Capitol Voice

Fossil Fuel Subsidies
Capitol Voice
15  March 2011
Fossil fuel subsidies are in the news. President Obama is proposing to cut subsidies to
the fossil fuel industry while maintaining subsidies to renewable energies. The question
on many people’s minds is: How large are subsidies to the fossil fuel industries? What
form do these subsidies take? And how large are subsidies for fossil fuel in relation to
subsidies to renewable energy? We will attempt to give brief but accurate (as accurate as
possible) answers to these questions in this short paper. Estimates of fossil fuel subsidies
vary widely, depending on what is included as a subsidy. We will cite credible sources
from the environmental, business and scientific communities.

Our position is that fossil fuel subsidies should be eliminated. Fossil fuel industries are
highly profitable, and these subsidies are simply not needed. By contrast, subsidies to
renewable energies should be maintained or increased, in order to bring energy jobs home
to the United States, and to reduce emission of greenhouse gases.
A 2009 study by the Environmental Law Institute (ELI), summarized in Scientific
American, reviewed US Federal subsidies to fossil and renewable fuels industries over a
seven year period, from 2002 to 2008. The ELI study found 23 different types of tax
credits for fossil fuel producers, most of which are permanent parts of the tax code.
These tax credits provided fossil fuel producers with $54.2 billion in subsidies over the
seven year period, or approximately $7.7 Billion per year. In addition the ELI study
found that $18.3 billion in grants and other direct cash subsidies for things such as
Research & Development were given to fossil fuel industries over the seven year period
($2.6 billion per year).

Federal subsidies to renewable energies came primarily in the form of tax credits. Total
subsidies for corn ethanol production amounted to $16.8 billion ($2.4 billion per year).
Subsidies for all other renewables, at $12.2 billion ($1.7 billion per year) were less than
those for corn ethanol.
Details of the tax credits and cash subsidies for the different types of energy producers
are listed in the ELI report.
To summarize, we present this data in a table

All numbers in billions of US$ 2002-08 Annual average
Subsidies to fossil fuel producers

Tax credits 54.2 7.7
Direct cash subsidies 18.3 2.6
Total 72.5 10.3
Subsidies to renewable energy producers
Corn Ethanol producers 16.8 2.4
Other renewables (wind, solar) 12.2 1.7
Total 29.0 4.1

Several business media sources have looked at energy subsidies worldwide and found
similar or even more extreme results. Bloomberg cites International Energy Agency
figures which put governmental subsidies for fossil fuels worldwide at $557 billion in
2008. By contrast, Bloomberg New Energy Finance (a Bloomberg research group) found
that governments worldwide provided only $46 billion of support for renewable energies.
Globally, according to Bloomberg, subsidies for fossil fuels are thus 12 times as large as
subsidies for renewable energies.

The Economist magazine, which looks at 2009 figures from the International Energy
Agency, points out that world subsidies for consumption of fossil fuels were less, at $312
billion, in 2009 than in 2008. This was due to the decline in the world prices of oil & gas.
Consumption subsidies could be expected to go up again if the world price rises again.
The Economist magazine also points out that, on a per unit of energy produced basis,
subsidies to fossil fuels are less than subsidies to renewables. But fossil fuel industries
are highly profitable and don’t need subsidies.

Renewable energy production has not yet reached scale. So it makes sense

for the American people and for the US government to
encourage the production of more renewable energies. Domestically produced renewable
energy can replace imported energy, thus providing jobs for Americans and bringing the
energy business home. The need for subsidies will decline as volume increases. The
American people need a home-grown alternative to the high and increasing price of
imported oil ($105/barrel at this writing). In addition, use of renewables will reduce
pollution from fossil fuel production and use. Greenhouse gas production will be reduced,
with all the positive environmental effects that this entails.

Fossil Fuel Subsidies,
References cited above:
Environmental Law Institute (ELI) study: http://www.eli.org/pressdetail.cfm?ID=205
ELI study detail on size of subsidies: http://www.elistore.org/Data/products/d19_07.pdf
Scientific American article on subsidies:
http://www.scientificamerican.com/blog/post.cfm?id=how-much-in-subsidies-do-fossilfue-
2009-09-18
Bloomberg article on global energy subsidies: http://www.bloomberg.com/news/2010-
07-29/fossil-fuel-subsidies-are-12-times-support-for-renewables-study-shows.html
Economist magazine article on global energy subsidies:
http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies
Summary of International Energy Agency report on subsidies:
http://www.worldenergyoutlook.org/docs/weo2010/factsheets.pdf
US Energy Information Administration data on US energy use:
http://www.eia.doe.gov/cneaf/solar.renewables/page/prelim_trends/rea_prereport.html
Additional sources not directly referenced in this article:
http://www.grist.org/article/2009-09-22-fossil-fuel-subsidies-dwarf-clean-energysubsidies-
obama-wants
http://www.api.org/Newsroom/federal_subsidies.cfm
http://blog.appliedmaterials.com/fat-subsidies-fossilhttp://
priceofoil.org/fossil-fuel-subsidies/
http://www.mindfully.org/Energy/Fossil-Fuel-Subsidies.htm