year is a tax write-off sort of 'subsidy', not a grant sort of subsidy, which I believe solar has received recently (section 1603). Without doing more digging, I can't tell whether what those oil and gas write-offs are for. Exploration? Research?
    - smallnamespace 10y ago
      Why is that an important distinction here? Both direct subsidies and tax credits/rebates/write-offs have the same net effect on the government's coffers. The Wikipedia article cites another article that has the breakdown (over a period of years): 1. Foreign tax credit ($15.3 billion) 2. Credit for production of non-conventional fuels ($14.1 billion) 3. Oil and Gas exploration and development expensing ($7.1 billion) https://www.eli.org/sites/default/files/eli-pubs/d19_07.pdf https://www.eli.org/sites/default/files/eli-pubs/d19_07.pdf
      - CountSessine 10y ago
        Have you read that pdf you linked to? Similarly, the study counts funds used to support carbon capture and storage programs1 as a fossil fuel subsidy, despite their potential to reduce the emissions associated with burning coal. If that's counted against oil and gas 'subsidies', that doesn't seem right. Foreign Tax Credit ($15,300) - IRC Section 901. This is a generally applicable credit that is intended to enable taxpayers earning income or profits abroad to avoid double taxation. Wait - so a good 40% of the total is actually a non-subsidy that is the consequence of the US having a tax treaty with a foreign country? Not being able to double-tax oil and gas companies is considered a 'subsidy'? The US has a tax treaty with just about every civilized country in the world that has provisions to avoid double-taxation because to do otherwise would be pathological. Counting that is 40% of the 'subsidy'?
        mikeyouse 10y ago
        The foreign tax credit is an oil subsidy since the 'creative' oil companies started structuring their royalties to foreign governments as taxes, so they can deduct them against profits. If Exxon has to pay a royalty of $1/barrel to Nigeria for access to their oil fields, rather than account for the royalty 'properly', they structure the deal to pay a $1/barrel tax to Nigeria. Then they can claim that they paid taxes instead of royalties and get the offset from the foreign tax credit.
        linkregister 10y ago
        I don't doubt you but can you explain this in greater detail? I have filed for the foreign tax credit and it disqualifies most non-income taxes. I would presume royalties would be covered by this.
        mikeyouse 10y ago
        Royalties are excluded, and the IRS has clamped down more in defining what exactly counts as income tax, but it's still common for oil and gas companies to structure their payments as taxes to get the credits. For instance, in Saudi Arabia, there is an 85% corporate tax rate on oil/gas companies and a 20% corporate tax rate on the average business. It sure looks to me like that's a 20% tax rate plus a 65% royalty rather than an 85% rate, no? http://taxfoundation.org/blog/treating-royalties-governments-taxes-they-are http://taxfoundation.org/blog/treating-royalties-governments...
  - ajss 10y ago
    Looking at the gross subsidy is misleading. Federal gas tax revenues alone are about $35bn/yr.
    - smallnamespace 10y ago
      The excise tax is intended to pay for transportation infrastructure though, not to disincentivize gasoline consumption.
      - ajss 10y ago
        Whatever the intentions of the people imposing the tax, the effect is to disincentivize gas consumption. My point is, if the government taxes certain activities by $x and subsidises the same activity by $y, quoting only $y doesn't give the full story.
        Dylan16807 10y ago
        As far as I know gas tax isn't paid by the producers, but sure we can combine gas producers and users for this discussion. Money taken or given to either one has the same effect on the demand for gas production. When that $x in taxes is paying for the infrastructure used, then the gas producers/users are actually getting $y+x from the government. The $x, being a service charge, cancels out, and the only thing left is $y. $y is the difference between the world we live in vs. a world where the government paid no special attention to the industry. It's the most important number.
        ajss 10y ago
        Even granting your argument, if the government takes $x as a service charge for infrastructure, and subsidises by $y, that would be a net subsidy of $y, not $y+$x. But $x is not a service charge. It bares no relation to the amount of anything used. They can't opt out of the road part of the service charge and build their own roads. The tax is not hypothecated. Whatever the rhetoric of politicians, it doesn't bare any resemblance to a service charge.
  - coldtea 10y ago
    Add the military spending to ensure control of oil producing countries and cheap oil, and it's more like $1 trillion.
  - crdoconnor 10y ago
    That's only federal subsidies.
