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  • Wind Subsidies vs. Oil Subsidies

    In sharp contrast to wind turbines, the wind lobby is spinning at 100 percent capacity—in order to keep the industry in the taxpayers’ pockets. Their dizzying logic makes you wonder if they have been riding the blades instead of examining the facts.

    First, they make two contradictory assertions: (1) Wind is the cheapest source of electricity (tied with natural gas); and (2) without substantial subsidies, the industry will suffer a severe recession. If it were the cheapest, it would not need subsidies to compete in the marketplace.

    Second (perhaps in an attempt to square this inconsistency), they claim that their subsidies are equivalent to the subsidies received by the fossil fuel industry.

    Perhaps because their recent profits have been so high, oil companies are frequently the example suggested by green energy subsidy seekers. So then, how do the subsidies compare?

    The wind lobby is seeking an extension on the production tax credit that they and several other select renewable energy sources receive. Adjusted for inflation, the subsidy for wind energy is 2.2 cents per kilowatt-hour. That may not seem like much, but for all of 2011 the wholesale price of electricity was about 5 cents per kilowatt-hour. So the subsidy amounts to 40 percent or more of the wholesale price. (It should be noted that wholesale prices so far this year are tracking below those of last year.)

    If crude oil were subsidized at that same rate as wind energy, the oil companies would receive $50 for every barrel of oil produced (given Brent Crude’s current price of $125 per barrel). How does that compare to the actual subsidies received by the oil industry?

    The most repeated number is $4 billion per year. But, Heritage’s Nick Loris and Curtis Dubay make clear that this number is way bigger than the actual subsidy. However, even that overstated number works out to only $0.60 per barrel, or barely 1 percent of what wind receives relative to market prices. A more honest estimate of the oil subsidies would be closer to a nickel per barrel, which is one-thousandth the subsidy given to wind.

    If wind industry lobbyists want a subsidy comparable to oil’s nickel per barrel, they should get 0.0022 cents ($0.000022) per kilowatt-hour instead of the 1,000-times-larger subsidy they get now.

    A much better idea is to get rid of all the subsidies. But what makes no sense is to say, “Since they get a nickel, we should get $50.”

    Posted in Energy [slideshow_deploy]

    14 Responses to Wind Subsidies vs. Oil Subsidies

    1. Kevin@AWEA says:

      This post is conveniently ignoring one key component of the federal support argument: Time.

      Oil was first commercially produced in Titusville, PA in 1859, giving it more than a century head start on renewable sources of energy.

      A more accurate view is provided in a recent report, "What Would Jefferson Do?" from DBL Investors, which found that "current renewable energy subsidies do not constitute an over-subsidized outlier when compared to the historical norm for emerging sources of energy. For example: … the federal commitment to [oil and gas] was five times greater than the federal commitment to renewables during the first 15 years of each [subsidy’s] life, and it was more than 10 times greater for nuclear.”

      The fact that oil and gas have received more than 75 times the total cumulative dollar amount of federal subsidies that renewables have may not be terribly surprising ($446.96 billion vs. $5.93 billion, see below).

      In other words, if you zoom in and look at the federal support for all energy sources in their infancy, renewables actually receive far less support than did fossil fuels or nuclear energy at a similar point in their development. In fact, oil and gas subsidies were far greater than the more modest federal support renewable sources of energy receive today, even when those oil and gas supports were at historic lows during the Great Depression.

      The wind energy Production Tax Credit (PTC) is about leveling the playing field and ensuring that the next generation of Americans will be able to enjoy clean, abundant and homegrown energy.

      As Governor Chris Christie said, "The wind power movement is providing us with a unique opportunity to advance energy as industry. By doing so, we have the ability to leverage our tremendous resources with ground-breaking technologies, allowing New Jersey to increase its use of renewable energy sources while advancing an industry that will lead to long-term job creation."

      I couldn’t have said it better myself.

