One of the favorite talking points of the environmental left (but I repeat . . . oh never mind) is that fossil fuels get lots of subsidies and tax breaks, and as such renewable energy should get them, too. Fair point on the surface, which leads to the following proposition—let’s get rid of subsidies for all of them. Of course, wind and solar would collapse overnight without them, while oil, gas, and coal production would continue with little impact, except ironically on smaller firms that require favorable tax treatment for their business model to work in some cases. That’s why these subsidies are so politically popular in Congress. Exxon-Mobil and Chevron would barely notice if you took their subsidies away. Most greenies don’t know that, and would ruin their day to find out.
However, a new report just out from the Congressional Budget Office shows that over the last few years energy subsidies have started skewing heavily toward “renewable” energy and away from fossil fuels. Here’s part of the CBO’s summary:
Tax preferences for energy production were first established in 1916, and until 2005, they were primarily intended to stimulate domestic production of oil and natural gas. With the enactment of the Energy Policy Act of 2005, energy-related tax preferences grew substantially, and an increasing share of them were aimed at encouraging energy efficiency and energy produced from renewable sources, such as wind and the sun. Although tax preferences for fossil fuels continued to make up the bulk of all energy-related tax incentives through 2007, by the end of 2008, fossil fuels accounted for only a third of the total cost of energy-related tax incentives.
Have a close look at the chart below from the CBO study, and notice one feature not discussed much: fossil fuel energy subsidies went away almost completely in the 1986 tax reform act, but crept back when we started raising income tax rates under Bush I and Clinton.
One other important point: while fossil fuels get one-third of subsidies today, they account for about 80 percent of our total energy. The two-thirds that go for renewables account for less than 5 percent of our energy. If you calculate subsidies per unit of energy delivered to consumers, then the picture looks much worse: renewables are much more heavily subsidized than fossil fuels on this basis. But as I say, let’s get rid of all of them.
JOHN adds: This chart shows how much federal subsidy each energy source gets per megawatt hour. As Steve says, let’s do aways with all such subsidies. The oil and gas producers won’t even notice: