Fossil fuel subsidies may be on the way out. President Obama’s deputy assistant, Michael Froman, laid out the administration’s climate change priorities in a September 3 letter. Froman stated in the letter that “eliminating fossil fuel subsidies would help energy markets work better and improve our energy security.” Froman said last week that phasing out fossil fuel subsidies internationally could reduce greenhouse gases by up to 12 percent by 2050.
Froman’s letter also stated that the “G-20 leaders should commit to take the lead in eliminating non-needs based fossil fuel and electricity subsidies and to provide technical assistance to non-G-20 countries taking steps to reduce fossil fuel and electricity subsidies.” World leaders at last week’s Group of 20 summit pledged to phase out subsides for fossil fuels in the “medium term.”
Fossil fuels receive larger subsidies than renewables
The federal government “provided substantially larger subsidies to fossil fuels than to renewables,” according to a new study by the Environmental Law Institute (ELI) on fossil fuel and energy subsidies in U.S. for fiscal years 2002 to 2008. Subsidies to fossil fuels totaled approximately $72 billion over time period, “representing a direct cost to taxpayers.” However, subsidies for renewable fuels only totaled $29 billion during same period. Subsides to fossil fuels increased, but did decrease in 2008. The Funding for renewables increased then decreased from 2006 to 2007, but increased in 2008.
The study pointed out that the majority of the largest subsides to fossil fuels are written into the U.S. Tax Code as permanent provisions. Many subsidies for renewables are “time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.” Almost half of the subsidies for renewables are for corn-based ethanol.
The majority of fossil fuel subsidies “can be attributed to just a handful of tax breaks, such as the Foreign Tax Credit ($15.3 billion) and the Credit for Production of Nonconventional Fuels ($14.1 billion).” The Foreign Tax Credit applies to the overseas production of oil through a tax code provision which allows energy companies to claim a tax credit for “payments that would normally receive less-beneficial tax treatment. ”
John Pendergrass, a for lawyer ELI, said, “With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the U.S. tax code.”
Rajendra Pachauri, head of the organization that shared a Nobel Peace Prize with Al Gore for work on climate change issues, said, “We need to remind these people about impacts of climate change – the fact that they are inequitable and fall very heavily on some of the poorest people in the world. We are likely to see a large number of failed states if we don’t act in time.”