Why Subsidize Fossil Fuels?

Since the Obama administration didn’t succeed at first, it’s try, try, trying again this year to convince Congress to phase out fossil fuel subsidies to help fight global warming.

The administration’s new budget proposes ending $36.5 billion in subsidies–mostly various kinds of tax credits–for oil and gas production over the next decade in order to “foster the clean energy economy of the future and reduce our reliance on fossil fuels that contribute to climate change.”

And lest we forget, fewer subsidies will mean less budgetary red ink as well.

Obama is following through on a promise he made last year at the G20 economic summit in Pittsburgh “to phase out fossil fuel subsidies so that we can better address our climate challenge.”

While the prospect of putting a price on carbon emissions is still controversial, calls to withdraw taxpayer subsidies from polluting sources of energy should be much easier to swallow. For years, economists of many stripes have suggested that it makes little sense to subsidize production of fossil fuels–mature and highly profitable forms of energy whose price generally does not reflect the harm they cause to human health and the environment.

Industry associations, on the other hand, argue that federal “incentives” for fossil-fuel production are merited in order to promote domestic energy security and to create jobs.

Last fall, The Environmental Law Institute, in partnership with the prestigious Woodrow Wilson International Center, published an analysis claiming that fossil fuels received a vastly disproportionate share of the $100 billion in federal subsidies for energy from 2002-2008.

Traditional oil, gas and coal interests received a bit more than $70 billion in tax breaks and direct subsidies, according to the study. Corn ethanol, a controversial fuel additive, received just shy of $17 billion. Traditional renewables received only $12 billion.

Those estimates, predictably, have fueled a lively academic debate. In the long run, however, the accuracy of specific estimates doesn’t matter most. What counts more is whether Congress is willing to pay the political cost of upsetting traditional interests in order to fight global warming by tilting the energy market in a greener direction.

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