The Headline:

Friendly policies keep US oil and coal afloat far more than we thought: Most energy subsidies go not to renewables but to producing more of the dirty stuff by David Roberts/Vox Jul 26, 2018

An excerpt:

Oil Change International (OCI) set out to quantify the level of US fossil fuel subsidies [for the period of 2015 to 2016]. OCI is only counting direct production subsidies…. Adding everything up: $14.7 billion in federal subsidies and $5.8 billion in state-level incentives, for a total of $20.5 billion annually in corporate welfare.  Of that total, 80 percent goes to oil and gas, 20 percent to coal. On the right, subsidies are broken down by stage of production. Extraction gets the most. You probably can’t read that text, so here are the top six: 

  1. Intangible drilling oil & gas deduction ($2.3 billion)

  2. Excess of percentage over cost depletion ($1.5 billion)

  3. Master Limited Partnerships tax exemption ($1.6 billion)

  4. Last-in, first-out (LIFO) accounting ($1.7 billion)

  5. Lost royalties from onshore and offshore drilling ($1.2 billion)

  6. Low-cost leasing of coal-production in the Powder River Basin ($963 million)

Commentary:

What’s odd about this article is that it came out a couple months after the US Energy Information Administration (EIA) released its own report on US energy subsidies, about which Vox piece says absolutely nothing. And the EIA report is very clear that the federal government slashed oil, gas, and coal subsidies in 2016. So much for due diligence.

Checking out Oil Change International, I see they are a research and advocacy organization “focused on the true cost of fossil fuels”. Their mission is to halt all fossil fuel subsidies, including tax credits for developing carbon capture and storage. Now, checking Appendix in the OCI report referenced by Vox, I see that the top 4 subsidies each have an asterisk, which is explained several pages later (again, in the Appendix). To copy/paste:

* Indicates this subsidy was targeted for elimination in President Obama’s proposed FY2016 budget.

The OIC report came out in October 2017, so they already knew the top four subsidies no longer existed. In other words, they cheated and the Vox article went along with the charade.*

Ok, what about “lost royalties” and the “low-cost” of leasing federal lands? Per the OIC Appendix, almost all the lost royalties ($1.1 billion) are from the “Leases Issued from 1996 through 2000” - i.e., the federal government is honoring contracts that were negotiated 20 years ago. We’re kinda stuck with that for the duration of the leases. Regarding the low-cost coal-production leases on federal lands, the Obama Whitehouse published a report on this very issue and concluded that correctly priced leases would bring in an additional $290 million per year. I’m not sure how OIC arrived at the $963 million figure.

As for the Vox headline subtitle “Most energy subsidies go not to renewables but to producing more of the dirty stuff”, this is what the EIA says about the matter:

2018 Energy Subsidies.png

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* About 90% of the oil and gas production-related subsidies listed in the OIC report were eliminated in 2016. Of course, now that we’re in the Trump era, there has been some backsliding and subsidies for oil and gas exploration/drilling have been reinstated. A subject for a later post.