The Big Untruth

(Untruth is more politically correct than lie.)

Nothing succeeds more, or is harder to fight, than the Big Untruth.

The Big Untruth is so large that people say it must be true. The Big Untruth is so large it’s difficult to undo, piece by piece, with facts.

The Big Untruth has been used successfully throughout history, including by Fascist and Communist governments over the past 100 years.

Small untruths, such as “fracking contaminates aquifers” can easily be shown to be untrue.

Perhaps the biggest untruth with respect to energy is that fossil fuels receive huge subsidies, while clean energy, such as wind and solar, receive few subsidies.

Even if true, which it isn’t, fossil fuel subsidies, to the extent they exist, are for increasing the availability of energy, which benefits Americans, while clean energy subsidies harm Americans with higher taxes and higher costs for electricity and gasoline.

While this infers there are good and bad subsidies, there probably are few, if any, good subsidies since they distort free markets.

One of the components of this Big Untruth is that the United Sates spends $10 to $500 billion annually to defend oil interests overseas. Or as the web site Oil Change International says, “Political destabilization and lives lost due to military force in the [Mideast] region – casualties of the insatiable U.S. thirst for oil.”

This is obviously a political statement rather than an objective one, so let’s ignore it for the time being, though it does lend emotional support, not credence, to the Big Untruth.

Besides, we are producing more of the oil we use, and in combination with Canada, can probably produce all the oil we need.

But what are fossil fuel subsidies?

The IEA says, “[Our] latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $409 billion in 2010.”

Fossil fuel consumption subsides are discounts given by oil producing countries, in the form of discounted gasoline prices, to their citizens.

These are not subsidies helping oil companies.

IEA Chart. Red: Subsidy over 50%, Orange: 20% to 50%, Pink: Below 20%
IEA Chart. Red: Subsidy over 50%, Orange: 20% to 50%, Pink: Below 20%

So far, we have seen military costs in the Mideast called subsidies, and we have seen where the IEA has called discounts on gasoline as subsidies, but so far, we have seen nothing about subsidies given to fossil fuel companies, or for that matter, to wind and solar companies.

So, what about subsidies for fossil fuel companies? Or for renewables?

A report providing data on subsidies was produced by the Congressional Budget Office on March 13, 2013.

Testimony given to the House of Representatives included the following figure that provides a clearer picture of where tax preferences, i.e., subsidies, are applied: Fossil fuels 20%, renewable energy 45%.

DOE Chart Distribution of Subsidies
DOE Chart Distribution of Subsidies

This isn’t the entire picture however, because it doesn’t include loans and grants, such as the one given to Solyndra. The report says, “[Direct support and loan guarantees] amounted to $3.4 billion in both 2012 and 2013. About half of that support is directed toward energy efficiency and renewable energy in 2013.”

The report also provides data on fossil fuel and renewable energy subsidies from 1977 to 2013.

  • Between 1977 through 1987, following the 1973 oil embargo, tax preferences averaged around $9 billion per year, with fossil fuels receiving most of them.
  • From 1988 though 2005, average tax preferences were reduced to around $4 billion annually, with one-third going to renewables.
  • Tax preferences increased substantially beginning in 2006, continuing through 2013, averaging around $17 billion annually, of which only $3 billion was for fossil fuels, or 20% (see above chart).

The full report is available at http://www.cbo.gov/sites/default/files/03-12-EnergyTechnologies.pdf

The report provides a breakdown, which shows that some benefits to both fossil fuel and wind and solar industries are from accepted accounting principles, for example, accelerated depreciation.

Some extremists seek to include other items as subsidies, or they want the accounting practices changed to favor renewables.

Generally accepted accounting principles (GAAP) are in place to provide accurate and consistent information to investors and others, and to prevent the unscrupulous from distorting the facts.

A good example is the depletion allowance. The depletion allowance provides funds for exploration and development of new resources to replace those being removed by drilling or mining. This is analogous to depreciation that provides funds to replace equipment that wears out.

Table 1 attempts to place some of these arguments in perspective, but the testimony by the Congressional Budget Office provides a more complete analysis.

Table 1

Tax Preference

Fossil Fuel Company

Wind Energy Company

Depreciation of equipment, buildings and structures

Yes

Yes

Depletion

Yes & No1

No

Production tax credit

No

Yes

Expensing drilling costs

Yes

No

Foreign Tax credit

Yes

No2

1. Not available to large, integrated companies.

2. Only if domestic company operated internationally.

 

The testimony to Congress accounts for actual subsidies, not for what some extremists call subsidies, such as the cost of military operations in the Mideast and the IEAs consumption subsidies.

The Big Untruth says fossil fuels receive huge subsidies, while poor little ol wind and solar get few.

But the chart from the Congressional Budget Office shows a different story: Fossil fuels 20%, renewable energy 45%.

Those who believe the Big Untruth may not agree otherwise because doing so would undermine their agenda, but, hopefully, the average person can see it really is a Big Lie, oops, Big Untruth.

The facts show that renewables are currently getting twice the subsidies of fossil fuels.

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  1. Pingback: Weekly Climate and Energy News Roundup #166 | Watts Up With That?

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