Price Of Oil: Hidden Oil Subsidies

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.

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.

Comments

[geobushono]

02:41 PM on 07/07/2008

In the 70s..THE SEVENTIES!! I heard a program on KPFA that told the listeners not to forget how much of our Military is an unmentioned subsidy, and that was then...........
Throw another $15 or 18 Bn/month and add that to the price of the gas we TAXPAYERS are paying for.

[Durango]

12:56 PM on 07/06/2008

Scratch an environmental problem and you will find a subsidy.

Any environmental problem.

One of the only good things the "Republican revolution" brought us was an emphasis on market theory. Market theory is a very valuable tool in making public policy. Particularly on environmental issues.

Every government project and particularly should undergo rigerous a cost/benefit analysis. Using real numbers and real costs. Hidden costs.

But unfortunately the Republicans only want to talk about market theory. They abandoned it the first chance they had.

Oh they believe in markets all right. But not Free Markets.

FIXED MARKETS.

[research]

03:08 PM on 07/04/2008

158B$ is enough to convert all US energy to Wind and solar in less then 10 years.

Sustainable forever.

Cheaper then war crimes for oil.

See my profile for details and links.

[mouselion]

05:14 PM on 07/05/2008

Thanks, research! Good job!

[sheila]

03:33 PM on 07/03/2008

this is only the tip of the (melting) iceberg, too. Big Energy has figured out how to externalize nearly ALL its operating costs onto the environment, taxpayers and ratepayers, and to privatize all the profits. Big Wind and Big Solar are exactly the same as Big Oil and Big Coal. they completely destroy enormous sections of functioning, pristine taxpayer-owned ecosystems for a few bucks in "leasing fees" a year, they get massive tax breaks and subsidies, they get to steal our homes for powerline routes (wait till you see what's coming under the 2005 Energy Policy Act - it is epic), and they then get to amortize any leftover capital investment costs or operating costs across the grid. all their expenditures are GUARANTEED by the government, which means venture capital flows towards them, and can give them super cheap money because it's no-risk.

it is insanely profitable to be in Big Energy, which is exactly why clowns like Swiftboater Pickens are doing it. Saving america? puh-lease. anyone who bothered going to the BLM hearings on the Southwest solar PEIS would have heard these Big Solar guys ranting against Environmental Impact reports, demanding access to National Parks, National Forests, ACECs, DWMAs and nature preserves. Meet the new boss, same as the old boss - let's not greenwash them.

We need point-of-use, local renewable energy production investment NOW. we cannot level the playing field while Big Energy gets all the resources, so a "market solution" is completely impossible.

[Kassandra]

10:56 AM on 07/04/2008

U R right, sheila! Beautifully said!

Someday, I hope to convert my house completely to solar and get off the grid. Maybe sell some of the power back to them. That's if, of course, Bush's plans to bankrupt America don't come to fruition next week and we're in another Greater Depression by then.

Frankly, I don't care how high OIL goes. So far, it's the only thing which has enabled this very discussion.

Just think of the damage to the planet the use of this stuff has done in 150 years. Not to mention the increasing savagery of the wars enabled by this stuff, and the incredible loss of habitat of every other creature in the web of life.

Its poison in every way...and we love it like a heroin addict loves his needle.

[elbzee]

03:00 PM on 07/03/2008

So, what were those RECORD BREAKING PROFITS again????
DISGUSTING

[rollingdivision]

03:07 PM on 07/03/2008

Eight cents on the dollar, about average for large corporations.

[speakingtruth2power]

05:23 PM on 07/03/2008

Only a frog buys the accounting of big oil or any other large corporation for that matter.

Transparency is a joke that frogs simply don't get. So how hot's the water, little froggie?

[research]

02:43 PM on 07/04/2008

Why is that significant? Grocery store make 1 cent per dollar last I checked.

The Oil companies are still making corporate history with their huge profits.

Why not look at profit per employee? Or return on investment?

8 cent /dollar is irrelevant.

[mamacat]

02:43 PM on 07/03/2008

Bottom line: we need to make some changes. When we do, we will be glad we did.

[leduck]

02:04 PM on 07/03/2008

like i said b4
we don't need any free energy gimmicks
or alternative energy

what we need are perpetual motion machines to run our industry
imagine if industry manufactured things without constantly having to feed their machines energy

then maybe we can continue to be the worlds greatest waster of energy and resources
and we wont have to continue wasting time and money forcing the rest of the world to play ball

[imusintheevening]

01:32 PM on 07/03/2008

Subsidies can be a blessing too. With all the outsized profits and subsidies the oil companies are poised to start making more commercials than the Viagra pushers.

[sf94127]

01:23 PM on 07/03/2008

Americans can help immediately by dumping their gas guzzlers. Boycott days at service stations.
We need to hold our "leaders" accountable for attaining energy independence. Vote out of office any scum politician that is not working towards this goal.

