Cap & Trade- dead. Oil subsidies- under question even by Conservatives like Sen. Coburn. Ethanol subsidies- under fire by Dems and Repubs, Al Gore- everyone except the Corn State politicians and Presidential Candidates in Iowa. I read this piece from a fund manager and thought- not a bad idea. About $20B a year goes to energy, of which over 70% is for oil, gas and coal. Renewables get virtually nothing in comparison right now. It's very thought provoking; in theory this would satisfy the tea party types, it would reduce the deficit. It would reduce all coal, oil, gas, ethanol, nuclear and renewable subsidies. Given that renewables receive less than 5% of this overall pie- a TRUE capitalist system with zero subsidies would actually favor clean energy much more than our current system. It does ignore externalities however- which a true capitalist can't and shouldn't. Externalities are defined by being a true and directly related cost to the use, consumption or procurement of something. (E.g. health costs, military and security costs, opportunity costs etc.) Also, I do think there should be loan guarantees for nuclear- which he is against in principal of being fair and consistent. Anyways- if you're interested, have a read at the piece that is gaining some traction in DC. It has been forwarded to me by a few people I know- and they are excited. Wash. Journal- Removing ALL Energy Subsidies
Thanks for the link--interesting read. I'm on board with a few caveats. One tricky aspect for many conservatives/libertarians, including me, is the characterization of tax breaks as subsidies (they all get tax incentives--oil & gas, coal, renewables). I wouldn't call those subsidies per se. That said, I agree that we should have an even playing field: end the subsidies across the board, whether direct or indirect, and balance or eliminate the tax incentives across all forms of energy. With regard to externalities, I offer 2 solutions. First is environmental. Let's just tax carbon already. As a libertarian it was excruciatingly hard to come to terms with that. But I don't see how the traditional libertarian solution to pollution (property rights enforced through the justice system) is workable for widespread air pollution and even less so for greenhouse gases. Ideally we should manage pollution privately and locally through agreements with our polluting neighbors, but the "market" for pollution is international, and I'll concede the most efficient way to deal with it is through a federal program of remediation. The other alternative, cap-and-trade, to me seems messy, difficult/expensive to implement and operate, and easily dominated by corporate interests. At the current going rate of $18.75/ton (and 19.2 pounds of CO2 per gallon), we should tax carbon at 18 cents per gallon of fuel (remarkably close to the current federal gas tax of 18.4 cents per gallon)... and put the money in a fund dedicated to environmental remediation. Of course this eliminates a huge chunk of highway funding, but then we could fulfill my lifelong dream of transitioning to a program of pay-by-the-mile rather than by the gallon. The other externality is the cost of all of our oil wars. Of course, we could just end them. Imagine what $1 trillion for Iraq and Afghanistan could have bought in the way of energy supplies and new energy technology development. Alternatively we could add another tax on fuel to pay the defense budget (that comes out to another $4.00 per gallon, give or take). That would be quite a relief for the deficit. And since we'd finally be paying the full cost of policing the world to protect energy supplies, maybe we'd think twice about how much it's actually worth to us.
Are these the tax deductibles and allowances that you've labelled "subsidies?" If so, I'm not 100% sold. However, any direct payments to ANYONE should be stopped. THAT is a transfer of money. I don't mind revisiting tax breaks, but I still object to labeling them as "subsidies"... Of course, if you're going to do that, we should revisit the ENTIRE tax code and fix that in the next several years...
One tricky aspect for many conservatives/libertarians, including me, is the characterization of tax breaks as subsidies (they all get tax incentives--oil & gas, coal, renewables). I wouldn't call those subsidies per se. _________________________________________________ they are subsidies but they are not direct (which you already know). the oil & gas subsidies are necessary because of the way the tax code is drafted. otherwise, many oil & gas companies would be getting taxed multiple times making some drilling projects uneconmomical. the oil & gas subsidies actually raise the tax revenue, the taxes are just passed on to other people and companies to pick up the burdens. The additional companies, contractors and employees add to that tax revenue lost by the indirect subsidy. This is a lot different than farm or renewable energy companies that are getting direct cash and grant subsidies.
