Federal energy subsidies, from ethanol to oil, are on the congressional chopping block with lawmakers on both sides of the fence arguing for their end. Rising national debt has put the spotlight on imprudent spending, and greens rejoice at the opportunity to curtail government support of dirty energy.
Well, if only it was that simple.
Several weeks ago U.S. Senate Republicans voted unsuccessfully to end the ethanol blenders’ credit. With this vote in hand, Democrats are now pushing to extend the cuts to subsidies for oil and gas corporations as part of the deal to raise the debt limit. Though the pressure is on to close the deficit, Republican leaders are hesitant to include these in the current deal. (Since the majority of energy subsidies are tax credits rather than direct spending, ending them would mean an increase in tax revenue, and the GOP’s current position on the debt limit negotiations is adamantly opposed to any increases in revenue.) Political posturing aside, energy subsidies are likely to be cut across the board—if not in this deal, then the next.
This is a welcome piece of news in the world of energy policy. The hodgepodge of energy subsidies is, frankly, a mess. Contradictions abound. Our politicians may voice support for a clean energy economy, but from 2002 to 2008, excluding corn ethanol, the U.S. government spent over five times as much money promoting traditional fossil fuels than promoting renewable energy (check out this nifty graphic by the Environmental Law Institute). On top of this, while fossil energy’s subsidies are generally written into the permanent tax code, their renewable counterparts are on limited time tables, creating uncertainty that stifles investment and innovation. Even within the alternative energies, preference appears to be divvied out arbitrarily. Though the lifecycle carbon emissions of corn ethanol may be little lower than those of gasoline, according to a 2009 Joint Commission on Taxation report, biofuels receive approximately four times as much funding per unit of fossil energy replaced than do wind, solar, and nuclear. And while we throw tens of billions at the energy sector annually, our think tank economist friends note that many of these subsidies do little to promote actual innovation.
The time is ripe to cull these rotten federal subsidies. The deficit hangs in the air. Tens of billions stand to be reaped. It’s time for a leaner, smarter breed of federal energy policy, one that funds technologies not based on political prowess, but based on innovation cost effectiveness and real greenhouse gas reductions.