The Solar Subsidy Crutch or an Uneven Playing Field?

Critics of solar energy often cite the subsidies it requires to even come close to being cost effective with utility provided energy. How do you respond to such criticism? Specifically, can you quantify the subsidies that are provided to coal, natural gas and nuclear derived energy? Bob T. Charlotte, NC

There is no free market in energy in the United States, and in fact, we are one of the very few industrialized nations who subsidize our mature energy companies with mature energy technologies in mature energy markets. Our government has directed billions of dollars of subsidies to the traditional energy industries, compiled by US General Accounting Office September 25, 2000 to The Honorable Tom Harkin Ranking Minority Member: Tax Incentives for Petroleum and Ethanol Fuels: Estimates of Revenue Losses Over Time Dollars in millions Tax incentive Summed over years Adjusted to year 2000 dollars Petroleum industry Excess of percentage over cost depletion a 1968-2000 $81.679-$82.085 billion. Expensing of exploration and development costs a 1968-2000 42.855-54.580 billion. Alternative (nonconventional) fuel production credit 1980-2000 8.411-10.542 billion. Oil and gas exception from passive loss limitation 1988-2000 1.065 billion. Credit for enhanced oil recovery costs 1994-2000 482-1.002 bilion. Expensing of tertiary injectants 1980-2000 330 million. According to a 2003 US PIRG study on appropriations, federal government energy supply R&D expenditures from1948-1998 in federal appropriation for research and development expressed in 2003 dollars were: Nuclear energy $74 billion, Fossil fuels $30.9 billion, Renewables $14.6 billion, and Energy efficiency $11.7 billion. The Energy information Administration (EIA) issued a report in 1999, where, in summary form, federal FY 1999 subsidies as federal support for all primary energy are nicely listed at: (http://www.eia.doe.gov/oiaf/servicerpt/subsidy/table_es1.html) But the recently-passed Energy Bill is the most illustrative. The Joint Committee on Taxation advises Congress the extent of subsidies they passed in a report dated July 27, 2005 (http://www.house.gov/jct/x-59-05.pdf) – and the Cliff Notes version of the $11.525 billion of energy subsidies: $2.822 billion went to the oil and gas industries. Of the $5.06 billion that went to the electric utility industries an additional $1.14 billion went to nuclear decommissioning and an additional 278 million went to ‘new’ nuclear facilities, and 1.612 billion went to clean coal. Now energy efficiency received $1.284 billion, and $2,747 went to extend the renewable energy tax credits for 2 years. My annotated list of tax subsidies I regularly handout to policymakers are: Oil Royalties on Federal Lands (May 1998), High Bill: “Royalty In-Kind” fee rather than “World Price” fee causes US Treasury to lose $330 million per year and $1.65 billion over 5 years (How an Oil Industry favor Wound Up in a Tornado bill. The Washington post. (Juliet Eilperin) May 2, 1998 Page A6.) $10 Billion in Subsidies that Fuel Global Warming(November 1997) Mining Reclamation deduction $500 million/year Percentage depletion on oil, natural gas and coal (Cut $10 Billion in Subsidies that Fuel Global Warming to Fund Energy Alternatives and Economic Solutions. Friends of the Earth. November 1997. 12 pages.) $880 million/year on Capital Gains and Treatment on Coal Royalties, and Oil Imports, TaxPayer Subsidies and the Petroleum Industry (May 1995) Independent Oil and Gas Producer Exemption from Alternative Minimum Tax (AMT) plus 58% of all federal subsidies ($21.1 billion directly promote fossil fuels of which $7.7 billion are tax benefits ( Oil Imports, Taxpayer Subsidies and The Petroleum Industry. Citizen Action (Ed Rothchild) May 1995. 20 pages.) Federal Energy Subsidies (April 1993) 1989 dollars per year (low estimates) Tax Exempt Bonds for public power $1.14 billion and Tax Exclusion for electric coops $403 million, Percentage Depletion: Oil & Gas $390 million, Gas and Oil Exemption: passive loss restrictions $135 million (Federal Energy Subsidies: Energy, Environmental and Fiscal Impacts. Alliance to Save Energy. (Douglas Koplow) April `1993. 91 pages) Federal Energy Subsidies (November 1992) Revenue Loss by Type: FY’92 Tax Deferrals: $100 million ($20 million for expensing), Tertiary injectants and $80 million in working Interest in oil and gas properties). Income Reducing Measures $870 million ($745 million in excess percentage over cost depletion exclusion and $125 million on interest waiver on state and local bonds relating to energy) (Federal Energy Subsidies: Direct and Indirect interventions in Energy Markets. Energy Information Administration. Report # SR/EMEU/92-02) Beyond the usual subsidies, I have not found revenue loss reports for the overseas oil refinery credit given to the oil companies so they have had favorable tax treatment to move their refineries overseas. How ironic now that Congress and the President lament that the oil industry then actually did move our oil refineries off shore. However in February 2006, the New York Times reported that the federal government is on the verge of one of the biggest giveaways of oil and gas in American history, worth an estimated $7 billion over five years. New projections, buried in the Interior Department’s just published budget plan, anticipate that the government will let companies pump about $65 billion worth of oil and natural gas from federal territory over the next five years without paying any royalties to the government. Based on the administration figures, the government will give up more than $7 billion in payments between now and 2011. Various experts say the subsidies range from 2-3 cents per kilowatt hour and around 50 cents per gallon of gasoline for direct subsidies, and that’s not counting our military expenditures specifically directed toward protecting sea lanes for our oil tankers and the oil fields of our suppliers overseas. So in response to your question on “how do I justify subsidies to clean energy?” – to compensate for the tens of billions of dollars of your taxes propping up older, polluting technologies. A sad situation, isn’t it?
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Scott, founder and president of The Stella Group, Ltd., in Washington, DC, is the Chair of the Steering Committee of the Sustainable Energy Coalition and serves on the Business Council for Sustainable Energy, and The Solar Foundation. The Stella Group, Ltd., a strategic marketing and policy firm for clean distributed energy users and companies using renewable energy, energy efficiency and storage. Sklar is an Adjunct Professor at The George Washington University teaching two unique interdisciplinary courses on sustainable energy, and is an Affiliated Professor of CATIE, the graduate university based in Costa Rica. . On June 19, 2014, Scott Sklar was awarded the prestigious The Charles Greely Abbot Award by the American Solar Energy Society (ASES) and on April 26, 2014 was awarded the Green Patriot Award by George Mason University in Virginia.

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