If drilling projects were really uneconomical without tax breaks- oil companies wouldn't be setting records in profits for American Corporate history- but I admire your staunch defense of Exxon and others, general. I am not the guy who invented the definition of a tax break being a subsidy- I just use the definition. If I charge you less to do something, how is that different than me charging you full price but then giving you some cash- something you could more easily grasp is a subsidy. Get over it guys- tax breaks are subsidies- and every business dictionary will say so. I agree about taxing carbon if the full proceeds are either given back to citizens as income tax refunds or rather to pay down the debt. That accounts for the externality and helps other issues we have as well. Nice post Gone To Texas.. I like your ideas. These optional 'wars' should be paid for with gas taxes. It's amazing we just agreed to lump the costs onto the deficit like it didn't exist. Regardless- this proposal is more palatable for those on the right, and accomplishes goals people have on both sides of the isle. The point is- there are good ideas out there. If/when people work together rather than perpetually undermine someone because of their political party- we actually can get stuff done.
McBrett - you know all the answers. Here is the scenario - less domestic drilling = less domestic jobs = more dependence on foreign oil and very likely higher oil prices. If you can convince the American people that it's a worthy tradeoff, then it sounds good to me. I'll tell you a brief story on solar energy here in LA. Currently, the fed subsidizes up to 30% of a solar energy home conversion. Additionally, LA state subsidizes 50% on top of that. So, average residents here only have to pay for 20% and basically stick the rest of the public with the remainder of the bill. Even under those circumstances, it will likely take 6-7 years for the system to payout for the homeowner and further, very few people are taking advantage of it. Solar is not always the best example as it just isn't very economical. The point is that the rebates and subsidies exist for a lot of people and yet, many choose to not use them.........
If drilling projects were really uneconomical without tax breaks- oil companies wouldn't be setting records in profits for American Corporate history __________________________________________________ most of the profits from the oil companies comes from investment overseas. They have more capital investment than anyone else. Their margins are still less than just about any industry you can find. They just happen to sell a commodity that in wanted in huge amounts globally. This money gets reinvested. The bank executives make more than the oil executives and nobody is going to bail out the oil industry when things go bad.
Smoke- Yep- solar is subsidized. Your state of CA decides to subsidize it further. So is the gasoline in your car, the gas that helps to power your home, some of the ethanol in your gas tank- again, and a few other items you probably use. Yep- solar has a 6 year payback. About 5 years ago- that payback was 15 years. Now its better thanks to early adapters. The improvement curve on solar is amazing, and continually improving. What do you want to do- stop solar sales until it's near free? Verizon gives me a huge subsidy on a $500 phone so I'll agree to a 2 year contract. Gilette gives me a subsidy on their razors so I'll buy their expensive blades. And we, as a govt, are subsidizing a relatively new technology to the market so that it can compete with technologies that are 100 years old. If it takes another 10 years, which the article argues it may be less time for 50% of Americans, to compete with coal and gas- that is very good in the scheme of things. Think big picture. Think 100 year technology being caught up by a 20 year old technology. (Yes, PV was invented in 1954, commercial solar was much later.) Oh- and about California- I think you picked the worst state ever to say people don't use solar subsidies. Solar subsidies were used up so quickly in that state that they voted to enlarge and extend the program. Here's a link: Californians love solar
An end to all subsidies (under McBrett's definition of a subsidy) would be the short term end to alternative energy. None of the current alternatives are remotely cost effective without mandates to purchase power from them at higher than market costs. None of them. The oil "subsidies" are kind of a misnomer anyway. Certain energy jobs (like engineers and plant workers etc.) qualify for some tax breaks. This is no different from manufacturing. It is designed to keep jobs in America. The other big issue is some of the tax breaks for drilling. Many years ago, the oil companies could make more money operating in cheaper environments around the world and domestic activity (along with domestic jobs) were drying up. In order to encourage domestic drilling the govt offerred some breaks to the industry. The industry took on those projects as a result but they didn't need to or really want to. Now that most of the cost is sunk and the projects are making a return, people want to change the deal. It doesn't work that way. I would have no problem ending certain tax breaks for future projects for the companies but am not in favor of renegging on deals already made. An end to all subsidies will drive innovation backwards not forwards. I swear there are still some folks out there that think Exxon and BP and Connoc sit around and decide how much fuel costs. Eliminating US tax breaks to major oil companies wll result in more shifting of operations to other countries, less revenue for the US and would have virtually no impact on gas prices.
