Oil & Gas Subsidies vs. Renewable Energy Subsidies: A World of Difference

Oil & Gas Subsidies vs. Renewable Energy Subsidies: A World of Difference

We often here how the oil and gas industry receives massive subsidies and I have often wondered about that. Some even include hard to quantify costs of fossil fuels such as climate costs or the so-called ‘social costs of carbon.’ I do not claim to understand business taxation, credits, and deferment in any detail but linked below is a good analysis of oil and gas ‘subsidization,’ why it is not really subsidization as the term is defined, why in most cases it is taxed similar to other businesses, how such so-called subsidies can sometimes be incorrectly identified as oil and gas subsidies, and the fact that oil and gas companies contribute a large percentage of tax revenue. It is hard to fathom why companies that have some of the highest overall tax rates of any U.S. companies can be said to be ‘subsidized’ through favorable tax arrangements. In any case, as the author below demonstrates, tax advantages merely allow one to keep more of their money than would otherwise be the case while credits actually give money to those eligible for the credits. It is a great blog post by Len Tesoro of Drilling Info. See the link below: 

http://info.drillinginfo.com/federal-oil-and-gas-subsidies/

Another article by Tesoro and Drilling Info CEO Allen Gilmer - Energy Subsidies .. A Fairy Tale - referenced below, goes into more detail.

Wind energy benefits quite directly and quite abundantly through the federal Production Tax Credit (PTC). The PTC is at $23 per MWh. This only represents about 40% of wind energy subsidization. These mostly direct subsidizations can favor wind energy to such an extent that wind power can be sold at rates below the cost to generate it (due to the subsidies). Thus wind producers can sell energy below market value and still make a good profit. Renewable energy standards at the state level can also be seen as subsidies to wind and solar since they mandate that so much of this energy is bought by utilities regardless of the price disadvantage to the utilities. Of course, the utilities can also build renewable energy production and take advantage of the subsidies as well. Wind energy generally is not built without the subsidies in place as years of no subsidies were years with little to no wind build out. However, the subsidies will continue and wind energy will continue to gain market share in power generation. Solar will also but at a much slower rate as its economics are not as good. This subsidization of renewables is not a bad thing at all but it should be understood that the so-called subsidies to fossil fuels are in no way comparable to the direct subsidies to renewables. 

References:

Federal Oil and Gas Subsidies: Fact vs. Fiction – by Len Tesoro, in Drilling Info Blog (DI-Blog), Feb. 25, 2016

The Current Actual Costs of Wind Power and the Benefits of Wind Power: Realistic Comparison to Fossil Fuels (mainly Natural Gas) – by Kent C. Stewart, in Blue Dragon Energy Blog, posted Oct. 10, 2015

Energy Subsidies ... a Fairy Tale - by Len Tesoro and Allen Gilmer - at LinkedIn, Feb. 23, 2016