Producers quickly protested President Obama’s pledge before the United Nations Tuesday to phase out subsidies for oil, natural gas and coal to help reduce greenhouse gas (GHG) emissions.
Obama’s “call to ‘phase out fossil fuel subsidies’ is a wrong-headed approach that should be seen for what it really is: a giant tax hike on American consumers,” said Jack Gerard, president of the American Petroleum Institute, which represents major producers.
“By raising energy taxes under the veil of eliminating fossil fuel subsidies, oil and natural gas companies would be deprived of the capital they need to invest in exploration and development. That would likely kill jobs, restrict the supply of energy and increase costs to consumers and businesses,” he said.
“The president’s proposed action is based on academic notions that simply do not apply in the real world. These proposals pose severe consequences to U.S. energy producers and will impact the entire U.S. economy,” agreed Barry Russell, president of the Independent Petroleum Association of America, which represents independent producers.
“Why the administration would shut down 20% of our nation’s oil production and 12% of its natural gas is unfathomable. Why it would seek to take away 25-40% of the capital that finds and produces American natural gas — half of which comes from wells developed in the past four years — is undecipherable. Why it would choose to hand the nation’s energy future to foreign leaders like [Venezuela’s] Hugo Chavez…is clearly a tragic miscalculation,” he said.
Conservative think tank The Heritage Foundation called the president’s proposed action “commendable,” but it urged Obama to go a step further and eliminate subsidies for all energy, including renewable fuels. “If the president wants a sound energy policy that will benefit electricity consumers, he should focus on removing all subsidies from the market.
“Any subsidy, whatever the source of energy or product, distorts normal market forces and encourages government dependence…Allowing all energy sources to compete absent subsidies, mandates or tax credits will benefit consumers most.”
The foundation said noted that renewable fuels have made little progress despite the backing of the federal government. “For many years wind energy has been the beneficiary of generous tax credits and subsidies, but it still provides less than 2% of America’s electricity. It is unreliable and will be costly ($80 billion) to build transmission lines to bring wind from where it is produced to where it is needed.”
The Obama administration hopes to reach an agreement to phase out fossil fuel subsidies when it meets with other world leaders at the two-day G-20 summit in Pittsburgh, which begins Thursday.
A report by the Organization for Economic Cooperation and Development and International Energy Agency “indicates that if fossil fuel subsidies were eliminated, it would reduce greenhouse gas emissions by 10% by 2050,” said Michael Froman, deputy national security adviser for international economic affairs,during a press briefing Tuesday.
“Our overall goal is 50% [GHG reduction] by 2050, so this [phasing out subsidies] could be a significant step forward. It’s something we’re working with the rest of the G-20 on, and we hope to have more details about it later this week,” he said.
“Energy subsidies have a significant impact on energy security, on climate change, on competitiveness, on health and…government finances. It’s an area that the G-20 is considering taking action on,” noted Todd Stern, U.S. envoy for climate change.
A report released last Friday by the Environmental Law Institute (ELI) and the Woodrow Wilson International Center for Scholars found that federal subsidies to energy “highly” favor sources that have high GHG emissions levels (see Daily GPI, Sept. 21).
“The combination of subsidies — or ‘perverse incentives’ — to develop fossil fuel energy sources, and a lack of sufficient incentives to develop renewable energy and promote energy efficiency, distorts energy policy in ways that have helped cause, and continue to exacerbate, our climate change problem,” said ELI Senior Attorney John Pendergrass. “With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the U.S. Tax Code.”
The federal government provides substantially larger subsidies to fossil fuels than to renewables, ELI said. Fossil fuels benefited from approximately $72 billion over the seven-year study period, while subsidies for renewable fuels were $29 billion. More than half the subsidies for renewables — $16.8 billion — were attributable to corn-based ethanol, the climate effects of which have been disputed.
Of the fossil fuel subsidies, $70.2 billion went to traditional sources — such as coal and oil — and $2.3 billion went to carbon capture and storage. Thus, energy subsidies highly favored energy sources that emit high levels of greenhouse gases, the study said. “The U.S. energy market is shaped by a number of national and state policies that encourage the use of traditional energy sources. These policies range from royalty relief to the provision of tax incentives, direct payments and other forms of support to the nonrenewable energy industry.”
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