Mr Trump, Tear Down Those Energy Subsidies!

Originally posted at ThisIsEisenhower.com by John Brian Shannon

A hundred years ago in America, the federal government decided to help a new industry take its first baby-steps by legislating oil and gas subsidies which were paid for by increased citizen taxation.

It’s commonly done by governments everywhere and it’s not the worst thing for a nation to do.

Here’s how that works: (1) A new industry appears (2) the government sees economic potential (3) citizens are told they must pay more tax to support the new industry (4) the subsidies continue long after they’re no longer required (5) the subsidies tend to increase over time and expand into other areas of the business (6) until the subsidies reach obscene amounts and the taxpayers revolt.

In short: Subsidies are a ‘good thing’ — until they aren’t

United States - Energy subsidies from 1918-2009. Image courtesy of Nancy Pfund
United States – Energy subsidies from 1918-2009. Image courtesy of Nancy Pfund (PDF)

Energy subsidies accumulate over time

Arithmetic tells us that U.S. oil & gas subsidies total $442 billion from 1918-2009.

It’s worse if you add the additional $80 billion/yr in U.S. oil & gas subsidies paid from 2010-2017, which total $560 billion.

Here’s what U.S. oil & gas subsidies look like when totaled over the entire 1918-2017 timeframe: $1,002,260,000,000.

U.S. oil and gas subsidies since 1918 total one trillion dollars

And U.S. taxpayers paid every penny. That’s a trillion dollars of income tax and fuel tax paid by U.S. citizens to subsidize American oil & gas companies since 1918.

Subsidies are a fine thing for new industries taking their first baby-steps. Wherever the federal government sees economic potential for a new industry, subsidies are the way to grow the opportunity and help stabilize the new industry UNTIL it can stand on its own two feet.

But Mature Industries Don’t Need Subsidies

The problem with oil & gas subsidies is that by 1950 they were 100% redundant. No longer needed. At all.

When mature industries continue to receive taxpayer-funded subsidies long after the original need for them disappears, that revenue goes to support pro-industry advertising, pro-industry organizations and pro-industry politicians.

In that way, some $80 billion/yr in oil & gas subsidies became available for pro-industry causes as it was no longer required to support a new industry taking its first steps.

Note: Not all oil and gas subsidies are bad! Additional subsidies paid for research on ‘cleaner-burning’ fuels via high-tech additives, a transformation that began slowly in the 1970’s and continues — to remove lead from gasoline, and for catalytic converter research in the 1980’s, are two such examples. Billions of dollars were well spent and were very cost-effective. But once the research has been done and the clean-burning fuel goals have been achieved, no reason exists to continue to pay such subsidies.


Except for the dollar amounts, much that applies to U.S. oil and gas subsidies also applies to U.S. nuclear power subsidies.

So let’s skip directly to the nuclear power numbers, shall we?

Simple arithmetic tells us that U.S. nuclear power subsidies amounted to $182 billion from 1947-2009.

It’s worse if you add the additional $102 billion (conservative estimate) in U.S. nuclear power subsidies that were paid by taxpayers from 2009-2017.

Here’s what all (federal) U.S. nuclear power subsidies look like when totaled over the entire 1947-2017 timeframe: $284 billion.

U.S. nuclear power subsidies since 1947 total $284 billion

But if one were to include all nuclear power subsidy costs including; safe storage, disposal, or reprocessing of spent fuel, transportation of spent fuel to other countries for safe storage or reprocessing, the decommissioning of nuclear power sites such as Hanford, the cleanup and cost of replacement electricity due to U.S. nuclear power plant malfunctions, and future reactor design spending, nuclear power subsidies could total $500 billion. Perhaps as much as $1 trillion.

NOTE: That’s not including billions of dollars worth of grants awarded by the federal government for new nuclear power reactor designs to replace America’s aging reactors.
Nor does it include the tens of billions paid to store and defend so-called ‘spent fuel’ which is highly radioactive and useful to terrorists.
Nor does it include reprocessing costs for spent fuel.
Nor does it included shipping costs to ship spent fuel to other countries for storage or reprocessing.
Nor would it include any costs associated with nuclear power plant malfunctions.
Nor would it include any costs associated with nuclear powered US Navy ships.
Due to the sensitive nature of nuclear materials some information is difficult to obtain, therefore, the $102 billion nuclear power subsidies figure used for the 2009-2017 timeframe is an estimate.


Biofuels are a new-ish industry. It’s about where the U.S. oil & gas industry were, in their first 20-years. It’s an industry where subsidies can make a difference to get the thing up-and-running and add stability to the new industry.

Biofuel energy subsidy in the early years was subsidized at $1.00 per gallon, which then declined to $.66 per gallon, but since 2011 has fallen to $.45 per gallon.

