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On The Fossil Fuel Subsidy Red Herring

Spot on, Joris. As I have often pointed out to Max et al (to little avail), internalizing externalities is an idea that is much easier in theory than it is in practice. Being external to the market, the value of various impacts is largely subjective and arbitrary. Not only do various contending political interests value impacts differently, but what may be a cost to one faction may be beneficial to another. So abstract evaluations of benefits and costs are as likely to stoke political conflicts as to settle any. The persistently futile meetings and exercises of the UNFCCC is one notable example.

That is not to deny that there are some examples of consensus agreements that have been able to manage some externalities more or less effectively. Initiatives to reduce SO2 emissions, to replace ozone-destroying CFCs, and to protect endangered wildlife are often cited cases. But to the extent these work, they usually do so less then completely -- with 'leakage' of one sort or another -- and do so when there the economic stakes are relatively limited in scale; where impacts are also limited and readily measurable; and when cost-effective alternatives are available to mitigate economic burdens.

Those helpful conditions mostly do not apply to the case of GHG emissions and potential climate impacts.

May 22, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

Bob, it's well known that the entire US tax code is rife with corporate welfare and loopholes that mainly benefit the rich.

Just about everyone agrees tax reform is needed. Getting it done is very very hard.

May 16, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

Bob, while there is some ambiguity in how effective rates are measured, it is widely understood that the effective tax rate of US corporations is significantly lower than the statutory corporate tax rate. So oil industry tax practices are typical of corporations in general.

That does not contradict the observation that the oil industry pays more taxes than any other.

May 15, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

Max, you seem to be overlooking the fact that majority of such subsidies are consumer price subsidies paid by governments of developing countries.<p> As I pointed out in another comment here, this is generally recognized as a wasteful policy that does not really help the poor but that undermines the financial health of those governments. Nevertheless, it is not a policy the US can do much about. And even when those foreign governments recognize that the policy is counterproductive, as they often do, attempts to cut the fuel price subsidies often have provoked intense public protest, sometimes even resulting in the overthrow of governments.<p> It is also important to realize that the world oil market is dominated by state-owned companies:<p>  Name the biggest oil company in the world. ExxonMobil? British Petroleum? Royal Dutch Shell? In fact, the 13 largest energy companies on Earth, measured by the reserves they control, are now owned and operated by governments. Saudi Aramco, Gazprom (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia) are all larger than ExxonMobil, the largest of the multinationals. Collectively, multinational oil companies produce just 10% of the world's oil and gas reserves. State-owned companies now control more than 75% of all crude oil production.<p> Governments obviously have a vested interest in protecting and promoting enterprises that they own and control. On the supply side, that is the form of subsidizing that is by far most dominant. And again, this is something that the US government does not participate in, and which it has little ability to influence.
May 15, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

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May 15, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

Bob, the industry also pays the most federal taxes:

http://www.forbes.com/sites/christopherhelman/2012/04/16/which-megacorps-pay-megataxes/

Also note that oil industry profits have declined precipitously with falling prices:

Exxon Mobil, the largest American oil company, reported a 46 percent decline in earnings: $4.9 billion for the first quarter, compared with $9.1 billion in the year-ago quarter. Revenue fell to $67.6 billion, from $106.3 billion, a 36 percent decline.

May 15, 2015    View Comment    

On The Fossil Fuel Subsidy Red Herring

Alex, your central point is well taken, and too often overlooked: In relation to energy delivered or sales, fossil fuels get far less subsidies than renewables and other alternatives do.

I have one quibble though re: "Often, a choice to end a fuel subsidy is a choice to make energy more expensive for the poorest among us." Most economists agree that subsidizing consumer prices is counterproductive. Here is what a literature review by IMF economists concluded:

This paper reviews evidence on the impact of fuel subsidy reform on household welfare in developing countries. On average, the burden of subsidy reform is neutrally distributed across income groups; a $0.25 decrease in the per liter subsidy results in a 6 percent decrease in income for all groups. More than half of this impact arises from the indirect impact on prices of other goods and services consumed by households. Fuel subsidies are a costly approach to protecting the poor due to substantial benefit leakage to higher income groups. In absolute terms, the top income quintile captures six times more in subsidies than the bottom. Issues that need to be addressed when undertaking subsidy reform are also discussed, including the need for a new approach to fuel pricing in many countries. 

Essentially, fuel subsidies don't really make energy less expensive for the poor. At least, they don't make living less expensive. The cost of the subsidy is just shifted. The overall effect is to weaken the country's finances, and ultimately make everyone poorer.

Moreover,collateral effects of fuel subsidies may be even more damaging. In India, for instance, most vehicles use diesel fuel because of heavy government subsidies. The mass of mostly dirty diesel engines spews a toxic smog that has caused an epidemic of cancer an other illnesses, as Businessweek has reported. Sickness, health care, and pollution controls impose other costs on the poor that offset -- maybe more than offset -- any economic benefits from fuel subsidies.

Note that government subsidies for renewable or nuclear energy bring their own set of unintended, often negative consequences; such problems are not limited to fossil fuel subsidies.


May 14, 2015    View Comment    

On President Obama Approves Drilling in the Arctic: Should We Be Outraged?

Jesse, your disdain for Mckibben's rabble rousing is apt.

But I'm confused about a seeming gap in your argument. Just a few months ago, Obama effectively banned onshore drilling in a large swath of northern Alaska, supposedly to protect wildlife. But, along the line you suggest, that surely would be safer, less costly, and more readily managed than the offshore drilling he now has allowed. Was that not worth mentioning?

If there is any logic or coherence in Obama's policies, it must be exquisitely nuanced.

May 13, 2015    View Comment    

On President Obama Approves Drilling in the Arctic: Should We Be Outraged?

Jesse, your disdain for Mckibben's rabble rousing is apt.

But I'm confused about a seeming gap in your argument. Just a few months ago, Obama effectively banned onshore drilling in a large swath of northern Alaska, supposedly to protect wildlife. But, along the line you suggest, that surely would be safer, less costly, and more readily managed than the offshore drilling he now has allowed. Was that not worth mentioning?

If there is any logic or coherence in Obama's policies, it must be exquisitely nuanced.

May 13, 2015    View Comment    

On Why Have U.S. Energy Policies Stopped Reducing Carbon Emissions? - Part 1

Thanks, John. For more on the limitations of government's ability to foment innovation, see my article "Government as Innovator -- Not So Fast" in Medium.

April 24, 2015    View Comment    

On Why Have U.S. Energy Policies Stopped Reducing Carbon Emissions? - Part 1

Nice job, John. I will look forward to your answers.

For now, I think this reinforces, again, that breakthrough innovations are going to be needed to make clean energy cheap (and useful) enough to fundamentally change the existing patterns of energy production and consumption.

That requires not just throwing more money at R&D and subsidies for uneconomical solutions. Rather, a basically different -- more open -- approach to research and innovation is needed. See my book, Energy Innovation for detailed explanation.

April 23, 2015    View Comment    

On Earth Day's Importance and Evolution Since 1970

"The important thing to understand about Earth Day is that it was not the celebration of the birth or maturation of the environmental movement in the United States, in the sense that the first Fourth of July was the celebration of the birth of a nation. It wasn’t the environmental movement that created Earth Day, but vice versa."
http://j.mp/1EkkNDA

April 23, 2015    View Comment