What We "Practically" Mean By "Subsidies for Fossil Fuels"
Readers “Cameron” and “MarcoPolo” are having a spirited discussion in response to my post Sour Grapes from ExxonMobil’s CEO. I wish to point out:
This conversation will be tough to resolve in any case, but it will be impossible to resolve as long as you guys continue to use the word “subsidies” in two different senses. I’m reminded of an essay on the philosophy of pragmatism written by its most famous proponent, William James (pictured), which I’ve reproduced below.
Back to the matter at hand, having spent a decent amount of time at this, I’m personally comfortable with the report compiled by the Environmental Law Institute, which pegs the figure at $70.2 billion annually. But I also agree with Cameron that it’s proper to include the externalities of fossil fuels in the calculation, which puts the figure into the several trillion dollar range, as presented in the report from our National Academy of Sciences. I would also include a significant portion for the U.S. military budget.
As promised, here’s the opening paragraph from James’ essay “What Is Pragmatism” (1904).
SOME YEARS AGO, being with a camping party in the mountains, I returned from a solitary ramble to find every one engaged in a ferocious metaphysical dispute. The corpus of the dispute was a squirrel – a live squirrel supposed to be clinging to one side of a tree-trunk; while over against the tree’s opposite side a human being was imagined to stand. This human witness tries to get sight of the squirrel by moving rapidly round the tree, but no matter how fast he goes, the squirrel moves as fast in the opposite direction, and always keeps the tree between himself and the man, so that never a glimpse of him is caught. The resultant metaphysical problem now is this: Does the man go round the squirrel or not? He goes round the tree, sure enough, and the squirrel is on the tree; but does he go round the squirrel? In the unlimited leisure of the wilderness, discussion had been worn threadbare. Every one had taken sides, and was obstinate; and the numbers on both sides were even. Each side, when I appeared therefore appealed to me to make it a majority. Mindful of the scholastic adage that whenever you meet a contradiction you must make a distinction, I immediately sought and found one, as follows: “Which party is right,” I said, “depends on what you practically mean by ‘going round’ the squirrel. If you mean passing from the north of him to the east, then to the south, then to the west, and then to the north of him again, obviously the man does go round him, for he occupies these successive positions. But if on the contrary you mean being first in front of him, then on the right of him, then behind him, then on his left, and finally in front again, it is quite as obvious that the man fails to go round him, for by the compensating movements the squirrel makes, he keeps his belly turned towards the man all the time, and his back turned away. Make the distinction, and there is no occasion for any farther dispute. You are both right and both wrong according as you conceive the verb ‘to go round’ in one practical fashion or the other.”
Craig, as usual, you point out an essential element, and try to provide a common sense answer.
Benjamin Disraeli’s famous saying came to mind; “there’s lies, damn’d lies, and statistic’s !”
It’s true you can extrapolate “true or hidden costs” to almost any human activity. But, what’s the point if the object is simply to justify some ideological position ?
Worse still, attempts to include all sorts of dubious “externalities ” , looks like a desperate attempt to cover up old lies and maintain old myths. It may preach well to the already converted, but increases mistrust among the already doubtful, and provides excellent ammunition for skeptic’s.
It looks like this :
Advocate ) Big Oil get tens of billions a year in special subsidies from the US taxpayer.
Skeptic ) Untrue ! Tell me the name and amounts of those “subsidies” .
Advocate ) Okay that’s easy ! There’s,…er,ah,…well ah,……never-mind, let’s change the rules, and redefine the term “subsidy to include all sort of things not previously acknowledged !”
Now it would be perfectly easy to say that the advent of the motor-car increased health costs, and damaged human health. Therefore, the cost of health should be included in the price of gasoline !
Sounds logical, until you compare it with the the cost of heath problems that were cured by the advent of the motor-car. Each year more than 30,000 children died of horse encephalitis in London, before the advent of the motor car. (London was no exception) . Should the benefits be calculated and deducted ?
