Hidden Oil Subsidies: We Need to END Them

I have no problem with oil companies making money when people buy their products. After all, they wouldn't sell any if people didn't buy it.

But I have a BIG problem with them making money via tax dollars. Why are we paying for all these services to them? is the national guard installing wind turbines ? Yeah, as you say, we need to level the playing field, not subsidies green stuff (or at least, not before the field is level).

Gee, $100 billion/year for the past 18 years. That works out to... a heck of a lot less than it would have cost to replace every coal, gas, and oil power plant in the country with a carbon-neutral nuclear one, with enough money left over to fund massive research into making renewables cheaper, improving automobile efficiency, developing PHEV, finding ways to safely dispose of and/or make use of nuclear waste, and enough spare energy capacity to start manufacturing synthetic fuels using hydrogen from water and, if needed, atmospheric rather than fossil carbon.

Note: for this I'm using the historical average of $2.5 billion per 1 GW nuclear plant and U.S. 2005 consumption of about 500 GW of electricity of which 20% was already from nuclear. Thus getting all U.S. electricity from nuclear should cost no more than about $1 trillion in construction, then 2.3 cents/kWh for fuel.

Please, can't we elect someone with some sort of vision, a dream, a plan that might make long-term sense? Do we really need a Soviet Union type enemy to get us to act cohesively as a nation? Do we need to try every bad plan before stumbling on a decent one?

The US trade deficit is about $60B a month.

$40B of that is foreign oil.

Some might include the 'War on Terror' which is another $10B a month.

When it comes to the economy only one thing matters - get off the oil.

Nuclear power is a scam. No civilian power reactor has ever lasted 40 years - some had to be shut down in less than a year. Every reactor has run over budget and the waste is stored, secured and inturned at tax payer expense. Plus, in this day and age every reactor, waste dump & transport truck and train is a target!

If you want to whip out numbers about how 'cheap' nuclear power is why don't you go check the DOE's own numbers on geothermal power costs? Prices range from 1 cent to 3 cents per Kwh all inclusive depending on the site.

A 2006 study by an economics professor at the University of British Colombia concluded that the real cost of oil is 4 - 10 times what we are actually paying at the pump. That means 75 to 90% of what we pay for oil is in our taxes rather than at the gas pump.

When the GOP runs on "cutting taxes" this fall, we should drive it home that the first taxes we want cut are those that pay for oil.

http://healthandenergy.com/why_we_should_pay_more_for_gas.htm

$158 billion sounds like a lot. But just for context's sake:

The US Energy Information Administration reports that we use about 20.7 million barrels of petroleum per day. Annually, that's around 7.6 billion barrels. The subsidy in question would thus add between $3.97 (Cato's low estimate) and $20.93 (the author's high--but unsourced--estimate) per barrel. A down-and-dirty regression of crude oil and regular unleaded gas prices (1998-2007, again courtesy of the EIA and regressed using Excel's LINEST function) suggests that every dollar increase in the price per barrel of crude oil adds three cents per gallon to the price of gas.

With the author's estimates that's a big dent, as much as 65 cents per gallon, but without any info on the source of the study we can't say much about the reliability of that figure. Cato's numbers are still significant, 12 to 25 cents per gallon. But I'm not sure that would prompt a huge reaction from people.

Yar. Yer third paragraph, third sentence should be in tha post tense yar... 'spent' instead of 'spend' ..

That be all ye scurvy dogs..

Other than that, its ludicrous. And its just the tip of the iceberg. Dig a little into how much paving costs, and then calculate the subsidy to trucking.

It is high time that we tried fresh approaches,and replaced our anachronistic , turn of the century modes of distribution and transport. It should have been done a long time ago, but for vested interests. The only way to beat these things is to SHINE A BRIGHT light and illuminate the dark corners.

There are too many factors in calculating the "real cost" of something to be able to estimate it very accurately. That's why civilization uses the monetary system. All the little pieces add together and at the end, the consumer can fairly evaluate whether it's worth the price.

So if you want economics to balance this energy market, you have to make sure those hidden costs are instead reflected in sales price so we can get a hard number with which to evaluate the overall best deal.

So you don't simply "remove" subsidies like Coast Guard escorts. Instead, pay for those mission expenses through fees on oil ships, allowing (theoretical) tax relief.

The problem is this still routes the money through Washington which generally has a hard time escaping its gravitational pull. I'll try to be optimistic.

re Jeff - You wanna know why $158B sounds like alot? Because it is. It would pay for 594 solar power plants like Nevada Solar One (the 3rd largest in the world) to be built EVERY YEAR.

That would add 38GW in new solar power capacity every year. Just to compare, the US has about 106 GW of nuclear capacity and about 333 GW of coal capacity.

http://en.wikipedia.org/wiki/Energy_use_in_the_United_States

Very interesting post. But I agree with Jeff Johnson that it would be helpful, Mr. Richard, if you could provide a link to the study which claims that actual subsidies to Big Oil are running at between $78 to $158 billion per year.

