Fuel Subsidies Cost You Even If You Don't Drive

"Brian Tschiegg" (WritingInCars)
08/08/2013 at 10:56 • Filed to: Gas, Taxes, Subsidies

We all know too well that this planet’s fossil fuel deposits are limited. We also know that scarcity drives increases in demand and price, and yet drivers in the U.S. still seem content to drive the same gas guzzling cars, trucks, and SUVs that they always have. That’s because the U.S. government has sought to mitigate massive price increases on crude oil and gas by extending fuel subsidies to keep the price low. The idea is a simple one: the cost of gas goes up and the price of almost all consumer goods also rises, so the government looks to minimize and spread the cost of rising fuel prices across the population. The problem is that artificially low fuel prices could be holding us back in areas such as alternative fuels.

The estimates for total fossil fuel subsidies provided by the U.S. government range anywhere from $5 billion to $52 billion, although the extremely high and low ones include and exclude data based on their bias. Looking at numbers provided by The Organization for Economic Cooperation and Development (OECD), the real figure for total fossil fuel subsidies in the U.S. is a lot closer to $15 billion. This is not an insignificant amount, but you also have to take into account that this includes subsidies for coal, natural gas, crude oil, and gas. The OECD says that, in 2010, subsidies aimed only at gas accounted for about $5.9 billion of that money.

Every year that these figures have been tracked, the amount of support given to oil companies by the government has increased. This means that when you’re paying your taxes (unless you’re one of the roughly two hundred million people who have no tax liability) you are paying about $60 directly to some of the wealthiest companies in the world. Sure, it doesn’t seem like a lot when you consider the thousands of dollars that the government is taking anyway. According to the U.S. Energy Information Administration (EIA), American drivers used 134 billion gallons of gas in 2011. Averaged out among the 200 million licensed drivers in the U.S., it comes to a figure of 640 gallons of fuel per person per year, so each of the 100 million taxpaying drivers pays an estimated extra 9 cents a gallon for federal subsidies. Although this seems to be an insignificant amount, you have to remember that the nearly $6 billion could have been used to make a real difference in areas such as education, poverty reduction, urban development, etc. This figure also doesn’t include the subsidies given for crude oil and federal and state taxes levied directly at the pump.

Because of the government’s insistence on helping the profit margins for oil companies, the U.S. has been slow to invest in alternate energy sources such as wind, solar, and hydroelectricity all of which are severely lacking in government support. Although I don’t believe the government should be incentivizing any markets, I do believe that they should aid nascent technologies that are less than profitable and more beneficial rather than companies who are already very profitable selling products that we know are detrimental.

DISCUSSION (28)

ZeroOrDie - Powered By MZR > Brian Tschiegg
08/08/2013 at 11:01

Kinja'd!!!

ZeroOrDie - Powered By MZR > ZeroOrDie - Powered By MZR
08/08/2013 at 11:01

ZeroOrDie - Powered By MZR > ZeroOrDie - Powered By MZR
08/08/2013 at 11:02

desertdog5051 > Brian Tschiegg
08/08/2013 at 11:16

Agree. The subsidies to big oil companies and big agribusiness are such a joke, all made at taxpayer expense. They need to be stopped. Small oil producers (primarily the ones that produce miniscule amounts of oil, but provide much needed jobs) and small farmers should continue to get it.

Hooker > Brian Tschiegg
08/08/2013 at 11:19

Well written post. As much as I love the ICE I feel similarly that our nation as a whole has not embraced alternative energy like they could.

Brian Tschiegg > desertdog5051
08/08/2013 at 11:21

It's just a chunk of money that the larger, profitable oil companies don't need that could be better spent somewhere else considering the economic good it does us.

BoxerFanatic, troublesome iconoclast. > Brian Tschiegg
08/08/2013 at 11:25

Are you nuts?

Do you realize how much more you pay in federal gas taxes, and increased shipping prices built into every single good or service that you buy?

60$, plus 9 cents a gallon is almost NOTHING compared to those cost increases.

Federal Gas Tax is 18 cents a gallon, and the Federal government, Not including state taxes at all, which also increase prices... has collected 25 BILLION in revenue to the federal government.

More than QUADRUPLE the subsidies.

Those subsidies are also more than erased by the increase in costs for licensing oil exploration, and upgrading refining capacity... since no new refineries have been built in more than 30 years, due to government regulations.

Just like meat and grain doesn't originate from the grocery store, energy doesn't originate from the gas station. There are significant costs behind those industries that keep YOU from starving to death, and getting to work to earn even a little bit of money to keep a roof over your head, and to buy that food, and to provide you with water service and sanitation. That stuff takes ENERGY, it doesn't happen by magic.

Also, the federal costs in regulating fuel qualities, and blends, and changing them twice a year...

