Let’s be Clear About Subsidies

Let’s be Clear About Subsidies

Environmental groups frequently claim that fossil fuels get more subsidies than do renewables, but the claim is misleading.

There are fundamentally three different types of subsidies.

  1. Government payments or credits for a product or service:
  • This could be in the form of a grant, a direct payment, such 2.3 cents per kWh for electricity generated by wind, or a tax credit, such as the 30% credit for investing in PV solar.
  1. Government service to eliminate a cost that would otherwise be incurred by industry.
  • The best-known example would be the Price Anderson Act providing insurance in the event of a nuclear accident.
  1. Government mandating a sales price for a product that is below the product’s cost.
  • The best example of this is the mandated selling of gasoline at below cost to consumers such as in Saudi Arabia, Venezuela, and Iran. Another would be the selling of natural gas at below cost.

Some people claim that the depletion allowance is a subsidy, but it is merely an accounting rule that accounts for the gradual exhaustion of the resource in question, such as oil. This is analogous to the wearing out of equipment accounted for by depreciation. (It was eliminated for most large oil producers in 1975.)

Subsidies have become a political football as the result of AGW or climate change caused by CO2.

Subsidies for fossil fuels are seen as bad, while subsidies for renewables are seen as good.

I suspect that most people view Type 1 subsidies as being the only true type of subsidy because taxpayer money is used to pay for the subsidy. Government grants and tax credits are ultimately paid for by taxpayers.

The potential liability of a nuclear accident is so large that only the government can accept the risk. Without the Price Anderson Act, there could be no nuclear industry. Is this really a subsidy?

It’s the third type of subsidy that provides the rationale for the claim by environmentalists that fossil fuels receive more subsidies than renewables.

Here is the headline from a recent article by International Energy Agency (IEA) analysts:

“$400 billion in global fossil fuel consumption subsidies, twice that for renewables”

And here is the IEA chart of consumption subsidies:

The IEA caption said:
“The 2018 data sees oil return as the most heavily subsidized energy carrier. 

 

 

 

 

But here is the gist of the problem where socially motivated subsidies result in greater CO2 emissions.

“Social policy subsidies [are to] help the poor.”

“Fossil fuel consumption subsidies are in place across a range of countries. These subsidies lower the price of fossil fuels, or of fossil-fuel-based electricity, to end-consumers, often as a way of pursuing social policy objectives.”

“…but, encourage others to consume more too.”

 

It’s these consumption subsidies that allow environmentalists to claim that fossil fuels get far more subsidies than renewables.

But this is a game of semantics.

Are consumption subsidies, such as gasoline priced below cost to help the poor, what the average American taxpayer thinks of when he reads about subsidies?

I doubt it.

. . .

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