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President Obama seeks to remove subsidies for oil and gas

April 27, 2011

As the 2012 (and beyond) budget discussions begin to heat up, many conservatives are demanding that renewable energy should be made to compete with oil, coal and natural gas without the government subsidies that renewable energy companies currently enjoy.  Today, renewable energy projects can claim a US government tax credit for up to one third of the cost of hardware and installation.  These subsidies represent significant cost savings to renewable energy project developers and investors.  Public grants provided by the Department of Energy amount to many millions of US dollars in taxpayer support for technology development.

But what many people don’t realize is that natural gas exploration companies have enjoyed their own tax incentives for decades.  So have coal mining companies.  So have oil companies.  All of these companies have built their “empires” upon government tax credits for capital expenses, job creation in the industry, and R&D.  In fact, if you look at the massive amount of foreign oil that is bought and sold around the world every day, much of it comes from countries whose governments almost fully subsidize its production.

This week, President Obama stated that there’s little he can do about gas prices reaching $4.00 per gallon in the US, and that we must stop subsidizing fossil fuel producers and step up support for renewable energy projects.  Well, just as removal of subsidies have historically caused renewable energy costs to soar, virtually stopping development, so will removal of subsidies to fossil fuel producers cause their costs to soar.  You know who will have to pay the bill.  The costs always roll down to the consumers.  Stopping subsidies in the form of tax credits will certainly cause gas and heating prices to skyrocket.

Lawmakers will argue on both sides of the issue — conservatives will want to protect government support to fossil fuel producers and liberal environmentalists will want to protect government support to renewable energy producers.  Who will win this debate in the US will be largely decided in November 2012’s election.

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2 Comments leave one →
  1. April 28, 2011 2:03 pm

    I believe that it is important to preserve the distinction between subsidies in the form of government grants, and tax credits. To state that the government is somehow “giving” money to a company when in fact, all they are really doing is allowing that company to hold onto a larger share of its own profits, is a dangerous position. This position logically implies that all productivity is government-owned, and that only through the government’s behest is any portion of the proceeds of that productivity allowed to flow back into the company. That smells an awful lot like Communism.
    The discussion (and the situation) would be far better served if the government got out of the energy business, and let the market decide what it could afford to develop.
    I’m ready to vote with my pocketbook. But after the government gets done convoluting everything with it’s many layers of complexity, it’s impossible for me to read the “ballot”.

  2. April 29, 2011 10:24 am

    What I would like to see is a national free trading market for renewable energy credits (REC). If we allow this to happen then not only will solar/wind projects be affordable to assemble but will be profitable even on a small residential scale. The electric companies should be mandated to purchase renewable power even from residential clients (nationally), and the meters should be smart enough to record REC so that they can be traded on this national free trading system. A REC is worth anywhere from $200 to $600 per credit in some parts of the US. This is huge and we need to push for this open trading of REC’s.

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