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Does the U.S. Government and Policy Makers Really Want Renewable Energy?: Direct and Indirect Federal Subsidies the Oil Industry

August 20, 2010

What is the true cost of petroleum?

The question arises: What is the true cost of petroleum?

On the surface this question seems readily answerable, rather simplistic and naive.  However, a more in-depth look reveals many hidden costs not included in the daily commodity price quotes.

Excluded are the entire life cycle and financial costs of the commodity. Outside of carbon credits and the implications of the proposed cap-and-trade program, other underlying costs may include the short- and long-term impact on the environment and the contribution to the trade deficit. The financial ramifications of the national debt and the rapid decline in foreign investment in U.S. Treasury bills are most likely excluded from the commodity’s price. Let’s not forget the added health-care costs due to environmental pollution and climatic changes.

Furthermore, there are the costs to protect our overseas oil supply lines by the Department of Defense and the tendency of “the power of oil” to adversely alter the economies and politics of the petroleum producing countries, some of them petro-oligarchs with regimes, which may conflict with U.S. interests. Once these factors are taken into consideration, the true cost of developing and commercializing many renewable energy technologies becomes highly favorable and economically justifiable.

A article in the New York Times, “As Oil Industry Fights a Tax, It Reaps Subsidies,” states:

“….. examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.”

” ….. study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.”

“….. for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits. These companies’ returns on those investments are often higher after taxes than before.”

In closing, with all these unaccounted costs, it would be nice to know “what is and what should be” the real price of petroleum.

More importantly, its highly questionable if the U.S. Government and Policy Makers really want renewable energy. Actions speak louder than words. Enough said!

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7 Comments leave one →
  1. August 21, 2010 2:59 AM

    Barry, how true. The same happens here in Germany.

    Also, worldwide nobody is asking: “What is the true cost of elctricity?”
    Or the question: “What is the overall efficieny of our elctricity network?”

    You better not touch such kindof questions, specially when you are a utility…

    Arno A. Evers
    Starnberg, Germany
    http://www.hydrogenambassadors.com

    Join also our LinkedIn group:
    Global Hydrogen Ambassadors Network

    More here:
    http://www.hydrogenambassadors.com/background/the-process-of-electricity-generation.php

  2. August 21, 2010 6:20 PM

    What concerns me is the absence of a logical, fact-based plan for gradually eliminating our dependence on foreign oil, and then on oil period. Most people understand that if we did everything we could do to leverage green energy today, it would supply less than 10% of the US needs.

    Now let’s add the idocy of ethanol and gasoline. Tom Harken (Sen. – Iowa) knows that it costs Americans $ Billions to use this stuff, even though it pollutes more, and decreases fuel efficiency by about 25%.

    Like I said…it seems that as long as Al Gore and Tom Harken (and the other green energy promoters) are making their $millions (or in the case of Harken…his constituents), we will have this kind of idocy.

    At the same time, we can’t destroy our economy (cap and trade) when we have no idea of what makes sense. Those of us who believe in conserving energy need to get off the emotional plane and move to the fact-based, logical plane.

    Based on current data, we cannot get to supplying 50% of our energy needs from green sources in the next 25 years. Let’s consider meeting around the table of logic and fact…and I suspect we can find some real solutions…at least until those in Washington figure out how to mess it up.

  3. August 22, 2010 12:07 PM

    Good article. I think that the issue of subsidies for oil have not received nearly enough attention. People often say of renewables “yeah, but they wouldn’t be economic without subsidies”. Well, what about the externalities associated with oil? The tax breaks enjoyed by oil companies? How much of our annual military budget is allocated to the protection of Saudi Arabia, Israel, etc. Was Iraq only about freedom for the Iraqi people?

    We must have a level playing field. Otherwise, people will continue to make the wrong economic choices with respect to using fossil fuels.

    Good Blog, Barry.

  4. Jacob permalink
    August 23, 2010 5:15 PM

    True, the spot or futures price of a commodity, lets say crude, does not take into consideration externalities. But I don’t know of many energy or mineral economists that include foreign trade accounts or t-bill rates as externalities. Those generally fall under basic macro models.

    So what do you propose the cost of those externalities be? And if we were to pay those inclusive in the price of fossil fuel generated energy, to whom should the money go? The govt (b/c obviously they will pump that money into renewables)? Or if it is a cross border externalities (like CO2), which country?

    Don’t be tricked into thinking that renewables don’t have externalities or are truly renewable under a framework similar to strict sustainability (see Jaimeson 1998). Solar panels and wind turbines dont grow on trees. They are produced via the modern day MIC (most probably using coal power in China) using minerals that are usually mined using less than best practices.

    Wind turbines kill birds and create visual hazards, some have gone so far as say they can cause mental health issues for those living close by (surely those are also externalites), solar panels need to be installed, creating heat islands in already traditionally hot areas (potentially offsetting any differential in temperate change due to AGHGs), and displace native flora and fauna.

    But, one of the big problems that we Americans focus on in the debate over climate change, oil, and renewables is that we only think of ourselves. Non-OECD energy demand has overtaken OECD energy demand, and that was before the recession. Given the current slack in US and EU, the number are almost sure to be more lop-sided towards non-OECD. So even if we clean up our end, we still have BRIC+ to contend with.

    Lastely, I’ll leave you with some pictures of externalities that aren’t captured in the true cost of lets say your cheap Wal-Mart toy, battery, or car.
    http://www.chinahush.com/2009/10/21/amazing-pictures-pollution-in-china/

  5. August 24, 2010 3:15 PM

    If alternative fuels we the actual goal of the Feds, I doubt he would have so blatantly turned his back on us in the industry in order to give the funding intended for us, to be used to help everybody buy a new car to prop up the government’s (at that time) recently acquired new car company.

    We are a single equity funding from being able to have the system we’ve designed, and hand built, tested at a University for certification of capacity. We have people lined up around the block for what happens after that. I have unique experience and a feeling of personal responsibility to use that knowledge only because this is not my first time dancing with finding the optimum way to grow algae that is most effective at enhancing productivity. to me the growing algae part is “Old Hat”.

    Can anybody within the group assist us?

  6. August 27, 2010 8:22 AM

    Comment posted in LinkedIn on this discussion.

    LinkedIn Groups
    Group: Worldwide Renewable Energy Finance Association (WREFA.com)
    Subject: New comment (4) on “Does the U.S. Government and Policy Makers Really Want Renewable Energy?: Direct and Indirect Federal Subsidies the Oil Industry”

    BTW, I read once that it’s at least a 4 to 1 return for oil investors on the tax breaks alone. Compare that to solar, wind, or other technologies less established and renewable energy isn’t squat in comparison to oil’s subsidy. Fix that and you’ll have a cleaner world, but that is difficult when oil is actually the obscure substitute for a gold standard.

    People often don’t realize how greatly the value of our already bubbled up dollar, national debts, and economy are intertwined with OPEC oil purchases….but that might give you a clue as to why, for all our present war effort, China (which backs our debt and dollar) presently has taken most of the oil field plunder on our American war effort in Iraq. Appears we aren’t even halfway good at being soldiers of fortune anymore. :-( You might want to start learning Mandarin and Cantonese while you can. :-P

    Posted by Mountain Lake Labs

  7. favorite recipes permalink
    September 7, 2010 7:27 AM

    great post, looking forward to your next, if your on twitter follow me @favoriterecipe , i follow everyone back

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