Total U.S. biofuel subsidies amount to $31 billion from 1980-2009 and an additional $65 billion from 2010-2017.

For a grand total of $96 billion from 1980 to 2017.

U.S. biofuel subsidies have totaled almost $100 billion since 1980

Note: The original U.S. biofuel subsidies enacted by President Carter during the 1970’s fuel crisis were later expanded to allow U.S. biofuel producers to compete with the much larger and more heavily subsidized Brazilian biofuel producers.


Coal subsidies follow the pattern described in the introduction to this post (subsidy steps 1 to 6) and subsidy costs are in the same neighborhood as oil & gas.

But U.S. coal subsidies in all its forms — including so-called ‘Externalities’ might total half a trillion dollars annually

Here is what a landmark Harvard Medicine study said about the externality costs of U.S. coal:

“Each stage in the life cycle of coal—extraction, transport, processing, and combustion—generates a waste stream and carries multiple hazards for health and the environment.

These costs are external to the coal industry and are thus often considered “externalities.”

We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to one-half of a trillion dollars annually.

Many of these so-called externalities are… cumulative.

Accounting for the damages… doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of nonfossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive…” — Harvard Medicine Full cost accounting for the life cycle of coal (PDF)

This study illustrates the most vexing problem with U.S. energy extraction, refining, processing, storage, end use, and decommissioning of energy sites — energy ‘externalities’. And such externalities aren’t limited to the coal industry.

Energy production externalities (also called ‘Indirect Subsidies’) may cost America $1 trillion per year due to higher healthcare and infrastructure maintenance costs.

Damage to infrastructure arrives in the acid rain falling downwind from fossil fuel power stations, causing damage to bridges, buildings, and roads constructed with concrete (so-called concrete spalling) and causes paint damage on cars and trucks, and is responsible for crop losses downwind or downstream from fossil fuel extraction sites or power stations, and harms aquatic life found in rivers and coastal areas near river outlets.


Terms to remember: Energy ‘kind’ and ‘type’

There are only two ‘kinds’ of energy: Non-renewable and Renewable energy.

There are many ‘types’ of energy: Natural gas-fired, oil-fired, coal-fired, nuclear energy, solar photovoltaic, solar thermal, wind turbine, hydro-electric, ocean thermal, ocean wave, ocean tidal, biomass, wood-burning, and pellet-burning.

United States – The graphic illustrates various kinds of energy. Planetary energy graphic image courtesy of Perez and Perez 2009.
United States – The graphic illustrates various kinds of energy. Planetary energy graphic image courtesy of Perez and Perez 2009.

The trend of large subsidies in a sector like the energy sector, is that subsidies reward less efficient energy producers and punish more efficient producers in relative terms.

“Just pump it Fred, we’re getting our subsidy money per barrel of oil, who cares if it’s #4 sour crude oil? We get paid to pump oil, not look for better quality oil.”

Although there’s a separate ‘oil exploration’ subsidy too.

And let’s not forget the more ‘sour’ the crude oil, the more processing it requires at the refinery, and because #4 sour is very tough on oil refinery maintenance budgets, it further increases costs at the gas pump.

The more oil you pump of whatever quality, the more subsidy money you get — and that isn’t the way to maximize the efficiency of money in the energy market.

The oil industry delivers an easy example, but every energy subsidy scheme changes the behavior of the principals involved towards lower quality energy, whether it’s subsidized non-renewable energy or subsidized renewable energy.


In the primary energy segment (electricity and district heating) the type of energy varies by region.

Hydro-electric, coal-fired, and nuclear power are astonishingly costly to build and couldn’t have been built without massive subsidies. And even with huge subsidies for R&D, construction, millions of acres of land grants, generous tax incentives and more, some of those energy types still require small per kW/h subsidies to compete in the marketplace. In their favor, all of these have been extremely reliable primary energy producers for decades, but are mature industries that no longer require subsidies as financing such projects in the 21st century is considered routine. But it wasn’t always so.

In secondary energy (transportation) oil and gas infrastructure is also costly to build and the necessary infrastructure couldn’t have been built without massive subsidies. Yet, with sufficient refinery capacity already available there is little need for new refinery capacity, and today’s fuel prices support easy financing for future capacity additions.

Especially for vertically integrated oil companies that own their oil concessions (oil fields) their own distribution system (pipelines, or rarely, rail) and their own refineries, these can thrive during times of low crude oil prices.

Removing oil & gas subsidies would cause oil companies to become vertically integrated with no loss in profits. But why bother, when there’s no incentive due to a high subsidy scheme?

That won’t be the only change. Every subsequent change to the business would necessarily be designed to improve the overall efficiency of the company, sans-subsidies. That’s been missing since 1918.