- coriny 10y ago
  The wikipedia link: https://en.wikipedia.org/wiki/Energy_subsidies https://en.wikipedia.org/wiki/Energy_subsidies. e.g. in the UK north sea oil exploration is heavily subsidised: http://www.independent.co.uk/news/uk/politics/uk-government-pays-6bn-a-year-in-subsidies-to-fossil-fuel-industry-a6730946.html http://www.independent.co.uk/news/uk/politics/uk-government-.... Of course there's lots of politics and commercial interests here, so I don't overly trust the upfront numbers given by articles in newspapers. As a reference point the UK has about the lowest consumer energy taxes in the EU, and the highest consumer prices.
  - CountSessine 10y ago
    in the UK north sea oil exploration is heavily subsidised It seems very misleading to say "taxpayer support" for a tax preference, especially when tax revenue for north sea oil is going to be well over that 6bn.
    - ZeroGravitas 10y ago
      It's all accounting at the end of the day. The oil belongs to the nation, they're "hiring" industries to extract it. Whether it's called a tax or a payment is all semantics at some level. This is part of why Norway can make around £400 Billion more money than the UK from a similar amount of oil, extracted from basically the same place: http://www.resourcegovernance.org/blog/did-uk-miss-out-%C2%A3400-billion-worth-oil-revenue http://www.resourcegovernance.org/blog/did-uk-miss-out-%C2%A... See also "Hollywood Accounting".
      - CountSessine 10y ago
        From the linked page, about half of that £400bn is equity in state-owned oil companies with no stake in oil fields outside the north sea; as someone who lives in a country that had an albatross state-owned oil company, that's going to become a very interesting investment once those oil fields dry up in the next 20 years. The article itself says the rest is partly because of lower taxes on the oil industry, but mostly because 1. The peaks of oil production in the UK's and Norway's fields were at different times when the market price of oil was different. 2. Norway has fewer fields but more reserves which made extraction more efficient. It's also worth pointing out that the £6bn/year figure in the Independent article seems to be a bit of a wank too.
- twinge 10y ago
  I'm just a simple investor and have no ties to the oil industry. I was surprised to learn about the tax incentives for investing in oil: http://www.investopedia.com/articles/07/oil-tax-break.asp http://www.investopedia.com/articles/07/oil-tax-break.asp
  - efaref 10y ago
    I think most of these are just a transfer of wealth from the high-tax-paying consumer to the low-tax-paying rich industry owners. Just business as usual.
    - tim333 10y ago
      I don't think they are even that. If you look a the list they are are just tax deductions so if you hit oil you may pay the govt $1m instead of some larger sum. Most of the "subsidies" seem to be of that nature. I'd like to personally subsidise the oil industry by them sending me $1m as a discount from the $2m I would have really liked.
- xorxornop 10y ago
  Well, how about the fact there's an absolutely enormous, untaxed negative externality? It's implicit - normally you tax something to reduce use of something harmful. Renewable energy would be far more competitive if this was factored in. Fossil fuels are causing incredible economic damage - but in a way that isn't captured by traditional economic models. It's going to have huge costs to future generations - if we taxed it, not only would we get off fossil fuels faster, we might then have extra cash around to soften the blow when it inevitably comes.
  - legolas2412 10y ago
    Yes, there should be carbon tax. But the OP wants to know of the coal subsidies even Elon musk calls so huge that solar subsidies are "cents on the dollar". How about providing actual subsidies for coal, also the difference between taxes for coal and solar. Of course they should be compared per Kwhr (which in my opinion Elon musk didn't do).
    - ZeroGravitas 10y ago
      80% of US coal mined by the big three companies is sold by the federal government to them at 1 dollar a ton. That coal will cause between 22 and 237 dollars worth of costs to the nation. http://www.greenpeace.org/usa/news/new-report-details-how-federal-coal-leasing-and-exports-undermine-obamas-climate-plan/ http://www.greenpeace.org/usa/news/new-report-details-how-fe...
      - CountSessine 10y ago
        What's the market value of one ton of coal? Has a group other than greenpeace done the accounting on the 'cost' to the nation? Are you not intrigued by the enormous error-bars on that figure ($22-$237)? Maybe this is a complete wank? How does the nation benefit from having inexpensive coal power available? What's the value per ton generated?
        ZeroGravitas 10y ago
- staticelf 10y ago
  "Tax the hell out of" - As a swede this makes me laugh since 1 liter of petrol costs just over $2 here. But we also are pretty much number one when it comes to being environmental friendly nation and no swede would deny climate change.
  - hjalle 10y ago
    Just over $2? 95 octane costs around $1.5 (13.5 SEK) per liter. Still a lot more than US though.
