Fossil Fuels Versus Renewable Energy Subsidies
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Some argue that we shouldn’t support solar because the subsidies that make it affordable come from taxpayers. Taxes, however, subsidize a wide range of energy products, not just solar. Let’s shed some light on how energy subsidies work.
What Energy Subsidies Do and How they Work
A subsidy, according to the World Trade Organization, includes any government-provided financial benefit to the industry, business, or individual. They’re intended to stimulate economic activity or promote activities in the public’s best interest.
Subsidy Funding in the United States
Subsidy funding in the United States comes from either federal, state or local governments. While most think of middle-class taxpayers as the contributors of subsidy funds, this isn’t the case.
The 2021 Tax Foundation Federal Income tax update looked at 2018 federal income tax data. This data showed that the top 50 percent of all taxpayers paid 97.1 percent of individual income taxes.
Distribution of Tax Payer Funds Toward Energy
In a 2020 report, the Center on Budget and Policy Priorities used pre-pandemic numbers from 2019 to determine the distribution of U.S. federal taxes. In this report, it found that the majority of the budget went towards helping individuals. Although the energy sector does get government aid, it only accounts for a small fraction of government spending.
Types of Subsidies: Direct and Indirect
The form of the benefit determines whether it’s a direct or indirect subsidy. Direct subsidies usually come as a cash payment or grant. While indirect subsidies often come as tax benefits, in-kind support and government loan guarantees.
History of U.S. Subsidies: Fossil Fuels Versus Renewables
The government has subsidized several industries over the years. However, the United States hasn’t invested equally in all its energy options.
From 2002 to 2008, fossil fuels received $72.5 billion in subsidies, while renewable energy received $29 billion. When broken down, the majority of fossil fuel subsidies went toward supporting overseas production of oil. And more than half of the renewable energy subsidies went toward corn ethanol.
Fossil Fuel Subsidies
Fossil fuel pricing and competitive advantage come through the United States’ direct and indirect subsidies. A 2017 report by Oil Change International estimated that U.S. fossil fuels receive $14.7 billion in direct production federal subsidies and $5.8 billion in state incentives annually. Another 14.5 billion goes towards direct consumption subsidies, and $2.1 billion of this allotment subsidizes overseas fossil fuel projects.
Indirect subsidies contribute even more to the fossil fuel industry. The EESI highlights the following indirect subsidies: Last In, First Out (LIFO) accounting, Foreign Tax Credit, and Master Limited Partnerships. Additionally, $81 billion a year goes toward guarding oil.
Renewable Energy Subsidies
Renewable energy has subsidies as well. However, the amounts contributed aren’t nearly as high.
Some of the direct incentives include the Renewable Electricity Production Tax Credit (PTC), the Investment Tax Credit (ITC), Residential Energy Credit, and the Modified Accelerated Cost-Recovery System (MACRS). These incentives go to the owner of the system.
Indirect subsidies include renewable portfolio standards (RPS), renewable energy certificates/credits (RECs), net metering, feed-in tariffs, green power purchasing, biofuels, and research and development. These incentives promote the use of renewables.
Determining Which Energy Subsidies to Support and How
While science strongly suggests that supporting renewable energy will help the environment, not everyone agrees. Regardless of your stance, both fossil fuels and renewable energy benefit from some degree of government assistance.
The best way to determine which subsidies to support is to stay abreast of energy legislation. Keeping tabs on these will help you determine which to support when it’s time to vote. A few ways to stay informed include Twitter feeds and Google Alerts.
Those who support renewables can show it by investing in them and taking advantage of the current subsidies. Homeowners can take advantage of the Solar ITC (Investment Tax Credit) through residential solar, while renters might want to consider supporting their utility’s green power purchasing program.