Thoughts on the Engineering Industry

A blog covering engineering, technology and business topics

Tax incentives for promoting renewable energy production

Hello everyone, I hope your week is going well.  Today I would like to look at a topic that is less technical and a more political – how to implement tax incentives that promote sustainable energy production.  I believe that this is a topic that gets over-politicized and some information needs to be shared in an objective way.

Currently, there are a lot of subsidies provided to oil companies.  According to Oil Change International, the subsidies range from $10 to $52 million annually in the US.  Internationally, the subsidies are somewhere between $775 billion and $1 trillion.  As of July 2014, Oil Change International estimates this years subsidies to be about $35 billion.  $2.4 billion of those subsidies go to the big 5 oil companies in the form of federal tax deductions: BP, Exxon, Chevron, Shell, and ConocoPhillips.  Subsidies also go to “independent” oil companies which, which are larger operations than the name implies.  These companies produce about 50% of the oil.  The rest of the subsidies are earned through loans or aid certain types of operations such gas exploration and production at an estimate value of $18.5 billion on the federal level and $21.6 billion on the state level.  After that, there are consumption subsidies which amount to $11 billion.  Along with the subsidies, infrastructure loans are provided to the companies which amount to about $4.7 billion.  It shouldn’t be noted that the article goes on to recommend that these subsidies be reduced and also outlines roadway maintenance and health concerns.  That being said, I am trying to keep the references focused on the raw data in this section.

In comparison, the subsidies for renewable energy are lower.  A report by Nancy Pfund and Ben Healey shows that the renewable energy has a lower initial investment and projected investment over a 30 year span overall.  The historical average of annual subsidies of renewable energy is $370 million as compared to $4.86 billion for oil and gas, $3.5 billion of nuclear and $1.08 billion for biofuel.  Interestingly enough, nuclear had far greater initial investment than the other forms of energy; however, safety concerns caused there to be a large reduction those investments.

My current opinion is that we need to strip away a lot of the “blank check” type subsidies.  While there are probably subsidies for every industry that could fit in this category, the worst offender in this regard is the oil and gas industry.  I also think that some practicality is warranted too.  In my opinion, oil and gas will still always be the best option for hauling goods across the country for the next couple of decades.  Renewables can’t provide the efficiency needed and other tech such as nuclear is not scaleable enough for that yet.  For electric power production, I believe renewables can’t completely fill that gap either and stable energy production is needed for peak hours.  With all that being said, a balanced merit system needs to be applied to energy subsidies to produce the most sustainable energy infrastructure possible.

What is your opinion on how to best subsidize energy industry?  What is your opinion on the current state of subsidies?  If you enjoyed reading this post, like this post and share it.  Thanks for reading have a good day.

Sources

“Fossil Fuel Subsidies”, Oil Change International, 2014, http://goo.gl/BYdMg

Nancy Pfund and Ben Healey, “What Would Jefferson Do?: The Historical Role of Federal Subsidies in Shaping America’s Energy Future”, September 2011, http://goo.gl/XuioTH

Image Source

Roger H. Bezdek and Robert M. Wendling, “Energy Subsidy Myths and Realities”, June 2012, http://goo.gl/A8Ws96

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