The costs that the government necessitates in the energy industry FAR outstrip any meager tax relief.

Subsidies on highly taxed energy companies are simply a reduction, and a SMALL reduction, in corporate taxes collected from them. That tax burden being in addition to government regulation increasing the cost of production of energy.

Newsflash. Energy is the lifeblood of the country. Without free flow of affordable energy, this country breaks down, and grinds to a halt.

And no amount of wishful thinking changes the laws of physics and chemistry, to make wind or solar, or batteries, or anything else, nearly as viable... otherwise someone would be speculating with venture capital, to make money on it.

Subsidies to failed and folded up solar companies and alternative energy have been a far worse use of taxpayer dollars, and are now GONE, Solyndra is just one example.

Also... there is 250+ years of oil and natural gas supply in US territory. Territory that is mostly BARRED from exploration, or made prohibitively expensive to go after, or blocked from transport to the market via refinery capacity, by blocking the Keystone Pipeline, and other efforts to make this country more energy independent, and reduce the price, and increase the supply of energy, not dependent on politically opposed countries with a vested interest in an artificially high energy price.

Take a look at what Prince Alwaleed bin Talal said recently about American efforts to harvest our own fuel sources...

Don't be fooled. Prices are already higher than they should be, up more than 100% in the last 5 years, while wages have not moved, and the US government, and foreign governments are not acting in good faith for US energy sustainability or affordability.

Brian Tschiegg > Hooker
08/08/2013 at 11:28

Thanks! I really appreciate it.

To me, it doesn't make sense to subsidize oil companies for a huge cost and little gain to the taxpayer, but what do I know? I'm not a congressman with a chauffeured car and private jet to travel and squeeze more money out of my constituents.

KusabiSensei - Captain of the Toronto Maple Leafs > Brian Tschiegg
08/08/2013 at 11:48

I have no issues with alternate fuels to power motorized conveyances.

What I do have issues with is this notion that said motorized conveyances in and of themselves are bad, because they use certain fuels.

I'd be perfectly fine with electric cars which don't require me to take long stops if I want to drive somewhere more than a few hours from home.

I'd really love to see fuel cell cars, and what could be done with those for performance.

But this idea that the .gov must be involved in just ridiculous: Just look at what is going on with the E10 -> E15 nonsense.

Also:

the U.S. has been slow to invest in alternate energy sources such as wind, solar, and hydroelectricity all of which are severely lacking in government support

With respect to Hydro power...ever heard of the TVA?

Brian Tschiegg > BoxerFanatic, troublesome iconoclast.
08/08/2013 at 11:56

In 2011, Exxon posted a $41.1 billion PROFIT. They paid a 13% tax rate.

They didn't pay any taxes in 2009.

The numbers reflected are even after being manipulated to artificially inflate the numbers by including deferred taxes (you don't have to pay taxes on money earned abroad until you bring it back in the US) that usually stay in tax havens and never get paid.

The real point of the article is 1. The oil companies do not NEED the subsidies to be profitable. 2. We do not need the subsidies to survive (I know cheap energy is important but fuel subsidies are a negligible amount) 3. That it makes more sense to subsidize technologies that are not very profitable but better for the environment. 4. The reality is this money would be better spent on schools (underfunded) so kids can get better jobs and pay more taxes.

I want more electric cars so there's more oil for me to burn.

Brian Tschiegg > KusabiSensei - Captain of the Toronto Maple Leafs
08/08/2013 at 12:04

I'm not saying the industries have no support at all. I know that the government is supportive of alternative energies, especially hydroelectricity (which is great because it is too massive of an undertaking for a private firm to try to harness hydroelectricity without the government's help). I'm not touting the viability or efficiency of these technologies; I am only highlighting the fact that fuel subsidies are increasing despite the fact that oil companies are posting huge profits and the economic benefit to taxpayers is negligible. I would just like to see the government quit helping an industry that is entrenched and not in need of assistance.

Brian Tschiegg > KusabiSensei - Captain of the Toronto Maple Leafs
08/08/2013 at 12:04

KusabiSensei - Captain of the Toronto Maple Leafs > Brian Tschiegg
08/08/2013 at 12:24

Be careful, because a corporate tax break is not a subsidy. I have a distinct suspicion that those two things are conflated in the numbers. I would prefer an approach similar to the Simpson-Bowles Commission, where breaks and other preferential treatment in the tax code is removed and replaced with lower rates.

[companies are posting huge profits] and the economic benefit to taxpayers is negligible

I would posit that the shareholders of XOM would disagree with you. Especially the 50% which are institutional owners.