      (“What Would Jefferson Do?” study: http://www.dblinvestors.com/documents/What-Would-… )

      • Bobbie says:

        It isn't the right "time" when alternatives are tremendously cost and energy inefficient and by forced government implementation is glutton for crisis' especially when the only reason for all this needless rush was in direction of AL GORE'S idea to scam the world into "man made global warming" that doesn't exist by merit.

        Alternatives are fine ON THEIR OWN! In the mean time, DRILL BABY DRILL!!!!

      • David Kreutzer, Ph.D. David Kreutzer says:

        Kevin, you offer so many misleading assertions, it's hard to know where to start. But let's begin with oil's "head start." As you note, commercial oil production started in 1859, which is about 1,700 years after the first windmill was used. Go to almost any art museum and find the Dutch landscape painters. You will see that windmills were commercially important hundreds of years ago. In any event, a head start by one entity is not a reason to subsidize competitors. Should we give a subsidy to somebody starting a discount department store just because Wal-Mart already has so many? (Wal-Mart didn't need one when it started.)

        • David Kreutzer, Ph.D. David Kreutzer says:

          Part 2
          Just because wind apologists call something an oil subsidy doesn't make it one. For instance, the biggest "oil subsidy" on the list is the manufacturing tax deduction. Oil-and-gas firms get to deduct 6 percent of revenues before calculating their tax bill. Other manufacturers, such as producers of wind turbines, solar panels, and even newspaper publishers, get the same deduction except that it is 50% more generous. How is that a subsidy to oil? Edwin Drake did not get any subsidy in 1859 and the people that followed him got wealthy producing oil without subsidies. Oil was profitable from the beginning without any subsidies.

          Thanks for reminding everybody about the topic of renewable subsidies and job creation, but that topic has been relegated to the comedy category.

          • Steph says:

            David,

            Oil was most definetly not profitable in it's inception! Black gold got off to a pretty sputtering start. One could even argue hydro was more abudantly used in it's inception than oil. Please see the attached report as one source of proof.
            http://www.theatlantic.com/business/archive/2012/

            Please, this is not about "apologists." That word in itself is overused and inherently political. Like every industry wind has to grow and is not inherently a cash cow. And like every industry, wind has it's share of doubters. But I submit this to you…is their a cleaner source of energy? Are you not concerned about the environment or climate change? Do you see battery storage improving this technology?

            Or is this just about a short termed view of our energy economy?

            • David Kreutzer, Ph.D. David Kreutzer says:

              Steph, The graph says nothing about profits. Oil was not subsized and producers made money. That was my point.

      • Richard says:

        Kevin, you're talking as if wind-energy is something new. There are windfarm graveyards in CA. that are 50 years old and were abandoned as soon as the subsidies ran out on them. Sure the turbines are more efficient today, but if after 50 years wind cannot be profitable on its own, what's the point of throwing good taxpayer money after bad to the birds.

        • Drew says:

          Richard/David,

          You and I know that modern utility scale wind energy has only been around for a few decades. You claim Kevin is being misleading, but you are engaging in the same practice by saying ancient Danish windmills are somehow linked to the modern day wind industry. That's basically like saying ancient candlewick is linked to the advances in modern day lightbulb technology (a really poor correlation).

          In fact, government research dollars have only been committed to wind energy as recent as 15 years ago! Iowa and Texas both fuel over 15% of their population on wind energy (and many states are following suit). Not bad for an industry that has only been around for a few decades. 5 years ago, the average capacity factor of the existing windfarm fleet in the US was 23%. For windfarms built in the last 3 years, the mean capacity factor of a wind farm is 35% in the US (and it will even get better, fast). As someone who is intimately familiar with the energy industry, I can say wind turbine efficiency is improving faster than any other source of power. It's not even close.

          -Drew

          • Audrey says:

            Richard/ Drew:

            I've just got to correct you here.

            Wind power has been around since the seventh century, invented in Afghanistan. It's a cost efficient and proven way of harnessing energy. Look at the Netherlands, and then tell me that Wind Energy is costly and ineffective. They probably provided the model that countries wishing to utilize wind power look. They've used this practice for a *long* time.