Should the cost of the fuel used in producing the steel, mining the ore, paint, transport, etc, be calculated into the price of a wind farm (including decommissioning, disposal, possible health claims etc ?
Obviously not.
The argument of “externalities ” begins to look like a desperate attempt, to justify why new energy technologies that have failed economically, are really cost effective. It seems Orwellian doublespeak. Not untrue, just that the truth is now “inoperative”.
You include a significant portion of the US military budget, as the cost of oil. Yet since the US now sources nearly all it’s domestic oil consumption within North America, does that mean the US can now retreat onto 30’s style splendid isolation ? Will the US military budget suddenly halve ?
Will Islamic crazies, love the US ? Will Russia. leave the Ukraine, and the PRC stop flexing it’s might in the South China seas ? Will the Israeli’s and Palestinians, suddenly join hand and sing Kumbaya, because the US achieved domestic oil independence ? Will the North Koreans, suddenly see the error of their ways, and invite the Dalai Lama to become the new President?
Maybe, and then again, maybe not…
So I say, forget the esoteric justifications, tell the truth and sell green technology on it’s merits. It may be harder, but it builds respect, not suspicion.
Please see: http://2greenenergy.com/2015/06/06/an-energy-policy-should-contemplate-externalities/
Thank you, please see my reply.
Brilliant observations as usual, Craig. Thanks for your efforts in this and all respects.
Thanks. I think that my first reference to William James in 4700 posts. I thought pragmatism was terrific back when I used to study this stuff.
There are a number of things which might be considered in some way subsidies.
1. Explicit subsidies such as on the renewables side
a feed in tariff / preferential rate paid for solar or wind energy.
and
On the fossil fuel side, in countries such as Nigeria, Venezuela and much of the middle East, petrol and diesel are sold below cost – with in some cases little or no incentive to use fuel or electricity efficiently.
2. Other subsidies such as tax breaks, low cost government loans, below market rents of state land and buildings
These too can apply to both renewable and traditional energy sources.
3. Externalities not charged for
This can apply in many different ways and situations such as unsustainable harvesting of timber (where those collecting firewood do not plant and tend sufficient trees to replace those they cut down), to inadequate environmental and health precautions taken in mining of raw materials for the manufacture of solar panels and wind turbines, and to the damage arising to health and the environment of the use of fossil fuels.
4. Transferred costs
In some cases, the deployment of renewable energy – especially from intermittent sources can impose costs on other generators. This applies where the efficiency of a generator is reduced due to part load operation, or where the economic efficiency of that generator is compromised by operating for fewer hours. On the other hand, there are times when the reverse is true, such as when solar power displaces use of less efficient generators in the summer heat – where solar power helps to support the air conditioning load reducing the cost of other supplies.
It is hard to make a true comparison – apples to apples between renewable energy and fossil fuels, and discussions about “subsidy” as it applies to both fossil fuels and renewables is part of this discussion.
Gary, your interpretation of the term subsidy, is very fair and reasonable. All the elements you include are worthy of consideration.
My objection is the terms “subsidy” and ‘externalities” have become misused , to include all sorts incalculable additions for propaganda purposes. (the US military budget etc)
Ardent “green” advocates, have discovered that “alternate energy ” generation, once touted as economically cheaper and more plentiful than conventional sources, have been disappointed to discover that despite massive incentives, mandates, and public expenditure these technologies produce very little economic benefit.
This is partly because some of the technologies are still very immature, and partly because no one bothered to consider the logistics.
My complaint is that instead of admitting the problem, renewable fuel advocates disingenuously widen the definition of “subsidy” and ‘externalities” , to distort economic reality/
The myth that the US oil industry was massively subsidized by the US taxpayer, was so widely believed that President Obama, having used the claim so effectively in many speeches, confidentially responded to criticism by ordering the Inspector General of the U.S. Department of Treasury, to prepare a report on subsidies to the US oil industry.
