There are significant tax incentives for renewable energy. And many people rail against renewables for this reason. Does it actually get more then the oil industry? We have never had a war for renewable energy. Taxpayers are often the ones stuck with a cleanup bill for oil spills.
I haven’t read it yet, but you may see some numbers tallied here: http://www.worldenergyoutlook.org/resources/energysubsidies/
When have taxpayers been stuck with a cleanup bill?
Pretty sure the OP is probably thinking of subsidies in the U.S. Your link shows $0 in subsidies to the U.S., which in my opinion is accurate. The subsidies shown are of the type like Saudi citizens paying a heavily discounted price for gasoline.
Hmm I got that from someone else using it as a cite for U.S subsidies. Bad job on my part for not checking.
I suspect this conversation may come down to what one counts as a subsidy. E.g. does spending Navy money helping keep Hormuz open count? What about a tax break available and taken by most large companies?
Exactly. That’s how these threads always go down. To put it simply, the oil industry doesn’t receive direct subsidies and the renewables industries do. If you want to talk indirect subsidies then it gets very complicated, and there are indirect subsidies all around for everyone. If you want to claim things that every single other industry gets as a matter of tax policy then you are being intellectually dishonest.
In the real world, oil companies pay a ton of taxes and don’t receive any direct dollars. They benefit in a ton of indirect ways though.
LonghornDave is correct, but AFAICT much of the rhetoric conflates a subsidy with the depreciation allowance. This is hardly unique to discussions about renewables, of course - “tax break = subsidy” is a pretty common construction.
Not that the renewable energy sector doesn’t receive subsidies in the sense of tax breaks, of course.
Regards,
Shodan
This page has an overview about fossil fuel subsidies, both national and international. In the Wiki entry on energy subsidiesit says
In other words, in the U.S., we’re going to count it as a subsidy for oil and gas if their tax treatment is the same as every other industry.
Can we think about this logically for a second. If the oil industry is so heavily subsidized then how come falling oil prices are hitting state budgets so hard.
Did BP reimburse the Coast Guard when they helped after the Deepwater Horizon spill?
Yes, they did.
Lower prices, lower taxes going to the state. Oil industry subsidies generally come from the Fed.
The point is that oil companies are large net tax payers. The point is obvious when lower prices cause budget deficits. The Feds aren’t providing any subsidies unless you use the word subsidy in a meaningless way. The primary argument people make is that their DD&A is a subsidy. If every single other company is treated the exact same way then how is it a subsidy for oil companies but not everyone else?
For international subsidies, they are pretty clearly subsidies, but I wonder if they are a net positive or negative for private oil companies. The countries that offer the biggest subsidies are the OPEC countries like Kuwait, Venezuela, Saudi Arabia, Qatar, etc. A big common subsidy is selling gasoline or diesel at discounted rates. This obviously artificially props up demand.
These fuel subsidies are just a part of the large social welfare system necessary for these governments to stay in power. Take away the subsidies and the chances of political unrest goes up. Political unrest should result in supply disruptions which would obviously result in higher prices. Your average U.S. oil company might benefit if international subsidies ceased to exist. Essentially, the impact on supply might be greater than the impact on demand.
Yes, of course. Any time there is a spill, in addition to the cost of the cleanup the company responsible has to reimburse any regulatory agency for their costs as well. They are then often times assessed a fine on top of that.
Let’s then imagine a scenario where the company responsible for the spill doesn’t have the financial capacity to cover the costs. The Oil Pollution Act of 1990 created the Oil Spill Liability Trust Fund. This is funded by, among other things, an $0.08 per barrel charge on the oil industry to cover this sort of incident.
Companies are also required to carry insurance to cover spills in an amount determined to be a worst case oil spill discharge for a well. Essentially there is a formula determined by where the well is located, whether it is pressurized or not, the amount of storage space, and other factors to determine how much insurance you are required to buy. This is on top of whatever insurance a company would normally have in place.
Percentage depletion.
Which isn’t a direct subsidy, applies to mines and timber companies as much as to oil companies, and is less as a percentage that the tax breaks received by renewables. In addition to the direct subsidies that renewables get that the oil companies don’t. Unless I am not getting your point.
Regards,
Shodan
Percentage depletion is only available to very small companies/individuals. Any company with any size uses cost depletion. Percentage depletion is essentially used by small royalty owners and very tiny companies.
I would agree that under certain circumstances percentage depletion should be considered a tax loophole.
He’s talking percentage depletion as opposed to cost depletion. For typical cost depletion, you deplete based on the unit of production compared to the beginning reserves. So if you had 1 million barrels of reserves and you produced 200,000 barrels during the year then your depletion would be 20% of your cost. For percentage depletion, you always deplete 15% of your revenue. Therefore, you could possibly deplete an amount that is greater than your original cost basis. That would definitely be a tax loophole if it occurred. This isn’t really a big issue overall though as it relates to the discussion because if your production is above a certain amount you must use cost depletion. I believe the limit is 1,000 barrels of oil per day. Essentially this limits percentage depletion to small mom and pop companies or royalty interest owners.
Having said that, this is usually overblown as an issue. The obvious reason is that wells deplete. Consider the following quick example.
Let’s say I am a small company and buy a 1,000 bbl/d oil field (the largest that would be allowed under percentage depletion). Let’s say I pay $35 million for this. Let’s assume constant pricing of $50 per barrel. Let’s assume the field decline by 10% every year and that there is a total of 3.5 million barrels of reserves. These all seem like pretty reasonable assumptions to me. In that case, my first year depletion under cost depletion would be about $3.6 million and under percentage deletion would only be $2.7 years. Over the roughly 30-year life of the field under cost depletion, I would deplete the entire $35 million original cost but under percentage depletion I would only deplete $26 million. Therefore, I would have been far better off under cost depletion.
Under percentage depletion, it would only be better if you have instances like very low decline rates or times when you buy it in a much lower price environment than you produce it in.
It’s not as big of a boon as detractors make it out to be. It’s also completely inapplicable in discussions like this since there are the size limitations.
Thanks.
Regards,
Shodan