Non-renewable energy subsidies - per commissioners' request

29 May 2014

Good morning, Commissioners,

In yesterday's ACC Workshop on Emerging Technologies, one of the presenters mentioned government subsidies for non-renewable energy sources. Commissioner Bob Burns said he was interested in learning more about these, and Brenda Burns echoed that sentiment.

For those unfamiliar with fossil-fuel subsidies, the numbers can seem implausible at first. But both massive tax breaks and cash incentives have driven nearly all sectors of our economy for over a century.

The attached DBL Investors report has some excellent graphs and charts depicting all US energy subsidies over their first 30 years. Its executive summary states, "the federal commitment to [oil and gas] was five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear."

What exactly are these fossil fuel subsidies? The OECD lists many of them in its comprehensive Inventory of estimated budgetary support and tax expenditures for fossil fuels (very large PDF here). They include:

• Alternative Fuels Production Credit (for natural gas, shale oil, coke, coal...)
• Refined Coal Credit
• Indian Coal Credit
• Capital Gains Treatment of Royalties on Coal
• Partial Expensing for Advanced Mine Safety Equipment
• Expensing of Exploration and Development Costs
• Excess of Percentage over Cost Depletion
• Amortisation of Geological Expenditure
• Accelerated Depreciation of Natural-Gas Distribution Pipelines
• Exception from Passive Loss Limitation 
• Temporary Expensing of Equipment for Refining 
• Aid to Small Refiners for EPA Capital Costs
• Enhanced Oil Recovery Credit
• Qualified Capital Expenditure Credit
• Development Credit for Certain Producers
• Alternative Credit for Exploration
• Alaska Gasline Inducement Act
• Sales Tax Exemption for Oil & Gas Equipment 
• Sales-Tax Exemption for Natural Gas
• Severance Tax Exemptions for Crude Oil
• Severance Tax Exemptions for Natural Gas
• Gasoline Tax Exemptions
• Exclusion of Low-Volume Oil & Gas Wells
• Coalbed Methane Exemption
• Reduced Tax for Thin-Seamed Coal
• Credit for Investment in Clean Coal
• Fossil Energy R&D

Some of those oil and gas subsidies, and others, are detailed here.

But by far the single greatest energy subsidy in the US, currently over $13 billion, was established for the nuclear power industry with the Price-Anderson Act. In brief: since no private institution nor free market could ever insure a catastrophic nuclear incident, the federal government does so instead - at zero cost to the power plant developer and owner.

And while that may sound like a large subsidy, it is only one tenth (1/10) of the amount that Tepco needed from its government for the Fukushima fallout. Much of that is decommissioning costs, which are also not included in the cost of a nuclear plant (and therefore not rate-based until the plant shutters).

If you've gotten this far, thank you for reading. My only point is this: the word "subsidy" has been used and abused - without adding any value to the discussion - by all parties involved. The easiest (and only) way to proceed is to ignore the extent to which an energy source is subsidized, accept that no "free market" for US energy exists, and simply make sound decisions based on the current economic and social climate. In such a case, public interest takes priority.

Sincerely,

Jamie Michael Kern