Subsidies

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On his campaign Web site, John McCain laments that “wasteful special interest subsidies are not moving us toward an energy solution.” In particular, McCain tees off on “subsidies, tariffs and price supports that focus exclusively on corn-based ethanol” – one of Barack Obama’s favored fuels.

McCain, however, has become a vocal advocate for the oil industry, which is itself heavily subsidized despite enjoying the fruits of soaring crude prices. Doug Koplow, who’s been researching energy subsidies for 20 years and is president of Earth Track, says that this “very large, very sophisticated, profitable industry” can pay its own freight. “It can pay for its own R&D. It can pay its own cleanup costs,” Koplow observes. “So why are you subsidizing it at all?”

Just how big is the subsidy? It’s hard to quantify with much precision, given the secrecy surrounding corporate tax returns and other barriers to transparency. Friends of the Earth took the most recent stab at it in a July report, “Big Oil, Bigger Giveaways”. The environmental group calculated that the oil and gas industry will receive “more than $32.9 billion in handouts from taxpayers over the next five years.” This includes “tax benefits, royalty relief [forgiveness of royalties], research and development subsidies and accounting gimmicks that benefit the oil industry.”

Koplow believes the Friends of the Earth number is low because it doesn’t include the cost of defending oil shipping lanes in the Persian Gulf, the cost to own and operate the stockpile of oil in the Strategic Petroleum Reserve, or accelerated depreciation benefits, which allow companies to write off investments in pipelines, drilling equipment and other infrastructure more quickly than the stuff actually wears out. His total subsidy figure for oil and gas: $39 billion a year.

Using defense spending data from the mid-1990s (adjusted for inflation), and assuming that only about a third of this spending goes toward protecting shipping lanes, Koplow estimates the value of the defense subsidy alone at nearly $20 billion a year – not including the cost of the Iraq war.

In fairness, Koplow notes that – on a per-unit-of-energy-produced basis – oil isn’t the most generously subsidized portion of the energy sector. It’s eclipsed by both ethanol and nuclear power, he says. Obama has embraced the former, touting the biofuel throughout the primary campaign. “Mr. Obama is running as a reformer who is seeking to reduce the influence of special interests,” Larry Rohter reported in the New York Times in June. “But like any other politician, he has powerful constituencies that help shape his views. And when it comes to domestic ethanol, almost all of which is made from corn, he also has advisers and prominent supporters with close ties to the industry . . .”

McCain, for his part, is a friend not only of big oil – he opposes new taxes on the industry, Obama favors them – but has called for the construction of 45 nuclear reactors by 2030. Critics say that no reactor will be built without massive subsidies; the Department of Energy has started down that road with a new loan guarantee program that sets aside up to $18.5 billion for nuclear construction. Here’s a fact sheet on both candidates’ energy policies from Reuters.

Stay tuned for more from Sunlight on the issue of government subsidies.

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