EnergySubsidies_Feature_04-2014

Federal energy support – Where does it go?

When talking about federal energy support, there is a tendency to lump together government spending programs and tax expenditures and treat them all as the same thing. Under this view, for example, a tax expenditure that results in a permanent reduction of tax is treated as having the same value as one that just defers the tax until a later year. But let’s not quibble over that. Let’s accept for the moment that all tax expenditures and spending programs are created equal.

The federal government provides a lot of support each year on a variety of energy programs and tax expenditures – $19.8 billion in 2013, according to the Congressional Budget Office (CBO).

So who gets this support? That’s an important question given the propensity of some politicians and activist groups to claim that it is flowing to “Big Oil” companies like ExxonMobil.

But a closer look at the actual CBO data shows that this line of attack is unfounded.

Financial_Support_04-2014By and large, most federal government support for energy goes to renewable energy projects and energy-efficiency programs. These account for fully 70 percent of the energy-related tax preferences and direct government investments that CBO identified.

What’s more, CBO doesn’t even take into account the Renewable Fuels Standard, which requires that refiners like ExxonMobil buy biofuels to blend into the gasoline and diesel we sell … and if that isn’t a subsidy for the biofuels industry, I don’t know what is!

About those fossil fuel programs and tax expenditures

In the CBO’s accounting, fossil fuels receive 19 percent of the federal energy-related support Washington offers. These are largely tax expenditures tied to the timing of deducting exploration and development costs and amortizing investments in pollution control. Many of these are available to small, independent oil and gas producers, but not to larger companies like ExxonMobil.

And the direct investment that the Department of Energy provides for fossil fuels – i.e., support that takes the form of direct checks cut from the federal treasury to private companies – goes “to R&D programs, primarily for reducing emissions, particularly of CO2, from coal-fired electricity generation.”

That’s a roundabout way of saying they aren’t lining the pockets of large oil and natural gas companies.

Energy-equivalent comparisons

The comparisons of fuels and energy sources are even more lopsided on an energy-equivalent basis.

According to the Energy Information Administration, in 2010 tax expenditures related to oil and gas production equaled 8 cents per million BTU while subsidies for biofuels like ethanol averaged $1.98 per million BTU – more than 25 times higher.

Meanwhile for electricity, according to the Senate Finance Committee testimony of American Enterprise Institute  scholar Ben Zycher, government support for natural gas and petroleum liquids in 2010 averaged 63 cents per megawatt hour while subsidies going to solar and wind were an astounding $968 and $52.48 per megawatt hour, respectively.

Keep these points in mind about the comparative amounts that various sectors in energy receive from Washington the next time the discussion on subsidies and taxes heats up.