Study Finds that US Subsidies for Fossil Fuels Are Almost 2.5x Those for Renewables
18 September 2009
|US subsidies for fuels and renewable energy, 2002-2008. Nuclear was not included in the analysis. Source: Adeyeye et al. 2009. Click to enlarge.|
The vast majority of US federal subsidies for fossil fuels and renewable energy from 2002-2008 supported fossil energy sources that emit high levels of greenhouse gases when used as fuel, according to research released on Friday by the Environmental Law Institute (ELI) in partnership with the Woodrow Wilson International Center for Scholars.
The study, “Estimating US Government Subsidies to Energy Sources: 2002-2008”, found that fossil fuels benefited from approximately $72 billion over the seven-year period, while subsidies for renewable fuels totaled $29 billion.
These figures raise the pressing question of whether scarce government funds might be better allocated to move the United States towards a low-carbon economy.—Adeyeye et al. 2009
More than half the subsidies for renewables—$16.8 billion—are attributable to corn-based ethanol, the climate effects of which are disputed. Of the fossil fuel subsidies, $70.2 billion went to traditional sources—such as coal and oil—and $2.3 billion went to carbon capture and storage, which is designed to reduce greenhouse gas emissions from coal-fired power plants.
Other finds from the study include:
Subsidies to fossil fuels generally increased over the study period (though they decreased in 2008), while funding for renewables increased but saw a precipitous drop in 2006-07 (though they increased in 2008).
Most of the largest subsidies to fossil fuels were written into the US Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.
The vast majority of subsidy dollars to fossil fuels can be attributed to just a handful of tax breaks, such as the Foreign Tax Credit ($15.3 billion) and the Credit for Production of Nonconventional Fuels ($14.1 billion). The largest of these, the Foreign Tax Credit, applies to the overseas production of oil through an obscure provision of the Tax Code, which allows energy companies to claim a tax credit for payments that would normally receive less-beneficial tax treatment.
The US energy market is shaped by a number of national and state policies that encourage the use of traditional energy sources. These policies range from royalty relief to the provision of tax incentives, direct payments, and other forms of support to the non-renewable energy industry.
The subsidies examined fall roughly into two categories:
foregone revenues (changes to the tax code to reduce the tax liabilities of particular entities), mostly in the form of tax breaks, and including reported lost government take from offshore leasing of oil and gas fields; and
direct spending, in the form of expenditures on research and development and other programs.
The combination of subsidies—or ‘perverse incentives’—to develop fossil fuel energy sources, and a lack of sufficient incentives to develop renewable energy and promote energy efficiency, distorts energy policy in ways that have helped cause, and continue to exacerbate, our climate change problem. With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the US Tax Code.—ELI Senior Attorney John Pendergrass
ELI researchers applied the conventional definitions of fossil fuels and renewable energy. Fossil fuels include petroleum and its byproducts, natural gas, and coal products, while renewable fuels include wind, solar, biofuels and biomass, hydropower, and geothermal energy production. Nuclear energy, which also falls outside the operating definition of fossil and renewable fuels, was not included.
ELI researchers used a standardized methodology to calculate government expenditures. Where this methodology was lacking or did not apply, ELI researchers calculated subsidy values on a case-by-case basis.
Adenike Adeyeye, James Barrett, Jordan Diamond, Lisa Goldman, John Pendergrass, and Daniel Schramm (2009) Estimating US Government Subsidies to Energy Sources: 2002-2008
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