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Money Down a Hole

It’s long been Barataria’s position that energy independence, followed closely by a decrease in reliance on limited resources, is a very wise policy. The key question is resilience, which is to say the economy’s ability to weather any storm and still provide basic services. Food and energy should not become expensive overnight because of political concerns or currency shifts.

Getting to this point is a bit more controversial, however. Even the paltry $29B spent in 2013 as subsidies for renewable energies has become a political football. That amount comes to $236 per household, which is to say about 5% of what we spend on defense. Nevermind, it seems like a lot.

But according to a new study by the Overseas Development Institute (ODI), that’s almost exactly what we spend in subsidy to fossil fuels. And by global standards we’re actually doing far more than our share.

Demand for oil didn't rise as fast as expected, so supply got ahead of it.

Demand for oil didn’t rise as fast as expected, so supply got ahead of it.

Estimates for the total amount of money that goes into subsidizing the production of fossil fuels has always been a guess. It’s run between $10B and $50B, depending on who you ask and how they measure it.

Good numbers are hard to come by because there is no direct subsidy that is handed out to oil companies. It comes in the form of tax credits, reduced price leases on federal land, and reduced taxes on certain kinds of partnerships that take a lot of risk with a capital asset (which is to say the way oil exploration and only oil exploration can be depreciated).

The work done by ODI is impressive not because they pulled good, believable numbers for the US. Their work covers the entire G20, which is to say the twenty largest economies in the world – representing 85% of total planetary output.

Not everyone can do this.

Not everyone can do this.

The US, according to their estimate, runs a net subsidy of $20.5B. But the entire G20 is much worse overall with a total of $452B going into propping up fossil fuels.

Why is it so much? The short answer is that energy is indeed critical to every developed economy. That’s why independence is so critical. The temptation for governments to subsidize it to make it cheaper has always been very tempting. Cheap gas is also a good way to keep the people of a nation happy, nevermind who is paying for it.

The net result is that where the US subsidizes fossil fuel production to the tune of about 5% of consumption, the entire G20 subsidizes about 23% of the planet’s consumption of fossil fuels.

Infographic supplied by ODI.

Infographic supplied by ODI.

Nastiest of all is coal, in terms of pollution, carbon dioxide production, and in subsidy. Governments pumped $19B into coal production in 2014 while private industry only put in $10B. Those high paying, generally unionized jobs came at a heavy price all around.

ODI doesn’t necessarily give any answers in terms of policy as a part of their study. Shining a light on the relatively large subsidies given to energy is enough to shock nearly anyone concerned with developing renewable energy – which overall receives only a quarter of the subsidy that fossil fuels do. The data points directly to a logical course of action for anyone concerned with either national budgets or the environment – a wonderful confluence.

Here in the US? The fact that the subsidy so neatly balances between renewable energy and fossil energy should probably be seen as hilarious. Once again the rhetoric on both sides of the debate proved to be overheated and meaningless. But we can see that in the end renewable energy isn’t being advanced particularly strongly even here.

The search is it's own reward, but you re-search to find the $$$.

The search is it’s own reward, but you re-search to find the $$$.

Ending our subsidy to energy won’t go too far towards balancing the budget. But it could be better applied to targeted challenge grants with identified real-world application. Now that we know there is about $50B total to spend on energy take a moment to imagine what could be done with that, especially with some amazing new technologies that are not quite ready for prime-time but easily identified for more research.

This is probably the best way to read the ODI study if you are looking for recommendations. Certainly, some people would say that it’s better to leave the $400 per year per household in the hands of consumers who work hard to earn it.

But if a few years of that money could make it so that we never had to think about the Middle East again? Can we ponder that goal for a moment?

15 thoughts on “Money Down a Hole

  1. Ahhh… subsidy world – LOL – affects so many things, on so many levels – I remember when I first fell down that rabbit’s hole – via a circa 2005 article at a tiny, tiny blog of an Local Resiliency activist, who has since, passed away – explaining why a head of lettuce at (insert national grocery chain) cost .87 and why it was 1.97+ at the local farmer’s market – 🙂
    I still believe our only hope is Education, education, education on where the money comes from/goes, etc. – and man alive, are you doing your part – (and no, I didn’t even click on the available info – right now, can’t bear to look at more stats of reality – but thanks for providing ’em – I may be ready to tackle reality…once again…tomorrow….) 🙂

    • It’s troubling. I understand why many nations subsidize energy – it’s vital to modern life. But that makes the energy market stagnant and less efficient – and directly conflicts with the need for new sources!
      This is a classic problem for the left. Market forces are very, very powerful and there are good reasons to have a light hand whenever possible. But there are also good reasons to subsidize basic services. There is no “one answer” !!

  2. Great post! I like the idea of phasing out subsidies, but using the money saved for targeted “challenge grants” to truly spur innovation and a shift to renewable systems, rather than letting that money get diluted in the general budget (in a dream world, that could also be complemented by revenue generated from a carbon-price policy).

    Incidentally, the X Prize Foundation has recently launched a challenge competition on converting CO2 emissions into a valuable revenue stream (http://carbon.xprize.org) … not quite what you’re suggesting, since it’s backed by voluntary industry funding, but maybe a taste of what could be.

    • With all that said, it would be interesting to see what effect phasing out subsidies would have on energy prices for the consumer. Right now, it doesn’t look like a big deal with prices so low, but over the medium-term it could push prices up somewhat substantially, which would likely have a disproportionate effect on the poor.

      • Targeted subsidies, such as home heating assistance that goes directly to the poor, is always going to be cheaper than a broad subsidy that lowers the price for everyone.
        Then again, a cash payment to the poor that allows them to make the choices they need (food, energy, etc) is the best for them and also probably cheaper in the long run.
        BUT – to help everyone some stability in critical markets like food and energy is probably more useful than actually lowering the price, IMHO.

    • I have come to believe that a technology based solution in a competitive framework like this is the best go-to alternative before we start subsidizing things. Having said that, I know it’s not always going to work. But we can imagine a checklist for governments facing problems that at least starts here.
      The X Prize is a great start. Their resources are limited but … wow …

    • It certainly surprised me. They tried to hit everything they could, too.
      In other nations subsidies usually come from state-run companies. So it’s a different setup all around. It’s hard to compare generally.

    • Thanks. But I think the conclusion here is that things were more or less just truckin’ along and no one is really paying attention – which seems to be true for nearly everything.

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