Chapter 4. Rising Temperatures and Rising Seas: Subsidizing Climate Change
At a time of mounting public concern about climate change driven by the burning of fossil fuels, the fossil fuel industry is still being subsidized by taxpayers to the tune of $210 billion per year. Fossil fuel subsidies belong to another age, a time when development of the oil and coal industries was seen as a key to economic progress—not as a threat to our future. Once in place, subsidies lead to special interest lobbies that fight tooth and nail against eliminating them, even those that were not appropriate in the first place.51
In the United States, oil and gas companies are now perhaps the most powerful lobbyists in Washington. Between 1990 and 2002, they amassed $154 million in campaign contributions in an effort to protect special tax rates worth billions. In testimony before the House Ways and Means Committee in 1999, Donald Lubick, U.S. Treasury Assistant Secretary for Tax Policy, said in reference to the oil and gas industry, "This is an industry that probably has a larger tax incentive relative to its size than any other industry in the country." That such profitable investments are possible is a measure of the corruption of the U.S. political system, and of the capacity of those with money to shape the economy to their advantage.52
Subsidies permeate and distort every corner of the global economy. Germany's coal mining subsidy was initially justified in part as a job protection measure, for example. At the peak, the government was subsidizing the industry to the tune of nearly $90,000 per year for each worker. In purely economic terms, it would have made more sense to close the mines and pay miners not to work.53
Many subsidies are largely hidden from taxpayers. This is especially true of the fossil fuel industry, which includes such things as a depletion allowance for oil production in the United States. Even more dramatic are the routine U.S. military expenditures to protect access to Middle Eastern oil, which are calculated by analysts at the Rand Corporation to fall between $30 billion and $60 billion a year, while the oil imported from the region is worth only $20 billion.54
A 2001 study by Redefining Progress shows U.S. taxpayers subsidizing automobile use at $257 billion a year, or roughly $2,000 per taxpayer. This means that taxpayers who do not own automobiles, including those too poor to afford them, are subsidizing those who do.55
Another hidden subsidy is that provided in the form of free parking for employees, including even those who work for government agencies. Free parking encourages the use of automobiles and thus the use of gasoline. It is a form of income, but it is not taxed.56
One of the bright spots about this subsidization of fossil fuels is that it provides a reservoir of funding that can be diverted to climate-benign, renewable sources of energy, such as wind, solar, and geothermal energy. Shifting these subsidies from fossil fuels to the development of renewable sources would be a win-win situation, as described in Chapter 11. To subsidize the use of fossil fuels is to subsidize rising temperatures, which lead to crop-withering heat waves, melting ice, rising seas, and more destructive storms. Perhaps it is time for the world's taxpayers to ask if this is how they want their tax monies to be used.
51. Bjorn Larsen, World Fossil Fuel Subsidies and Global Carbon Emissions in a Model with Interfuel Substitution, Policy Research Working Paper 1256 (Washington, DC: World Bank, February 1994), p. 7; population from United Nations, op. cit. note 42.
52. Contributions from the Center for Responsive Politics, "Oil and Gas: Long Term Contribution Trends," at www.opensecrets.org/industries/indus.asp?Ind=E01, updated 5 March 2003; Committee on Ways and Means, Incentives for Domestic Oil and Gas Production and Status of the Industry, Hearing Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives (Washington, DC: U.S. Government Printing Office, February 1999), p. 16.
53. Kym Anderson and Warwick J. McKibbin, "Reducing Coal Subsidies and Trade Barriers: Their Contribution to Greenhouse Gas Abatement," Environment and Development Economics, October 2000, pp. 457-81.
54. Military expenditures from Graham E. Fuller and Ian O. Lesser, "Persian Gulf Myths," Foreign Affairs, May-June 1997, pp. 42-53; value of Persian Gulf oil imports from U.S. Department of Energy, Energy Information Administration, Annual Energy Review (Washington, DC: 2001), p. 165.
55. Mark M. Glickman, Beyond Gas Taxes: Linking Driving Fees to Externalities (Oakland, CA: Redefining Progress, March 2001), p.1; number of taxpayers from Internal Revenue Service, "Number of Returns Filed, by Type of Return and State, Fiscal Year 2000," in 2000 IRS Data Book (Washington, DC: September 2001).
56. For an overview of pricing parking, see "Parking Pricing: Direct Charges for Using Parking Facilities," Transportation Demand Management, online encyclopedia, Victoria Transport Policy Institute, Victoria, BC, at www.vtpi.org/tdm/ tdm26.htm, updated 30 January 2003.
Copyright © 2003 Earth Policy Institute