            Yes, it is only during the last century or so that wind turbines have gotten 'truly efficient' or whatever, but they can sate a significant amount of our energy needs, if only the government and/or the private sector will back them up and fund them. Unfortunately, that's probably not going to happen.

      • ted says:

        Oil companies profits are near all time highs, and they do tremendous environmental damage that they don't pay for. They shouldn't get anything, they should pay more in taxes to cover the externalities that they push off onto the planet

    2. JusttheFactsPlease says:

      This post is so filled with logical fallacy and false references to authority that it is not worth reading. Dr. Kreutzer, as a man of education I would expect a balanced, fair-handed approach from you as opposed to the clearly lopsided and, frankly, ignorant approach presented.

    3. Brenda says:

      The Congressional Research Service states the fledgling oil industry in the United States first received government assistance in 1916. That was when intangible drilling costs were able to be fully deducted from a company's expenses for tax purposes. In 1926, a write-off for cost depletion was introduced. That provision allowed oil companies to deduct costs based upon overall gross receipts and not just the actual value of the oil. Both of those subsidies still exist. The Obama administration claims the average subsidy for huge oil companies is $4 billion per year. The bill in the Senate would have saved $24 billion in 10 years. The White House claims when gas goes up one cent per gallon, oil companies make $200 million more per month. The American Chemical Society cites a report by Double Bottom Line Venture Capital that explains how the oil industry has reaped benefits from subsidies. From 1918 to 2009, the average annual subsidy was $4.86 billion. By comparison, the nuclear energy industry gets around $3.5 billion per year. When the study adjusted for inflation to 2009 dollars, the oil and gas industry received subsidies amounting to $1.8 billion per year in the first 15 years of the fledgling industry. The American Coalition for Ethanol estimates that when combined with state and local government aid to large oil companies, subsidies amount to anywhere from $133.8 billion to $280.8 billion annually from all sources of taxpayer aid that goes to the oil and gas industry. The Obama administration contends the oil industry no longer needs help. The three largest oil companies made $80 billion in profits combined in 2011, which amounts to $200 million per day. The White House also asserts America uses 20 percent of the world's oil but only has two percent of the world's oil reserves. Oil drilling continues in all areas of the United States and oil rigs are plentiful in the Gulf of Mexico, the White House blog states. The New York Times had an article dated July 3, 2010, in the middle of the Gulf oil spill. Deepwater Horizon rented the sunken rig to BP. The company used an oil industry subsidy to write off 70 percent of the cost of the rent for the rig which amounted to a deduction of $225,000 per day.

      • David Kreutzer, Ph.D. David Kreutzer says:

        Brenda, Intangible drilling costs are real costs and are deducted in the year for which they occur. In any event they don't come close to the $ billions you mention. For that you need the Section 199 tax deduction, which, as noted above, is not specific to oil and gas. Rather, Section 199 is less generous for the oil and gas industry than for all other manufacturers. Finally, the depletion allowance doesn't go to the major oil companies since it is limited to relatively small volumes of oil. So, what's left of your argument is that profitable companies should be taxed until they aren't profitable.

    4. All of these tax subsidies are a political joke from both sides. They are largely antiquated and provide fodder for both sides without jeopardizing either side's relationship with the oil industry. However, Dr. Kreutzer needs to do a little more of what PhD's do and research. Check the REAL cost of a gallon of gas in the United States. Independent studies funded by the Bush administration show it to be in the $8-15 range due to direct and indirect subsidies and that was when gas was significantly cheaper than it is now. If you want to talk real subsidies dig deeper. The U.S. Navy provides the security force for all the tanker shipments of oil we receive. During the Bush administration, that measured out to an excess of $60 Billion per year. That's called an indirect subsidy. Wind energy subsidized? Ha, what a joke. Kreutzer is a cog in a spin machine.

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