“…a small think tank with a knack of spotting new trends…” – Geoffrey Lean, Telegraph.co.uk.
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 world fossil fuel industry is still being subsidized by taxpayers at more than $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 twenty-first century civilization. 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. 73
In the United States, oil and gas companies are now perhaps the most powerful lobbyists in Washington. Between 1990 and 2004, they amassed $181 million in campaign contributions in an effort to protect special tax deductions 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 oil and gas companies: “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, particularly the capacity of those with money to shape the economy to their advantage. 74
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 its 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. 75
Many subsidies are largely hidden from taxpayers. This is especially true of the fossil fuel industry, whose subsidies include such things as a depletion allowance for oil pumping in the United States. Even more dramatic are the routine U.S. military expenditures to protect access to Middle Eastern oil, which were calculated by analysts at the Rand Corporation before the most recent Iraq war to fall between $30 billion and $60 billion a year, while the oil imported from the region was worth only $20 billion. 76
A 2001 study by Redefining Progress shows U.S. taxpayers subsidizing automobile use at $257 billion a year, or roughly $2,000 per taxpayer. In addition to subsidizing carbon emissions, this also means that taxpayers who do not own automobiles, including those too poor to afford them, are subsidizing those who do. 77
One of the bright spots about this subsidization of fossil fuels is that it provides a reservoir of tax deductions 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 12. To subsidize the use of fossil fuels is to subsidize 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 hard-earned money to be spent.
73. 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.
74. Contributions from the Center for Responsive Politics, “Oil and Gas: Long Term Contribution Trends,” at www.opensecrets.org/industries/indus.asp?Ind=E01, updated 10 May 2005; 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.
75. 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.
76. 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.
77. Mark M. Glickman, Beyond Gas Taxes: Linking Driving Fees to Externalities (Oakland, CA: Redefining Progress, 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: 2001).
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