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Price Of Oil: Hidden Oil Subsidies

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Oil Field photo

Econ 101: Subsidies
One of the many problems with subsidies is that they are almost impossible to repeal. That's because they usually give big benefits to a small group of people at a relatively small cost to a huge number of people. For example, corn-ethanol subsidies are going to be very hard to phase out because they might mean hundreds of thousands of dollars to farmers, while their cost is spread over the rest of the population and almost invisible. Farmers are a lot more motivated to lobby politicians than the average taxpayer, even if they only represent 1% of the population. The green impact of this is that corn-ethanol, a biofuel that would not necessarily be used much otherwise, is now made competitive with taxpayer dollars (and by putting tariffs on the greener Brazilian sugarcane ethanol), and that makes it harder for other alternative fuels to supersede it (and it also drive food prices up, something that affects most the poor).

Hidden Oil Subsidies
The real price of gasoline is what people actually pay for it, not just what they pay for it at the pump. That might seem subtle, but there's a big difference.

Offshore Oil Rig photo

The Cato Institute, a libertarian think-thank, did a study on the subject. What they found is simply mind-boggling. They calculated that the US spent between $30 to $60 billion (with a 'b') a year safeguarding oil supplies in the Middle East during the 1990s, even though its imports from that region totaled only about $10 billion a year during that period. A more comprehensive study that includes the Strategic Petroleum Reserve and other oil protection services (the coast guard is clearing shipping lanes and doing navigational support to oil tankers, etc) shows that actual subsidies to Big Oil are between $78 to $158 billion (again, with a 'b') per year.

So the real cost of gas for someone living in the US is the pump price plus the taxes it pays that are used to subsidize the oil industry. Suddenly, oil is not as cheap, and just like with corn-ethanol, these taxpayers dollars are making fossil fuels artificially more competitive and keeping cleaner alternatives down.

Greens Need To Go After Big Targets
Many of us greens tend to lose perspective. Many will spend a lot of time and energy in getting small subsidies for their favorite green project, but the big target should really be ending these massive hidden oil subsidies to truly level the playing field. This would do more than all the renewable energy subsidies in the world, because it wouldn't crush people with even more taxes. You can't keep the oil subsidies and just try to add green subsidies on top. That's just paying for both sides at the same time.

Think about it: You work for a pay, and many of your dollars are taken from you and given (directly and indirectly) to Big Oil. That has to stop.

If it did, oil prices would definitely be higher, but people would also have more money in their pockets. If they want to spend that money on gasoline, fine. But we're ready to bet that we would seem ginormous improvements in efficiency, conservation, and many new green technologies would come to market much faster than with subsidized oil.

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Source of the stats: Zoom, by Iain Carson and Vijay V. Vaitheeswaran.

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