Oil Subsidies: Good use of taxpayer dollars?

Americans United for Change blasted Senator Mark Kirk for his vote to protect wasteful subsidies to dirty energy.

Energy Subsidies: With limited taxpayer resources for energy infrastructure, what is driving legislative decisions?

Americans United for Change recently blasted Senator Mark Kirk (R-IL) for his vote to protect subsidies to fossil fuels.  Senator Kirk helped defeat the ‘Phase Out of Tax Preferences for Fossil Fuels’ amendment offered by Senator Brian Schatz (D-HI) to the comprehensive energy bill currently being debated in the Senate. The legislation would have phased out annual tax credits for fossil fuels, which includes billions of dollars to the oil industry, over the next four years. 

“For more than a century, the oil and gas industry has been rewarded with preferential tax rates and special deductions, grants and tax breaks in the U.S. tax code. And no thanks to Senator Kirk, taxpayers are poised to continue padding oil industry profits with $40 billion in subsidies over the next decade. Senator Kirk was presented with an opportunity today to turn off the spigot. He chose instead to keep the oil subsidies flowing... That’s money that could be better spent building an economy that works for everyone, not just the special interests," said Brad Woodhouse, President, Americans United for Change.

There are important reasons for the government to support private industry. The question is, are the arguments for supporting fossil fuels valid in the 21st Century?

Support Innovation and New Technologies

​New technologies in the public good, especially in the energy sector, face unusual challenges in 'getting to scale'. Developing and deploying new technologies takes both time and money. After reaching full commercialization, costs come down and become competitive with existing technologies. However, new energy faces additional challenges. As Kate Gordon, Vice-Chair at the Paluson Institute said in WSJ

"Even if they’re now, finally, cost-competitive at the point of sale, low-carbon technologies are still working with an infrastructure—a utility regulatory system, a power grid, a highway system, a combustion engine-centric fueling system—built for a world powered by fossil fuels. These massive infrastructure projects were built up with public-sector support, including tax credits, low-cost loans, and outright grants from the federal government. Companies designing new energy sources, in contrast, often have to build their own infrastructure and factor it into their costs."

Protect National Security

An argument can be made that in the 20th Century, supporting fossil fuel development was critical to national security. However, times have changed. As a report on 'green' technologies by the IEA (International Energy Administration stated, "subsidies in green energy technologies that were not yet competitive are justified in order to give an incentive to investing into technologies with clear environmental and energy security benefits." More importantly, the Department of Defense sees dependence of fossil fuels as a potential national security threat. The DoD energy directive 4180.01 includes the goal to "diversify and expand energy supplies and sources, including renewable energy sources and alternative fuels." NREL (the National Renewable Energy Laboratory) announced their work in moving Fort Carson toward net zero: a 'mini-grid' using no energy or water from outside the base, and reusing all of their own waste. Their work is in support of the "U.S. Department of Defense's (DoD) mission to reduce energy costs, decrease reliance on foreign oil, ensure energy security, and achieve sustainability goals." 

Expand Access to Key Resources

In the past, much of the subsidies for fossil fuels have supported exploration of new fields. Yet worldwide, Oil Change International stated in a report with the Overseas Development Institute, that "G20 pledged to phase out 'inefficient' fossil fuel subsidies in 2009, yet new research finds that governments are spending $88 billion every year supporting exploration – more than double what the oil and gas companies are investing." While such exploration has deleterious effects on carbon in our atmosphere, it also has long term dangers for our economy. As more and more investors worry about "Stranded Assets", fossil fuels in the ground that can never be burned due to oversupply and carbon concerns, funds going to fossil fuel exploration amounts to burning money that could be used for other things. 

Better Use of Funds

Americans United for Change argues that “166,000 kids could be sent to college with the $4 billion US dollars that go to Big Oil every year.  It could be better spent rebuilding our crumbling roads and bridges. There’s a million more appropriate uses of our tax dollars than throwing it at an industry that is a leading contributor to climate change that’s been caught covering up its consequences for our environment and economy.  The oil companies and their backers in Congress insist they can’t survive without those subsidies, but even with oil prices at a 7-year low, oil giants like Exxon are still reporting profits in the billions. And shame on Senator Kirk.”

The organization goes on to voice concerns that the $250,000 raised by Senator Kirk from oil companies may well have an effect on his choice of legislation to support or defeat. Until the way that political figures finance their own futures, it is likely that our futures will be impacted by interests that may -- or may not -- be in the best interests of 'the people'.