By leveling the playing field for all kinds and types of energy, the most efficient energy kind and type will become king, and energy investors will earn more profit. (Because profits are earned on the ‘spread’ — the difference between what energy costs to produce and what it can be sold for. Subsidies make markets significantly less efficient and muddy the waters)

In summary: Removing energy subsidies will cause every energy producer to concentrate their efforts on the most efficient kind and type of energy in their region of the country, instead of choosing their energy kind and type by how many subsidy dollars they can capture via their energy choice.


President-elect Donald Trump, please tear down these subsidies!

And let the marketplace determine the most efficient energy.

Federal energy subsidies should return to their proper place. That is; When the federal government sees a new industry with economic potential; To invest, subsidize, and promote that new industry using taxpayer dollars for only as long as it remains a new industry. And not one day longer.

Markets are perfectly efficient when left to their own devices. Massive, taxpayer-funded subsidies for mature industries only serve to warp the markets and punish the most cost-efficient U.S. energy producers.

People either believe in free markets or they don’t

We can’t say we believe in free markets AND THEN massively intervene in the market with humongous, taxpayer-funded energy subsidies for some kinds and types of energy, but not other kinds and types energy.

With the greatest respect Mr. President-elect, I urge you to allow all U.S. energy producers to compete in a free market by phasing-out energy subsidies for every kind and type of energy over the next five years.

Coal Suddenly a Major Talking Point in the US Election

In late 2015, report after report after report emerged showing that coal consumption on the global scale was headed for an impressive decline, and possibly that dependence on coal had peaked all over the world. For example, China, one of the largest consumers of coal on the planet, was rapidly decreasing their dependence on the fossil fuel, and when this decline was paired with declining reliance in other countries and here in the U.S., it made the coal industry significantly weaker…

Continue reading Coal Suddenly a Major Talking Point in the US Election

San Diego Targets 100% Renewable Energy by 2035

San Diego has outlined a plan to run on 100% renewable energy by 2035

The southern California city is moving forward with an ambitious plan to run on 100% renewable energy and cut greenhouse gas emissions in half by 2035 and it’s doing so in a bipartisan manner.

  • The California city of San Diego announced it plans to run on 100% renewable energy (solar and wind) by the year 2035.
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  • Of the 1,000 cities committed to 100% renewable energy, San Diego is a leader, with a target of 2035, and its mayor is a Republican.
  • San Diego is the largest American municipality to make a legally binding pledge to use 100% renewable energy.

Continue reading San Diego Targets 100% Renewable Energy by 2035

Did climate change collapse ancient civilizations?

Did climate change cause these ancient civilizations to collapse?

Drought is the great enemy of human civilization. Drought deprives us of the two things necessary to sustain life–food and water. When the rains stop and the soil dries up, cities die and civilizations collapse, as people abandon lands no longer able to supply them with the food and water they need to live. While the fall of a great empire is usually due to a complex set of causes, drought has often been identified as the primary culprit or a significant contributing factor in a surprising number of such collapses. Drought experts Justin Sheffield and Eric Wood of Princeton, in their 2011 book, Drought, identify more than ten civilizations, cultures and nations that probably collapsed, in part, because of drought. — Dr. Jeff Masters, writing in the Ten Civilizations or Nations That Collapsed From Drought

Climate Change
Scientists documenting the impacts of climate change say it may be a factor in the boom-and-bust cycles of ancient Southwest civilizations in the US. Cliff Palace image courtesy of wunderphotographer Amtnspirit.

 


The Ancestral Puebloan (Anasazi) culture in the Southwest U.S. in the 11th – 12th centuries AD. Beginning in 1150 AD, North America experienced a 300-year drought called the Great Drought. This drought has often been cited as a primary cause of the collapse of the ancestral Puebloan (formally called Anasazi) civilization in the Southwest U.S., and abandonment of places like the Cliff Palace at Mesa Verde National Park in Colorado. The Mississippian culture, a mound-building Native American civilization that flourished in what is now the Midwestern, Eastern, and Southeastern United States, also collapsed at this time. Information courtesy of www.wunderground.com


Continue reading Did climate change collapse ancient civilizations?

Warren Buffet’s Berkshire Hathaway to Focus on Renewable Energy

Berkshire Hathaway Sharpens Focus on Renewable Energy Projects

In 2014, World Wildlife Fund (WWF) and the World Resources Institute (WRI) convened 34 leading companies to create the Corporate Renewable Energy Buyers’ Principles. These companies, which included HP, Facebook, eBay, IKEA, Target, Bloomberg, 3M, P&G, Kaiser Permanente, Intel, Salesforce, Cisco, BD and Staples, became signatories to these principles to spur progress on resolving the challenges… Continue reading Warren Buffet’s Berkshire Hathaway to Focus on Renewable Energy