KusabiSensei - Captain of the Toronto Maple Leafs > Brian Tschiegg
08/08/2013 at 12:30

In 2011, Exxon posted a $41.1 billion PROFIT

What was the margin? I would suspect between 7-9% net. TTM for XOM right now is 8.3% net. They also are increasing their dividend payments, too.

BoxerFanatic, troublesome iconoclast. > Brian Tschiegg
08/08/2013 at 12:31

I don't mind if "subsidies", which are only truly TAX REDUCTIONS, are repealed. As long as government ridiculousness is reduced, as well, which would reduce EVERYONE'S operating expenses.

There is a MAJOR mis-conception that you are operating under, however.

Corporations don't pay taxes. People do.

Corporations that generate income by selling a good or service... EXPENSE their taxes as a cost of doing business, and build it into the price of their good or service.

Customers pay taxes, not corporations.

A tax break to an oil company is a potential reduction in price of a barrel of oil, or a gallon of gas, if there is any competitive pricing pressure to compete for sales.

Why do you think there are so many tax havens, loop holes, machinations, and maneuvers?

BECAUSE THE TAX CODE IS UTTER BULLCRAP, it is used to leverage power for those who can afford tax attorneys and accountants to play the back and forth game between corporations and government.

The people who lose out are small businesses, and consumers, who cannot afford to play the government's game.

1: Reducing 'subsidies' without solving any other, much larger aspects of the problem ONLY HURTS THE CUSTOMERS MORE, not the oil company, not the government, and not their attorneys or accountants who will continue to play their games.

2: Energy is the least elastic element of any industrialized economy. It is not calculated in inflation, because it would show just how HIGH it really is, and the government wouldn't be able to lie about it anymore, and provide statistics for employers to keep wages and interest rates low, and that kind of velocity of money in this economy would strike a match for hyper inflation, because the FED/government collaboration has dumped so much un-backed cash into the system, but it isn't moving through the economy.

3: BULL. It makes NO sense to spend good money after bad, while SEIZING IT FROM PEOPLE THROUGH TAXES, on technology that cannot stand on it's own.

Solar, Batteries, Wind, all of it is prohibitively expensive, ridiculously inefficient, and takes lithium, cobalt, heavy metals, rare earth elements, and all sorts of things that are so environmentally hazardous that the US won't allow it for any sort of affordable price, and are being mined in the third world under horrific environmental and human rights conditions.

Especially when the SCIENCE shows that those energy sources are not nearly as dense or effective as organic chemistry, which is NOT proven to be finite. More petrochemical reserves are known, and becoming accessible than ever before.

It is an un-substantiated assertion that alternative energy is "better" for the environoment.

4: BULL again. The US spends more per student than almost anywhere, and get relatively LITTLE as a result. We have had DECADES of throwing good money after bad at that problem, too, and illiteracy is higher, and graduation rates and test scores are lower, for spending so much money.

Money isn't getting results. CommonCore curriculum programs, and teachers unions, and layers upon layers of administrators are sapping that money away, and students are not benefitting.

And federal student loans for colleges that raise their tuitions by double digit percentages, are putting people into debt for their foreseeable working lives, for an economy that hasn't had an employment rate (not UN-employment... employment rate... the number of jobs over the number of working-age adults in the census) hasn't budged upwards from it's low in 2008-2009.

Education is a corrupt cesspool that is greatly dis-serving the students they portend to educate, and more money is just deepening that cesspool, not helping anyone.

5: More electric cars does not increase oil supply, or increase it's affordability to you, if anything paying the government subsidies on cars like Chevy Volt that costs ~80K to produce, much higher than it (doesn't) sell for, increases the deficit, the debt, and your tax burden, paid through the IRS, or the gas pump, or both.

Hooker > Brian Tschiegg
08/08/2013 at 12:58

Exactly.

Brian Tschiegg > BoxerFanatic, troublesome iconoclast.
08/08/2013 at 13:24

1.) I will not address the tax code that allows for this. I would like to limit the conversation to the merits and problems of fuel subsidies rather than expanding on to how screwed up our country is.

2.) I fully agree with you.

3.) I said "it would be better to" subsidize technology that could help us become energy dependent. You are right that wind energy will never replace crude oil, but it doesn't have to completely replace it. Switching completely away from combustible energy is impossible and an extremely stupid idea/suggestion, but there should still be a mix of fossil fuels and renewable sources.

4.) I did have to address this despite my earlier claim I didn't want to talk about America's ills. The U.S. does spend the most money per capita on education, but that is very misleading because it doesn't take into account countries with low birth rates, low death rates, etc. Amongst OECD countries (and this is according to OECD statistics), U.S. teachers are among the lowest paid, but they are also the hardest working, spending more time instructing than in any other country with bigger class sizes and less resources due to education funding mainly being used to fund administrative functions. We pay to take tests that tell us we are failing as a country. I'm sorry I couldn't leave that one alone.