    - lorenzhs 10y ago
      $1.50 per litre is $5.70 per US gallon. According to the AAA, today's US average is $2.25, making gas in Sweden 2.5x as expensive. I think GP's point stands, even if the numbers were a little off. For the record, gas prices in Germany are similar to Sweden, maybe a couple of cents lower (currently around 1.35€ per litre—around 2.35 times the US average)
    - staticelf 10y ago
      Sorry, I wasn't aware that the dollar has increased so much in value..
      - jmaygarden 10y ago
        That's an understandably mistake. The US dollar has increased significantly against the Krona since the US elections last month.
- freehunter 10y ago
  >we actually tax the hell out of oil and gas at retail A sales tax is a tax on the consumer of the product, not the producer of the product. The producer is the one getting the subsidies.
- ci5er 10y ago
  From what I can tell, whenever you hear about "subsidies", as it relates to combustible hydrocarbons, it isn't the kind of free-taxpayer-money boondoggle you see with (for example) a loan guarantee to Solyndra. It usually takes one (or both) of two forms: 1) The tax treatment of any capital-intensive industry, with a tip-of-the-hat to the "how do we account for depleted resources" question (you see the same pondering happening now with bitcoin, for example), and 2) not properly accounting for externalities in taxing the extractor, the oxidizer or the consumer of the point-of-service joule. In brief, #1 means: "I don't like it, and things I don't like should be taxed more, and until they taxed more, I will call this gift of non-taxation 'a subsidy'" As for #2, the negative-externality objectionators make a very fair point!
- pure_ambition 10y ago
  To add to others, awesome (from a returns perspective) tax structures like MLPs mean that energy infrastructure is heavily subsidized because income generated through MLPs is either not taxed at all or taxed at a very advantageous rate compared to traditional corporations. The government in the US has set these up primarily to incentivize investment in energy infrastructure and real estate. Energy Transfer Partners - the company most recently known for trying to build the Dakota Access Pipeline - is one such MLP.

Oil, gas, and coal enjoy their own subsidies. Both direct and indirect. Increasing these subsidies for fossil fuels will slow the transition.

by ghouse 10y ago

Oil, gas, and coal enjoy their own subsidies. Both direct and indirect. Increasing these subsidies for fossil fuels will slow the transition.

CountSessine 10y ago

I always hear these vague allusions to oil and gas subsidies, but never concrete examples. In fact, we actually tax the hell out of oil and gas at retail, so it seems a bit strange that we would actually be subsidizing it at the same time. What kind of/magnitude of subsidies does oil and gas enjoy?

smallnamespace 10y ago
https://en.wikipedia.org/wiki/Energy_subsidies#United_States https://en.wikipedia.org/wiki/Energy_subsidies#United_States $3.2bn / year for fossil fuels, about half of what went to renewables
- CountSessine 10y ago
  Those figures seem to come from here: https://www.cbo.gov/publication/43993#section0 https://www.cbo.gov/publication/43993#section0 In particular, the $3.2bn/year is a tax write-off sort of 'subsidy', not a grant sort of subsidy, which I believe solar has received recently (section 1603). Without doing more digging, I can't tell whether what those oil and gas write-offs are for. Exploration? Research?
  - smallnamespace 10y ago
    Why is that an important distinction here? Both direct subsidies and tax credits/rebates/write-offs have the same net effect on the government's coffers. The Wikipedia article cites another article that has the breakdown (over a period of years): 1. Foreign tax credit ($15.3 billion) 2. Credit for production of non-conventional fuels ($14.1 billion) 3. Oil and Gas exploration and development expensing ($7.1 billion) https://www.eli.org/sites/default/files/eli-pubs/d19_07.pdf https://www.eli.org/sites/default/files/eli-pubs/d19_07.pdf
    - CountSessine 10y ago
      Have you read that pdf you linked to? Similarly, the study counts funds used to support carbon capture and storage programs1 as a fossil fuel subsidy, despite their potential to reduce the emissions associated with burning coal. If that's counted against oil and gas 'subsidies', that doesn't seem right. Foreign Tax Credit ($15,300) - IRC Section 901. This is a generally applicable credit that is intended to enable taxpayers earning income or profits abroad to avoid double taxation. Wait - so a good 40% of the total is actually a non-subsidy that is the consequence of the US having a tax treaty with a foreign country? Not being able to double-tax oil and gas companies is considered a 'subsidy'? The US has a tax treaty with just about every civilized country in the world that has provisions to avoid double-taxation because to do otherwise would be pathological. Counting that is 40% of the 'subsidy'?
