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Obama Can Cut Fossil Fuel Subsidies and Save $39 Billion, But Will Congress Go Along?

The cuts were included in the last two budgets submitted to Congress, but were never implemented. Will GOP budget hawks now get on board?

By Elizabeth McGowan

Jan 14, 2011

WASHINGTON—Lately, President Obama seems to be suffering from a case of laryngitis on the topic of shaving subsidies for the fossil fuel industry.

Thus, not too surprisingly, it appears Congress has been infected with the same bug.

Environmentalists and deficit hawks are eager for the president to find his voice again by using his 2012 federal budget to once again take a whack at propping up oil and coal. Last year, the idea he dangled of in such subsidies through 2020 went nowhere. It’s unclear if Obama might try to duplicate those savings when he unveils his latest budget proposal in mid-February.

David Goldwyn of the State Department made it clear during a talk in Washington this week that reining in fossil fuel subsidies worldwide would help to make a significant dent in greenhouse gas emissions. The Group of 20 has committed to doing so and the International Energy Agency will be keeping score, said Goldwyn, who is stepping down today from his position as coordinator for international energy affairs.

In the United States, he pointed out, reducing subsidies “will be a political battle.”

“The one piece you can lay at the Obama doorstep is a failure to push this issue,” Steve Kretzmann, executive director of the Washington-based nonprofit Oil Change International, told SolveClimate News in an interview. “He has put it in his budget the last two years and Congress didn’t pick up on it. A campaign from the White House about eliminating subsidies could do a lot.”

Subsidy Numbers Booming

Obama drew kudos from Kretzmann and others for his resolve in September 2009 at the G20 Pittsburgh Summit when he called on member nations to wean the fossil fuels industry of taxpayer-funded subsidies and outlined specifically how the United States would undertake such cuts. But nothing more than talk happened on either front yet.

For decades, tax breaks and federal incentives have been a boon to the U.S. fossil fuels industry. Numbers compiled by the Environmental Law Institute reveal that those figures totaled $72 billion between 2002 and 2008—about $10 billion annually. put annual U.S. subsidy figures to these mature technologies somewhere between $6 billion and $39 billion annually, depending on what is included in the count.

Graph of energy subsidies

The International Energy Agency (IEA) estimates that worldwide, countries spent $312 billion to subsidize fossil fuels in 2009. That figure casts a daunting shadow over the $43 billion to $46 billion governments provided to renewable energy, according to from the London-based research group, Bloomberg New Energy Finance. The latter came through tax credits, alternative energy credits and guaranteed electricity prices known as feed-in tariffs.

At $18.2 billion, the United States led the way with clean energy subsidies in 2009, according to New Energy Finance.

Opportunity Slipping Away at Congress?

After Republicans dominated the mid-term elections last fall, Capitol Hill trackers speculated that slicing away at fossil fuel subsidies could provide common ground for Democrats who are longtime advocates of taking such action and Republicans intent on righting the national deficit and debt crisis by whittling away at budget waste.

It wasn’t perceived as an issue confined to the extreme left or right. None other than the Bipartisan Policy Center, a levelheaded, Washington-based think tank, endorsed the paring of such subsidies.

Just a few weeks into the 112th Congress, however, observers are already doubting that such a harmonic convergence can occur.

“This is a chance for Congress to decide what’s more important, deficit reduction or the oil industry that pays for campaigns?” Kretzmann said. “It’s about principle rather than rhetoric.

where is nuclear in your pie?

where is nuclear in your pie?

This should not be an either-or-debate

Shrinking consumption subsidies in the developing world would do nothing but provoke backlash and ensure gridlock.

Not true, or at least not as a universal generalization. Shrinking consumption subsidies in the developing world will not always be easy, but an increasing number of developing countries know that such a change is necessary and inevitable -- especially the countries like Indonesia, which have gone from being net oil exporters to being net oil importers and are seeing precious government revenues being spent on consumption of something that is dirtying their atmosphere and not helping to develop their economy.

Even Iran has come to realize that it cannot afford to continue the current policies, so has embarked on a radical reform of its fuel-pricing policies, while instituting a cash-transfer program to help those poor most adversely affected.

In many countries that subsidize (suppress) prices of petroleum fuels or natural gas, it is not the poor who are the major beneficiaries, but the non-poor. And in countries like Saudi Arabia, the government is keeping prices of naptha and natural gas low in order to encourage the build-up of a petro-chemicals industry.

Politically, the developed countries need to do their own bit in eliminating subsidies to fossil fuels if they expect at the same time that developing countries should eliminate theirs. But let's concentrate on that without needlessly glossing over the real environmental and economic problems being caused by the practice of subsidizing fossil-fuel consumption in developing and emerging economies.

Small correction

Just one small correction to this otherwise excellent article - I didn't and woudn't say that removing subsidies will necessarily lead to an increase in gas prices - my point in linking it to record profits is that a removal of subsidies doesn't have to lead to an increase in gas price - it can instead simply lead to a reduction in the record level of profits that the industry enjoys.  Industry will always raise the spectre of higher gas prices as a way of stopping any effort aimed at subsidy removal - but the truth is that they're more interested in protecting their record profits than the price of gas.

End All Subsidies

Renewables are at a major disadvantage. Fossil fuels including gas, oil, and coal, get a total of $80 billion in tax breaks and direct spending subsidies every year. Renewables now get $29 billion, with $6 billion of it going to ethanol. So that means renewables are at a $51 billion subsidy disadvantage. By repealing all subsidies, it removes that huge disadvantage holding back renewables. Every time renewable subsidies are to be extended, fossil fuel subsidies always get tacked on. So it's actually better to repeal ALL subsidies.

Our government has always

Our government has always subsided oil...why?  Because Big Oil has used the subside to return a part of our tax money to the politicians for election campaigns.  Additionally, this money serves to keep the price of gasoline at the pump lower than it should be by assuring they have a floor of profit. 

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