Fossil Fuels Receive Largest Energy Subsidies

September 29 2016

Fossil Fuels Receive Largest Energy Subsidies

An oft-repeated claim by opponents of wind power is that the technology couldn’t exist without subsidies. Let’s take a minute to examine that as an argument against the renewable energy source.

A subsidy is a benefit given by the government to businesses, groups or individuals, usually in the form of a tax break. Subsidies are generally used to support a portion of the economy and often used to encourage new technologies and new sectors of the economy.

Wind power fits under this definition and does receive a subsidy from the U.S. Government through the Production Tax Credit. The PTC was established in 1992 and allows owners of qualified renewable energy facilities to receive tax credits for each kilowatt-hour of electricity generated by that facility over a 10-year period. Qualified wind projects receive 2.3 cents per kWh.

Unlike fossil fuel subsidies, which we will address below, the PTC has always had an expiration date on it, creating uncertainty in the marketplace, which makes operating a business incredibly difficult. The wind industry has had to contend with repeated changes to their federal support mechanism. Indeed, far from providing a stable support mechanism for an up and coming economic sector, wind tax credits have been changed seven times in a decade.

Meanwhile, the fossil fuel industry is receiving $37.5 billion* in subsidies from the federal government that have remained stable for almost a century. Where is the outrage over this? Apparently, the same people who rant against subsidies for wind power don’t really care about subsidizing fossil fuels; they just don’t like wind because it’s in their back yard.

We frequently get comments from opponents that claim, “wind wouldn’t work without the subsidy!” Well let’s look at just one of the many tax breaks the fossil fuel industry receives and what the industry has to say about the impact of that tax break.

The Percentage Depletion Tax Credit allows companies to deduct a flat percentage of income received from oil and gas wells right off the top, which frequently results in tax deductions in excess of investment. The Independent Petroleum Association of America describes the tax credit this way:

“This deduction is a standard part of the American tax code that supports the development of U.S. oil and natural gas that would otherwise be uneconomic to produce.”

Right from the horses mouth.

Fossil fuels are a finite resource, which means that every additional barrel of oil we take out of the ground will be more difficult and costly to extract than the previous one. This problem does not exist with renewables. In fact the cost of wind power has been reduced by 90 percent since the 1980s according to the U.S. Department of Energy. The benefits of providing a subsidy to wind power are tangible. Costs have come down and we are shifting away from a fossil fuel-based power production scheme to a more sustainable energy future. Fossil fuel prices continue to rise despite receiving subsidies for nearly a century.

By blatantly ignoring the imbalance in subsidies between renewables and fossil fuels, wind opponents who use these as an argument against wind development are actually supporting the continued extraction, refinement, and combustion of the very fuels that are destroying our planet.

Unfortunately, this inequity of subsidies between fossil fuels and renewables is not unique to the United States. According to the IEA, fossil fuels are subsidized to the tune of $550 billion annually while renewables receive $120 billion annually.

To put that in perspective here’s what IEA Chief Economist Fatih Birol had to say about those numbers:

“The huge subsidies fossil fuels enjoy worldwide gives incentives to their consumption, which means that I’m paying you to pollute the world and use energy inefficiently,”

*That 37.5 billion does not include the additional costs borne by taxpayers related to the military, climate, local environment, and health impacts of the fossil fuel industry that are estimated between $360 billion and $1 trillion each year – in the United States Alone!

Sources:

http://priceofoil.org/content/uploads/2014/07/OCI_US_FF_Subsidies_Final_...

http://www.bloomberg.com/news/articles/2014-11-12/fossil-fuels-with-550-...

http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

http://www.renewableenergyworld.com/articles/2015/06/a-closer-look-at-fo...

http://www.awea.org/Resources/Content.aspx?ItemNumber=5547

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