      - mikeyouse 10y ago
        The foreign tax credit is an oil subsidy since the 'creative' oil companies started structuring their royalties to foreign governments as taxes, so they can deduct them against profits. If Exxon has to pay a royalty of $1/barrel to Nigeria for access to their oil fields, rather than account for the royalty 'properly', they structure the deal to pay a $1/barrel tax to Nigeria. Then they can claim that they paid taxes instead of royalties and get the offset from the foreign tax credit.
        linkregister 10y ago
        I don't doubt you but can you explain this in greater detail? I have filed for the foreign tax credit and it disqualifies most non-income taxes. I would presume royalties would be covered by this.
        mikeyouse 10y ago
        Royalties are excluded, and the IRS has clamped down more in defining what exactly counts as income tax, but it's still common for oil and gas companies to structure their payments as taxes to get the credits. For instance, in Saudi Arabia, there is an 85% corporate tax rate on oil/gas companies and a 20% corporate tax rate on the average business. It sure looks to me like that's a 20% tax rate plus a 65% royalty rather than an 85% rate, no? http://taxfoundation.org/blog/treating-royalties-governments-taxes-they-are http://taxfoundation.org/blog/treating-royalties-governments...
- ajss 10y ago
  Looking at the gross subsidy is misleading. Federal gas tax revenues alone are about $35bn/yr.
  - smallnamespace 10y ago
    The excise tax is intended to pay for transportation infrastructure though, not to disincentivize gasoline consumption.
    - ajss 10y ago
      Whatever the intentions of the people imposing the tax, the effect is to disincentivize gas consumption. My point is, if the government taxes certain activities by $x and subsidises the same activity by $y, quoting only $y doesn't give the full story.
      - Dylan16807 10y ago
        As far as I know gas tax isn't paid by the producers, but sure we can combine gas producers and users for this discussion. Money taken or given to either one has the same effect on the demand for gas production. When that $x in taxes is paying for the infrastructure used, then the gas producers/users are actually getting $y+x from the government. The $x, being a service charge, cancels out, and the only thing left is $y. $y is the difference between the world we live in vs. a world where the government paid no special attention to the industry. It's the most important number.
        ajss 10y ago
        Even granting your argument, if the government takes $x as a service charge for infrastructure, and subsidises by $y, that would be a net subsidy of $y, not $y+$x. But $x is not a service charge. It bares no relation to the amount of anything used. They can't opt out of the road part of the service charge and build their own roads. The tax is not hypothecated. Whatever the rhetoric of politicians, it doesn't bare any resemblance to a service charge.
- coldtea 10y ago
  Add the military spending to ensure control of oil producing countries and cheap oil, and it's more like $1 trillion.
- crdoconnor 10y ago
  That's only federal subsidies.
coriny 10y ago
The wikipedia link: https://en.wikipedia.org/wiki/Energy_subsidies https://en.wikipedia.org/wiki/Energy_subsidies. e.g. in the UK north sea oil exploration is heavily subsidised: http://www.independent.co.uk/news/uk/politics/uk-government-pays-6bn-a-year-in-subsidies-to-fossil-fuel-industry-a6730946.html http://www.independent.co.uk/news/uk/politics/uk-government-.... Of course there's lots of politics and commercial interests here, so I don't overly trust the upfront numbers given by articles in newspapers. As a reference point the UK has about the lowest consumer energy taxes in the EU, and the highest consumer prices.
- CountSessine 10y ago
  in the UK north sea oil exploration is heavily subsidised It seems very misleading to say "taxpayer support" for a tax preference, especially when tax revenue for north sea oil is going to be well over that 6bn.
  - ZeroGravitas 10y ago
    It's all accounting at the end of the day. The oil belongs to the nation, they're "hiring" industries to extract it. Whether it's called a tax or a payment is all semantics at some level. This is part of why Norway can make around £400 Billion more money than the UK from a similar amount of oil, extracted from basically the same place: http://www.resourcegovernance.org/blog/did-uk-miss-out-%C2%A3400-billion-worth-oil-revenue http://www.resourcegovernance.org/blog/did-uk-miss-out-%C2%A... See also "Hollywood Accounting".
    - CountSessine 10y ago
      From the linked page, about half of that £400bn is equity in state-owned oil companies with no stake in oil fields outside the north sea; as someone who lives in a country that had an albatross state-owned oil company, that's going to become a very interesting investment once those oil fields dry up in the next 20 years. The article itself says the rest is partly because of lower taxes on the oil industry, but mostly because 1. The peaks of oil production in the UK's and Norway's fields were at different times when the market price of oil was different. 2. Norway has fewer fields but more reserves which made extraction more efficient. It's also worth pointing out that the £6bn/year figure in the Independent article seems to be a bit of a wank too.
twinge 10y ago
I'm just a simple investor and have no ties to the oil industry. I was surprised to learn about the tax incentives for investing in oil: http://www.investopedia.com/articles/07/oil-tax-break.asp http://www.investopedia.com/articles/07/oil-tax-break.asp
- efaref 10y ago
  I think most of these are just a transfer of wealth from the high-tax-paying consumer to the low-tax-paying rich industry owners. Just business as usual.