To his considerable embarrassment, the report could only list less than $ 2.8 billion, and more than $ 2 billion of that was subject to sunset clauses. Nearly all the subsidies were given to very small producers.
Now to your or me, $ 2 billion may seem a lot of money, but in comparison to the size of the old industry, and the hundreds of billion squandered on failed renewable energy projects, it’s infinitesimal ! .
The $2.8 billion must be in the form of direct explicit subsidies as any other interpretation makes no sense.
Not counted in this figure I would suggest are
1. Tax breaks and similar incentives to encourage the discovery and exploitation of oil and the refining thereof.
2. Hidden subsidies such as use of federal and state land for token rent payments.
3. Health costs and shortened lives associated with toxic emissions (In the UK, there are an estimated 25,000 early deaths of this nature a year not to mention lost productivity, hospitalisation, medication and suffering).
Scale this to the US population, assume that these deaths occur 5 years early, and put a value of $50,000 of a year of quality of life and you have an estimated cost of the early fatalities of $31.25 billion a year.
4. Environmental impacts – oil spills, toxic fumes, acid rain (much reduced by low sulfur fuel), and climate change – who knows the cost?, but certainly more than $2.8 billion per annum.
To use an analogy
In the UK, when I pay my water bill, it has three components.
First – a connection fee for having access to mains water
Second – a per thousand litre charge for supplying clean water
and
Third – a per thousand litre charge for disposing of waste water (assumed at the same volume as supply).
I do not argue that the disposal of waste water is nothing to do with its supply as I recognise the importance of managing the discharged water and accept the value to society of doing so – Like any sane person, I do not relish the thought of sh** in my drinking water!
Surely the same argument can be made about the true cost of oil (and generally is in Europe where heavy taxes on vehicle fuels are at least partly justified by the polluter pays principle).
The value of subsidies to the US oil industry is therefore a far more complex calculation than is used by the inspector general!
100% correct; it’s a complicated matter to nail down completely and precisely (though there is no imperative to do that).
Gary,
Craig is quite right, the issue separating costs of an intricately connected economy, is virtually impossible.
However, the Inspector-General would certainly have included items, 1 & 2 , on your list, but not Tax Credits for expenses which also apply to other industries.
In relation to the third item on your list, this is a very vague sort of assessment. It’s virtually impossible to substantiate the health effects of gasoline and diesel. There simply isn’t enough definite correlation to prove a conclusive estimate. (Not the case with bunker oil, however, where the massive difference in Toxicity does provide very conclusive evidence)…
But, again I emphasize, that it’s counter-productive for environmentalists to make erroneous claims, and when they’re called on the veracity, attempt to revise the question to mask the error !
It looks disingenuous, because it is disingenuous.
It the same as when much touted, ‘computer modelling’ and consensus arrived at “without any uncertainty” 99% , global warming predictions, develop an anomaly, giving rise to doubt about the accuracy of the “scientific methodology” , advocates refuse to revisit the methodology, instead preferring to revise the data to fit the conclusion !
That’s not science, that’s ideology !
It’s counter-productive because it makes all environmental science look like the work of deluded fanatics, or worse.
Environmental advocates,must be able to back up their claims, especially the more outrageous claims. Failure to do so, discredits all environmentalists.
I think Cameron is a passionate, sincere sort of a guy. He obviously holds strong views on the environment and green politics. It’s very commendable to be actively involved.
Unfortunately, he makes claims that he can’t substantiate, and although I’m sure it’s not his intention, he makes these claims in a condescending and dismissive way. What is unfortunate, is when this sort of committed advocate gets caught in an error, or act of overzealous proselytizing, and is exposed, it’s best the advocate admit the error, and retract the statement.
Continuing to refuse to acknowledge the error, destroys the credibility, of not only the singer, but unfortunately, all the song.
Environmental advocates, must be careful to be very honest, and conservative in making claims.