As the House debated the federal budget this week, Democrats (176 of them, to be precise) tried to save billions of dollars by taking taxpayer subsidies away from the five biggest oil companies. The motion failed, but they shouldn't give up.
If we are looking for ways to chip away at the budget deficit, to keep America competitive and to use market-based mechanisms to build a clean energy economy, then subsidy reform should be near the top of the list.
Think of it this way: Imagine an Olympic marathon in which the U.S. team has to run on a steep and continuous uphill slope, while the teams from China and India run on a level track. That's what "winning the future" will be like for the United States if we keep our perverse energy policies. Direct and indirect taxpayer support for fossil energy, which far exceeds government support for emerging green energy technologies, almost certainly makes winning the future a futile race.
Plenty has been written about how national energy policy is classic corporate welfare for carbon-intensive industries that don't need the help. And about how idiotic national policies are when the right hand promotes carbon emissions while the left hand tries try to reduce them.
The lobbying clout of the coal, oil and gas industries -- and the effectiveness of their propaganda -- has kept them subsidized for nearly a century. The industries characterize every proposed reform as a tax increase that will raise energy prices and cost American jobs -- two themes that can be depended on to scare consumers, particularly in a down economy.
But with their record profits, it's doubtful the oil industry would have to raise the price of gasoline, for example, to compensate for federal subsidy reform.
Today, oil and gas coal companies benefit not only from tax breaks and other federal largesse; they're not even paying what they owe under the law. According to a new report by the Government Accountability Office, taxpayers are losing tens of billions of dollars in royalty payments in part because the Department of Interior doesn't have sufficient capacity to monitor oil and gas production on public lands.
In his 2012 budget, President Obama proposed for the third time that Congress begin phasing out fossil energy subsidies. His proposal is modest: It would liberate nearly $4 billion a year, a fraction of what taxpayers actually pay to enrich America's 21st century oil, coal and gas barons. I can't think of a better moment for Congress to support the president on this issue. Rapidly rising oil prices are proving that federal subsidies won't save us from higher costs for fossil energy. The unrest in the Middle East demonstrates the volatility of the Fear Factor in world petroleum markets: Even the fear of rising prices raises prices.
What reforms should members of Congress push? Joe Romm proposed several last year and made a strong case for them in testimony before the House Ways and Means Committee. For example, Romm suggested greater transparency for fossil energy subsidies -- a good place for reform to start. As he told Congress:
Altogether, less than 40 percent of total energy industry spending gets officially counted as "government spending" in the federal budget, and this number is shrinking as tax expenditures continue to balloon out of control. Between 1999 and 2007, government spending on energy subsidies doubled in size, with almost all of the increase coming from fossil-heavy tax expenditures, which are largely hidden from public view.
Here are some additional ideas:
o Redirect fossil energy subsidies to extend tax incentives for renewable energy systems until 2025. Congress's short-sighted short-term incentives for renewables have caused costly boom and bust cycles for years in the green energy sector. If we want them to help America win the future, then domestic renewable energy companies need stable investment.
o Provide federal agencies with the resources they need to fully implement Obama's executive order on sustainable development, including its goals for clean energy use and greenhouse gas emission reductions. The power of the federal purse can help expedite our shift to green goods and services.
o Stop treating support for renewable energy like tree hugging and begin treating it as a critical investment in national security. That's what it is. The current rule of thumb is that for every dollar the federal government spent on climate in 2008, the military spent $94. Going forward, military spending and clean energy spending should overlap because climate change and competition for finite resources have enormous implications for global stability. Congress should support aggressive investments by the Department of Defense in energy efficiency, renewable energy and other technologies that serve multiple security goals -- climate security, energy security, economic security and national security.
o Require fossil energy industries to pay a far higher share of federally sponsored programs such "clean coal" research. Last month, a coalition of coal companies in the federal FutureGen project picked a site in Illinois for testing underground storage of carbon dioxide, a technology vital to the coal industry's future in a carbon-constrained world. The 30-year project is part of a $1.3 billion "public-private venture". But the venture is far more public than private: $1 billion of the $1.3 billion is coming from the federal stimulus package. If coal companies want to be part of America's clean energy economy (an aspiration about which I have great doubt), then they should pay for their own R&D.
o Develop a consensus definition of fossil energy subsidies. This is part of the transparency problem: There is a lot of confusion about how much we spend to support fossil fuels. That's because there's no standard for what we should count. A comprehensive definition of what constitutes subsidies would be a good assignment for the National Academies of Science, now conducting a carbon audit of the federal tax code.
o Fully enforce our environmental laws. Allowing industries to pollute is a costly and deadly indirect subsidy. For example, an assault on EPA's power to regulate fossil energy emissions under the Clean Air Act or coal company practices under the Clean Water Act is an assault on public health. EPA estimated this week that the Clean Air Act saved 160,000 lives last year by allowing the agency to clean up ozone and fine particle pollution. There were 130,000 fewer heart attacks, 13 million fewer lost work days, and 1.7 million fewer asthma attacks in the United States last year because the Clean Air Act was enforced. By 2020, EPA says, the act will have produced $2 trillion in economic benefits to the nation, mostly by preventing early deaths.
o Stop supporting fuels that create more problems than they solve. There is a big difference between problem solving and problem switching. Liquids from coal or oil from shale might help us reduce oil imports, but at an unacceptable cost to water supplies and carbon emissions. Congress should create a minimum performance standard for public energy subsidies: Support should go only to those resources that produce net benefits for the economy, the environment, national security and public health.
o Don't use savings from energy subsidy reform to reduce the federal deficit. Instead, use the money to invest in energy efficiency and low-carbon renewable energy, including a Green Investment Bank to leverage private capital. Renewable energy is a better job-creator than fossil energy; more jobs mean more federal tax revenues; more federal tax revenues means a lower federal budget deficit. Improvements in energy efficiency will be an ongoing stimulus for the economy at every level -- from freeing up disposable income in households to reducing the national energy trade deficit.
It was good news and bad news this week when India announced it will use revenues from its carbon tax on coal to help clean up its air, lakes and rivers. That's good for India and, insofar as its coal tax cuts emissions, good for all of us. But it was another reminder that some of our competitors in the global economy are running to the future on a much faster track than we are. So long as Congress continues America's costly and obsolete welfare program for oil, gas and coal, balancing the budget and winning the future will be very difficult indeed.
Bill Becker is a Senior Associate with Third Generation Environmentalism and an energy and climate specialist at Natural Capitalism Solutions. The views here are his own.
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