Ending Oil Subsidies from the Government

So rather than talk vaguely about the need to reduce our oil dependence (as if we were all just going to stop driving to work and school) or disingenuously about the need to get off foreign oil (as if we could ever produce anywhere near enough oil to make a dent in our dependence on stable global oil markets), the president offered an approach that would at least get us started in the right direction, and if nothing else, would help cut the deficit, something politicians of all stripes could support, right?

One word of warning to the president: Finding these subsidies is a lot harder than you might think.

Not long ago, I helped the nice people at the Environmental Law Institute work on a project to identify and quantify federal subsidies to various energy industries. The end result was a very good report http://www.elistore.org/Data/products/d19_07.pdf and this nifty graphic to go with it:

It turns out that the hardest part of the project was defining what a subsidy is. We wanted to be objective and clear, and to err on the side of being overly conservative. And while the "You know it when you see it" standard would have been much easier to apply, we came up with a working definition that defined a subsidy as a deliberate decision, action, or failure to act taken by the federal government that conferred some economic benefit on industry participants that directly and negatively impacted the federal budget. We measured the subsidy as the size of the budget impact (as opposed to the value conferred on the industry).

Equipped with a solid working definition, we still spent more time than I can remember debating what fit and what didn't. What we found, which seems obvious in retrospect, is that the vast majority of subsidies don't come in the form of government payments to industry, but rather the less obvious tweaks and exemptions to various tax laws. Oddly enough, the largest, and most interesting subsidy to the oil industry that fit our definition was actually a slight change of a few definitions in Saudi Arabian tax law.

I highly recommend reading the whole paper, if only to emphasize the point that, much like the politics of the issue, defining and identifying energy subsidies is a far more convoluted undertaking than the common sense nature of the issue indicates.

As explained in further detail in this paper, the analysis does not include
• energy efficiency measures;
• non-fuel-specific transportation spending (on either roads or vehicles);
• non-fuel-specific subsidies to the electricity sector;
• the subsidizing effects of regulatory or procurement standards; and
• other measures that either are not fuel-specific or do not affect the federal budget.

Several limitations should be noted. The study, which calculates subsidies in aggregate fiscal terms, does not seek to determine how these subsidies affect energy production or consumption, or whether they ultimately benefit consumers or industry. Such an assessment requires a considerably more complex level of analysis, one that exceeds the scope of this study. The study also does not offer normative judgments about these subsidies. That is, the identification of fuel-specific subsidies does not constitute a recommendation that each one of these subsidies be phased out, but is simply intended to show how federal tax dollars support fossil fuel and renewable energy production and use.