[leduck]

01:29 PM on 07/03/2008

energy indpendence
and ,ake ourselves third world in the process....
sounds like a winning capaign startegy to me

[noozone]

06:03 PM on 07/03/2008

Good point leduck, we clearly only have two choices; consume as much energy as fast as we can or revert to the middle ages.

[darthdarcy]

11:51 AM on 07/03/2008

If we calculate the many billions we spend in military and other considerations in the middle east strictly due to Oil being there and add that to the price of gasoline or diesel or heating oil then the real price would be double or more than what we are paying maybe triple like $10-12.00 per gallon...

All this waste when we could simply grow Hemp and run almost anything on it from cars and trucks to even using it to power electric turbines...

Hemp is the #1 Bio-mass plant on Earth...it's so simple..that's why it's illegal and Hemp is not what is smoked to get high...

[KillTheMessenger]

12:13 PM on 07/03/2008

And you can smoke it, too...

The myth that hemp is the biocure for everything is somewhere in that smoke, too.

Makes the nicest shirts, though. Way better than cotton.

[leduck]

01:29 PM on 07/03/2008

really...?
maybe dartdarcy can smoke one of those shirts

[UncleHomer]

02:50 PM on 07/05/2008

Nobody said bio mass production of hemp is the cure for everything but it is a much more plausible solution than just drilling for more oil while the price of oil destroys our economy.

[leduck]

12:37 PM on 07/03/2008

all i know is that most people who talk about the wonders of hemp, also tend to be dopers

[rivrgrrl]

12:49 PM on 07/04/2008

Then you've just proven that you don't know very much.

[UncleHomer]

02:50 PM on 07/05/2008

Or they could be people that have actually done the research and know that we actually could supply 90% of our energy needs with biomass production of hemp which would also provided natural chemicals, paper (one acre of hemp renewable annually is worth for acres of trees) plush building materials and a host of other products.

The real problem is that Big Oil and our government have done a wonderful job or brainwashing the public on what is actually a very worthwhile and workable solution to our energy problems at least in the short term.

[mjt218]

10:36 AM on 07/03/2008

Does anyone have a link to this comprehensive study outlining subsidy appropriations totaling $78 - $158 Billion . . . An $80 Billion dollar variability seems a bit suspect.

Also, for the most part (there's a few exceptions), the Gulf States produce oil without the help of any corporations that might be subsidized by US dollars contributing to securing the Middle East (Saudi ARAMCO, etc.). I don't see a relation between our defense spend in the Middle East and the profits of US Oil Companies. If anything, our defense spend in the Middle East during the 1990's helped keep prices at their all-time lows, which in turn reduced US Oil profits. This cannot be said for our destabilizing efforts in Iraq in recent years.

I think the fact that the Coast Guard is responsible for securing energy shipments has more to do with the fact that our military (diesel and jet fuel), economy, and every other facet of our existence is dependent on oil than on some backdoor handout to Big Oil. I agree that placing this burden on shippers would increase prices, which would drive the market toward alternatives of some type (although this may most likely be more oil production transported through pipelines from Canada and Mexico than anything greener).

[joebaggadonuts]

02:37 PM on 07/03/2008

I'd like tosee the study too. With so much lying from the other side, I would like to see the facts before believing them, even more if they support my position.

[Cautious]

04:54 PM on 07/03/2008

I think the photograph of the Arab in the refinery is on the part of HuffPo. They don't recieve subsidies. There's nothing in the article that even hints at the Arabs recieving subsidies.

McBush's friend Gramm help deregulate the securities profiteers. That may be a good place to start.

[gage]

02:49 PM on 07/03/2008

Excellent points. The oil produced in the middle east is produced by huge national oil companies, not US corporations. Also, most of that oil goes to China, India, and Europe.

Yes, the US is the nation that secures the shipping lanes so that the middle eastern oil can get to its destination, but if we didn't do it, a sudden disruption in oil supply could torpedo the economy of the entire world.

That said, 97% of US transportation runs on oil. We are very vulnerable to a any potential disruption in supply. This is why I'd like see us move to get automobiles running on something else.

[TxAggie]

02:09 PM on 07/04/2008

Most of my oil industry experience is in the Gulf of Mexico where the industry is pretty much on a pay as you go basis with the exception of royalty relief which is used on occasion to encourage drlg in such areas as deepwater, or deep shelf gas or to delay the economic end of a field. The industry pays large fees for everything related to its operations, a lot of our interaction is with the Coast Guard- their main focus if of course security and safe shipping. The reference to Big oil is a little tiring. Exxon-the favorite target of just about everyone when they slam Big Oil ranks 14th in the world behind the National Government Owned companies. As much as i dislike Exxon as a competitor thank goodness we have companies like them as they have the capability and wherewithal to compete on a world scale. Now if they would just quit holding back the hemp movement...........

[Vyvjala]

07:52 AM on 07/03/2008

Corporate Mafia. "When it comes to giving, we stop at nothing.".....................