Estimates on subsidies to petroleum range widely, and it is important to know what the estimators are measuring. The EIA's recent report, Federal Financial Interventions and Subsidies in Energy Markets 2007, counted less than $3 billion per year in subsidies to petroleum. It did not count the cost of protecting supply lines, however.

On the other hand, I have seen estimates that assign to oil all manner of "subsidies" associated with road transport -- expenditure on roads, congestion, accidents, etc. In my opinion, these expenditures and externalities should not be counted as costs associated with road transport, not subsidies to oil. At the very least, to be consistent, the people who produce such estimates should allocate such costs proportionally to ALL transport fuels, including biofuels.

Andy, the only problem with your argument is that, though your statement about the monetary system reflecting costs is accurate, is that here we are addressing the issue of subsidies. What that means is that the government taxes you (i.e. takes money under force of law) and gives it to oil companies with the justification that it is unfair for you to pay a lot for oil because of X or Y reason.

Taxes and subsidies screw with the monetary system and interrupt market forces. These epic subsidies are what have kept oil prices falsely low for so long, so instead of a gentle adaptation such as in other markets (read, computerized industries, internet assimilation, etc) we have to do a rapid transition, which leads to instability and, in the short term, a lowered standard of living.

This is the main reason government subsidies of any sort are bad. Instead of giving away more money, take less. It has the same effect and gives governments less control.

I just wanted to address that issue in your first paragraph, the rest of your comment is accurate and very intelligent.

Links, references, please. Thanks to Ron Steenblik for the link to the EIA study which, incidentally, does not agree with this assessment.

I would be grateful for pointer to the "more comprehensive study".

Links, references, please. Thanks to Ron Steenblik for the link to the EIA study which, incidentally, does not agree with this assessment.

I would be grateful for pointer to the "more comprehensive study".

The Cato-institute is mostly on the side of the vested interests, so you can be sure that the numbers are on the conservative side. Big oil is subsidizing them very generously. In general any report by a think-thank should be greeted by a great amount of scepsis. Especially at the Cato-institute they are masters at manipulating data until it fits with the result they want to communicate to the politicians and public.

"The Cato-institute is mostly on the side of the vested interests, so you can be sure that the numbers are on the conservative side."

Cato CERTAINLY is against OPEC and other cartels, and they are against big government and subsidies. They do get some money from the 'indendent' (non gov) oil companies, so that might have an impact, but since most of those subsidies go to middle-east government oil and not US companies...

Yeah, Pieter, sure, the Cato Institute, a bunch of hardcore libertarians, are working to maintain subsidies. If I have ever known a bunch of people who wouldn't twist the facts to support subsidies, it's the people at the Cato Institute.

"the Cato Institute, a bunch of hardcore libertarians, are working to maintain subsidies."

You, sir, need to learn what a libertarian is.

They are against ALL subsidies, as well as against most government intervention. Probably why they did the study in the first place, to show how ridiculous those subsidies are, and you are paying for it without a choice.

@Ugly American:

Agreed; $158b would do a world of good for renewables of all sorts. My point is strictly in reference to the author's contention that internalizing the subsidized costs would make a major difference in gas prices. Only at the high end of the estimates is that actually the case, and as several others have echoed here, those high estimates are of unknown reliability without a source.

@Anonymous:

You might note the sarcasm in the post to which you responded, or at least read the whole post. I think its pretty clear that the author is saying that libertarians are not going to support subsidies.

his is only the tip of the (melting) iceberg, too. Big Energy has figured out how to externalize nearly ALL its operating costs onto the environment, taxpayers and ratepayers, and to privatize all the profits. Big Wind and Big Solar are exactly the same as Big Oil and Big Coal. they completely destroy enormous sections of functioning, pristine taxpayer-owned ecosystems for a few bucks in "leasing fees" a year, they get massive tax breaks and subsidies, they get to steal our homes for powerline routes (wait till you see what's coming under the 2005 Energy Policy Act - it is epic), and they then get to amortize any leftover capital investment costs or operating costs across the grid. all their expenditures are GUARANTEED by the government, which means venture capital flows towards them, and can give them super cheap money because it's no-risk.

it is insanely profitable to be in Big Energy, which is exactly why clowns like Swiftboater Pickens are doing it. anyone who bothered going to the BLM hearings on the Southwest solar PEIS would have heard these Big Solar guys ranting against Environmental Impact Reports, demanding access to National Parks, National Forests, ACECs, DWMAs and nature preserves. Meet the new boss, same as the old boss - let's not greenwash them.

We need point-of-use, local renewable energy production investment NOW. we cannot level the playing field while Big Energy gets all the resources, so a "market solution" is completely impossible.

Thanks Mike! All these years I thought billion started with a q instead of a b!

Subsidies to farmers are another indirect subsidy to big oil. Corn, among other staple crops, is highly subsidized, and growing corn (at least in the way it is encouraged) requires tons of nitrogenous fertilizers & (herb|insect)icides, which are oil intensive. Thus, all the programs to encourage stupid growing practices are a subsidy to oil and to monsanto.