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Jigar Shah

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Get Oil, Gas and Coal Off Welfare

Posted: 05/09/2012 1:44 pm

In the upcoming presidential election, we are embarking on the wrong energy conversation.

But, before I start, let me say that everyone including the 1 percent and 99 percent should be in favor of getting mature, highly profitable industries off of welfare.

Mitt Romney does not address subsidies for energy on his website. Recently, Obama Energy Secretary Chu announced $30 million for research to find the next energy storage technologies. Yet, neither the current administration, nor the potential Republican administration address the fact that oil, gas and coal are on welfare. In fact, the U.S. subsidizes oil companies by so much that "over the past two years, ExxonMobil reported $9,910 million in pretax U.S. profits. But it enjoyed so many tax subsidies that its federal income tax bill was only $39 million -- a tax rate of only 0.4 percent."

To get this done we have to get behind the smoke and mirrors and get to the root issues. There is an assumption that Republicans are against clean energy initiatives. I think that is a false statement. In the Republican primary, Rick Perry, Ron Paul and the presumptive nominee Mitt Romney have said, let's have a level playing field and eliminate the welfare for the oil, gas, coal and mature renewable energy industries so the best technologies can rise to the top. Now Grover Norquist, founder of Americans for Tax Reform and others are instructing their colleagues that Republican = anti-renewable energy. I think Republicans are for the "all of the above approach."

Nor do I believe that Democrats totally oppose fossil fuel subsidies. Plenty of them reside in coal states. The Democrats maintained the Ohio Coal Development Office.

But facts are facts, and some of the largest growth in exports in the past three years has come from renewable energy. In terms of new generating assets, more megawatts (MW) of renewables were installed in the past four years than natural gas and coal.

Clearly, the driving issues in this election are jobs, the economy and getting ourselves out of debt.

If the Republicans thought that investing money in only clean energy solutions would get us back to 4 percent growth and hundreds of thousands of new jobs per month, they would be all in.

Conversely, if I told Democrats that relentless hydrofracking would balance every budget in the country and achieve the same miracle while securing energy independence, they would be for that. And, we have witnessed that type of thinking in the pursuit of "all of the above" for energy solutions.

So, for this election, let's acknowledge that environmental concerns are not moving the electoral needle -- natural gas will probably not be adequately regulated until the industry destroys an acquifer. And maybe not even then, when looking at our pitiful response to the BP oil spill. But I think we all agree that energy infrastructure investments create jobs, so why can't we all agree that we need a level playing field to attract this investment in larger numbers? A clean environment is obviously essential to the future, but apparently it is not persuasive enough to get the votes to pass -- maybe 4 percent growth can be.

The real question is that with more than 37 conservative groups signing a letter to get rid of most permanent subsidies, including The Heartland Institute which receives funding from the Koch Brothers, outlined in the Green Scissors Report why can't we get the welfare industries of oil, gas and coal off the dime -- the welfare dime. If mature energy sources phased out their subsidies we could receive an extra $300 billion in federal revenues in the next five years according to the Green Scissors 2011 report. With that money you could reduce Corporate Taxes in the US.

I understand that to get it done politically, we will have to phase out wind and solar subsidies and I am fine with that as I wrote last year.

I noted, "Permanent subsidies don't create jobs and sharpen the competitive edges of new companies." They distort markets by artificially reducing the interest rates paid by the energy companies when they borrow money -- like Fannie Mae and Freddie Mac do for home mortgages.

More importantly, if we eliminated our system of energy tax credits for mature technologies, we could allow small investors to participate in the energy boom. Today, main street investors cannot invest in low-risk renewable energy projects because these investors can only invest in oil and gas tax credits per the 1986 Tax Reform Act. The master-limited partnership that eliminates double taxation only applies to oil and gas as well -- how convenient.

I recently read and wrote about The Brookings Institution published paper, dated April 2012, authored by a collective of experts who I respect entitled, "Beyond Boom and Bust: Putting Clean Tech On a Path To Subsidy Independence." It contends that "US clean tech sectors could falter" based on the fall in U.S. Federal financial support from $44.3 billion in 2009 to $11 billion in 2014. What Brooking did was prescribe more of the same. So, I had to object, because it is the wrong argument.

I contend we must get rid of the permanent subsidies for all mature energy sources. In fact, get them off welfare. So, are the 99 percent + 1 percent with me?

 
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