OK I read the entire article and I prety much agree with what he is saying. Honestly, I do not think McBrett understands what he is saying but I could be wrong. His stance is really not that different from the vast majority of folks on this board. The one area he is huge hypocritical on is mandates for green energy. If he wants to promote no subsidies and a market based approach, you have to do away with the mandates. They are the same thing. But, I agree with him on most of what he says. Which, in essence, is that oil is drying up and that we need to shift to other sources. Most on here agree completely with that statement. He urges a transition to natural gas for electricity at the expense of coal and increased nuclear use. He understands that this begins to ween us off of oil so that technologies like wind and solar can be perfected. He admits it will take "decades" before wind and solar can be compettitive. Most on here agree with this completely. Let the market dictate things. The loser in this approach are not really going to be the oil companies though that Mcbrett likes to talk about. The net cost of the subsidies to oil companies aggregately is probably less than 1%. No big deal. It will hurt energy jobs in the US in the short term but nobody seeems to care about that. The ones hurt the most in this deal are ethanol producers (would effectively bankrupt all of them) and coal producers. Will also hurt renewables as their implemtation dates willl get pushed back 20 plus years.
I say rewrite the entire tax code. Every dollar earned is taxed at the same rate for individuals and it taxed at the same rate for every corporation. Regardless of how many dollars you earn each dollar pays the same amount. The people earning the money are all created equal and should be taxed equal. Get rid of all tax breaks/incentives/subsidies. The reduction in the IRS work force would probably balance the budget and I have a feeling that revenue would actually rise. If I make $10, I pay x percentage, If I make $100 I pay the same X percentage. Same for corporations. I would also tax all Tax-Exempt organizations, most of them are nothing but a bunch of ******** to begin with........ So I will agree with McBrett, get rid of all them for everything. The more complicated something is the more people with their hands in the pot pulling dollars out.
How would an end to the tax breaks affect energy costs, e.g. Nymex/WTI Cushing spots and ERCOT MW/h spots? I know that it would increase prices, but how much? The assertion that alternative energy will be disproportionately affected strikes me as naive, because I could care less about decorative solar panels and wind farms. Given that demand for fossil energy is increasing while supply shrinks, there will be a point at which the price of fossil energy is greater than the price of renewable energy. There are valid interpretations of the available yet incomplete data which indicate that this could happen in the near term. So how are we helped by blunting the economic incentive to switch to sources of energy which will be significantly cheaper in the long run? In other words, allowing the price of fossil energy to accurately reflect the market gives alternative energy a realistic target, rather than helping stupid implementations (ethanol, most wind and solar projects, biodiesel, et c.) limp along to the detriment of economically feasible alternatives.
Bronco's reply is fairly accurate as to what most experts feel will occur. Reinvestment dollars will be spent outside of the GOM on a more regular basis. Replacement reserves will be a thing of the past, and spot prices in the US will increase. Most notably of all is that the offshore industry will suffer greatly and many of those will either be dissolved, or move inland to shale plays. As noted earlier, the US will be even more dependent on foreign oil than before. Not a wise decision in my opinion for job growth - a huge portion of our economy is related to domestic oil & gas. It will be interesting to see what he does......