  - tim333 10y ago
    I don't think they are even that. If you look a the list they are are just tax deductions so if you hit oil you may pay the govt $1m instead of some larger sum. Most of the "subsidies" seem to be of that nature. I'd like to personally subsidise the oil industry by them sending me $1m as a discount from the $2m I would have really liked.
xorxornop 10y ago
Well, how about the fact there's an absolutely enormous, untaxed negative externality? It's implicit - normally you tax something to reduce use of something harmful. Renewable energy would be far more competitive if this was factored in. Fossil fuels are causing incredible economic damage - but in a way that isn't captured by traditional economic models. It's going to have huge costs to future generations - if we taxed it, not only would we get off fossil fuels faster, we might then have extra cash around to soften the blow when it inevitably comes.
- legolas2412 10y ago
  Yes, there should be carbon tax. But the OP wants to know of the coal subsidies even Elon musk calls so huge that solar subsidies are "cents on the dollar". How about providing actual subsidies for coal, also the difference between taxes for coal and solar. Of course they should be compared per Kwhr (which in my opinion Elon musk didn't do).
  - ZeroGravitas 10y ago
    80% of US coal mined by the big three companies is sold by the federal government to them at 1 dollar a ton. That coal will cause between 22 and 237 dollars worth of costs to the nation. http://www.greenpeace.org/usa/news/new-report-details-how-federal-coal-leasing-and-exports-undermine-obamas-climate-plan/ http://www.greenpeace.org/usa/news/new-report-details-how-fe...
    - CountSessine 10y ago
      What's the market value of one ton of coal? Has a group other than greenpeace done the accounting on the 'cost' to the nation? Are you not intrigued by the enormous error-bars on that figure ($22-$237)? Maybe this is a complete wank? How does the nation benefit from having inexpensive coal power available? What's the value per ton generated?
      - ZeroGravitas 10y ago
staticelf 10y ago
"Tax the hell out of" - As a swede this makes me laugh since 1 liter of petrol costs just over $2 here. But we also are pretty much number one when it comes to being environmental friendly nation and no swede would deny climate change.
- hjalle 10y ago
  Just over $2? 95 octane costs around $1.5 (13.5 SEK) per liter. Still a lot more than US though.
  - lorenzhs 10y ago
    $1.50 per litre is $5.70 per US gallon. According to the AAA, today's US average is $2.25, making gas in Sweden 2.5x as expensive. I think GP's point stands, even if the numbers were a little off. For the record, gas prices in Germany are similar to Sweden, maybe a couple of cents lower (currently around 1.35€ per litre—around 2.35 times the US average)
  - staticelf 10y ago
    Sorry, I wasn't aware that the dollar has increased so much in value..
    - jmaygarden 10y ago
      That's an understandably mistake. The US dollar has increased significantly against the Krona since the US elections last month.
freehunter 10y ago
>we actually tax the hell out of oil and gas at retail A sales tax is a tax on the consumer of the product, not the producer of the product. The producer is the one getting the subsidies.
ci5er 10y ago
From what I can tell, whenever you hear about "subsidies", as it relates to combustible hydrocarbons, it isn't the kind of free-taxpayer-money boondoggle you see with (for example) a loan guarantee to Solyndra. It usually takes one (or both) of two forms: 1) The tax treatment of any capital-intensive industry, with a tip-of-the-hat to the "how do we account for depleted resources" question (you see the same pondering happening now with bitcoin, for example), and 2) not properly accounting for externalities in taxing the extractor, the oxidizer or the consumer of the point-of-service joule. In brief, #1 means: "I don't like it, and things I don't like should be taxed more, and until they taxed more, I will call this gift of non-taxation 'a subsidy'" As for #2, the negative-externality objectionators make a very fair point!
pure_ambition 10y ago
To add to others, awesome (from a returns perspective) tax structures like MLPs mean that energy infrastructure is heavily subsidized because income generated through MLPs is either not taxed at all or taxed at a very advantageous rate compared to traditional corporations. The government in the US has set these up primarily to incentivize investment in energy infrastructure and real estate. Energy Transfer Partners - the company most recently known for trying to build the Dakota Access Pipeline - is one such MLP.