Obama’s Bid to End Oil Subsidies Revives Debate

WASHINGTON — When he releases his new budget in two weeks, President Obama will propose doing away with roughly $4 billion a year in subsidies and tax breaks for oil companies, in his third effort to eliminate federal support for an industry that remains hugely profitable.

David McNew/Getty Images.

President Obama urges an end to $4 billion in oil company subsidies.

Previous efforts have run up against bipartisan opposition in Congress and heavy lobbying from producers of oil, natural gas and coal. The head of the oil and gas lobby in Washington contends that the president has it backward — that the industry subsidizes the government, through billions of dollars in taxes and royalties, not the other way around.

But even as the president says he wants to do away with incentives for fossil fuels, his policies continue to provide for substantial aid to oil and gas companies as well as billions of dollars in subsidies for coal, nuclear and other energy sources with large and long-lasting environmental impacts.

Mr. Obama’s proposal rekindles a long-running debate over federal subsidies for energy of all kinds, including petroleum, coal, hydropower, wind, solar and biofuels. Opposition to such subsidies — often euphemistically referred to as incentives, tax credits, preferences or loan guarantees — spans the ideological spectrum, from conservative economists who believe such breaks distort the marketplace to environmentalists who believe that renewable energy sources will always lose out in subsidy fights because of the power of the entrenched fossil fuel industries.

David W. Kreutzer, an energy economist at the conservative Heritage Foundation, argues that the federal government should take its thumb off the scale by eliminating subsidies for all forms of energy, even it if means slowing development of cleaner-burning fuel sources.

“We would like to get rid of all subsidies,” Dr. Kreutzer said. “We know that petroleum and coal survive just fine in places where there are no subsidies. I don’t know if that’s true for wind and solar now, but someday it will be, when the price comes down.”

H. Jeffrey Leonard, president of the Global Environment Fund, a private equity firm that invests in clean-technology ventures, said that the current subsidy structure was the legacy of 60 years of lobbying and political jockeying in Washington that largely benefits oil, coal, nuclear power and corn-based ethanol. He calls for scrapping all subsidies and letting fuel sources compete on equal ground.

Mr. Obama is not willing to go that far. He has supported favored tax treatment for wind and solar power as well as a 50 percent increase in federal research spending on other alternative energy sources. He also has proposed as much as $50 billion in federal loan guarantees for nuclear power plant construction, money he believes is needed because the private market is unwilling to assume the potential costs of a catastrophic accident.

Energy economists say that the president’s call in the State of the Union address for doubling the amount of electricity produced from cleaner technology by 2035 is designed to manipulate energy markets, forcing utilities to shift to the government’s preferred sources of energy on the government’s timetable, although leaving to them the choice of fuels.

A White House spokesman put it a bit more benignly. “The plan the president outlined would establish a clear goal for clean energy and let utilities achieve that in the most cost-effective way possible,” the official said.

Mr. Obama’s policies encourage utilities to switch from coal to cleaner-burning natural gas to generate electricity, which simply substitutes one fossil fuel for another and helps subsidize natural gas exploration and distribution. The president is also proposing to spend hundreds of millions of dollars to develop technology to capture and store carbon dioxide emissions from coal plants and oil refineries, another hidden subsidy for fossil fuels.

And, many environmentalists argue, every day that goes by without a policy to put a price on carbon emissions from all sources is a day in which the federal government subsidizes energy producers by socializing the long-term health and environmental costs of their products.

“My view is the country is better off on having a neutral playing field for all forms of energy,” said Douglas Koplow, founder of Earth Track, a group in Cambridge, Mass., that studies global energy subsidies.

“President Obama defines ‘clean fuels’ as natural gas, coal with carbon capture, nuclear,” Mr. Koplow said. “From my perspective, if you subsidize carbon capture and storage, that’s a big subsidy for coal. Nuclear is massively subsidized through a risk transfer from shareholders to ratepayers. It’s hard to justify these technologies that can’t make it on their own.”

“If we’re really concerned about greenhouse gases, we should deal with the problem and cap them,” he added. “Instead, politicians and lobbyists want to carve out policies for their own industries.”

Mr. Obama specifically proposes to eliminate roughly $4 billion a year in more than a half-dozen tax exemptions for oil and gas companies and an additional $200 million a year in preferences for coal. The tax breaks for oil have a long history — the so-called percentage depletion allowance for oil and natural gas wells dates to the 1920s — and have withstood repeated efforts to kill them.

The president proposed a global end to such subsidies at the Group of 20 meeting in 2009, and while most nations endorsed the idea in theory, little has been done. And Mr. Obama will have a tough fight trying to get even these relatively modest proposals enacted over the objections of the oil and coal industries, who argue that such tax treatment is necessary to keep drillers drilling and miners mining.

“This is a tired old argument we’ve been hearing for two years now,” said Jack Gerard, president of the American Petroleum Institute, the oil and gas industry’s main lobby in Washington. “If the president were serious about job creation, he would be working with us to develop American oil and gas by American workers for American consumers.”

Mr. Gerard noted that there was bipartisan opposition to lifting the tax breaks, adding: “The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”

Michael Levi, an energy and climate change analyst at the Council on Foreign Relations, said calls for an end to energy subsidies missed a broader point: that embryonic energy technologies will need some government help to gain a foothold against the fossil fuel lobbies.

“I’d love to find a quick fix for America’s energy problems just as much as the next guy,” Mr. Levi wrote last week on his blog.

“I’d also be delighted to have a reason to cut subsidies, many of which are hugely wasteful,” he added. “But an effort to eliminate all energy subsidies without instituting better alternative policies should be understood for what it is: a recipe for cementing the dominance of traditional fossil fuels against their competitors.”

By JOHN M. BRODER/NYT
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