Brian Tschiegg > KusabiSensei - Captain of the Toronto Maple Leafs
08/08/2013 at 13:56

I agree with you. I only addressed fuel subsidies because I thought it would be interesting for all the jalops since we have to "fuel" our passion.

(I couldn't resist the pun)

BoxerFanatic, troublesome iconoclast. > Brian Tschiegg
08/08/2013 at 14:45

The thing is... you can't just pick and choose. Politico-economics doesn't work that way.

If you want to talk about what the government spends taxpayer's money on, it can't truly be treated as an encapsulated issue, with no bearing on what other things the government spends or shouldn't spend, or isn't spending enough on.

And you can't talk about taxpayer dollars without considering that taxpayers are not an infinite well of revenue, and bleeding them dry is not a viable option.

Everyone else has to work within a budget, because they can't just print more money for their own paycheck. Whether the price at the pump, at the grocery store, or on April 14th at the IRS goes up, it has a punitive economic effect on the people living here on the ground. Government generates no money, it seizes it under law, by force. Try not paying.... you'll see the force come to bear.

The government can, does, and is printing money, without even needing presses anymore, just computers.

But the laws of economics still come into play, with what the government takes and from where, what it spends, and on what.

Talking about tax implications to oil companies talks about price implications to customers, and energy commodity prices.

Talking about whether to spend that money here or there has to open up a discussion about government appropriations in general. Education, alternative energy, and traditional energy sources are not the only three line items.

And perhaps tellingly, NONE of those three items are an enumerated power of congress to manage, pay for, or deal with. The education sector, and the energy sector should be left to the states, or more appropriately, the free market.

The only regulation should be on criminal and fraudulent activity for actors in those industries mis-representing their goods or services to their customers. Competition for finite money from customers will force efficiency and results, something no law, fee, fine, tax, or subsidy can ever do.

bhardoin > Brian Tschiegg
08/08/2013 at 14:54

I'm totally with you. These subsidies are the result of a lot of lobbying, and a lot of people voting with only the short term in mind. I wish it wouldn't be political suicide for someone to do something about them.

Brian Tschiegg > BoxerFanatic, troublesome iconoclast.
08/08/2013 at 14:56

Ok I agree with you. It might surprise you to find out that I self-identify as a libertarian (I've written in Ron Paul every presidential election I've been eligible to vote in and will continue to do so until someone better comes along). I don't think the government has any business providing tax breaks for certain industries and ignoring others, but the fact of the matter is that they do it despite no implicit mention of their legal right to do so. The argument here is that a tax subsidies stated goal is to provide an economic benefit to the taxpayers, which in this case is negligible which I pointed out, or to aid projects that will provide for the public good. Providing subsidies to oil companies debatedly does not provide either of those things. I was only pointing out the ridiculousness of giving tax breaks to multi-billion dollar corporations who are currently turning a relatively healthy profit.

Brian Tschiegg > bhardoin
08/08/2013 at 15:08

Kinja'd!!!

The comment section on this article is the reason no politician would ever touch this issue. That and the oil companies give them A LOT of money.

bhardoin > bhardoin
08/08/2013 at 15:08

Side note, since I really didn't explain my point of view well:

(in my opinion) Government subsidies should be incentives for parts of a market that would benefit the country as a whole, but lack investment because of either risk or because they're very long term goals. The technology the US developed through our space program now benefits our country massively - that investment is part of the reason we led a technology boom. Energy would be another place we could invest by subsidizing future energy technologies that won't return profits soon enough to encourage private investment.
As appalling as it may be that the oil companiees barely pay any taxes, that's more a problem with our tax code as a whole being kinda terrible and riddled with loopholes. I bet oil companies pay more than Apple does on their profits.

Taxes should also function (aside from raising funds for the government, which is their primary objective) to offset negative externalities that effect the country, but aren't valued in the market. Environmental degradation is a negative externality that really isn't discouraged in any significant monetary way. I think that justifies an increased tax burden on oil companies, so that energy is priced more in line with its net cost.

The problem is, we're so deep in shit that really fixing these problems would be a huge shock to an economy that is so used to unrealistically cheap energy. So as much as idealistically I hate the way money is flowing through the energy sector, I don't really have any good answer to how to move to a more sustainable and responsible system.

bhardoin > Brian Tschiegg
08/08/2013 at 15:12

It's a Canyonero sized problem.

BoxerFanatic, troublesome iconoclast. > Brian Tschiegg
08/08/2013 at 15:15

The tax code, and the increasingly nationalistic (top-down government sovereign and people as subjects to the government) is written to be a carrot and stick arrangement over any and all corporations, profitable, or not. And the 'public good' can be, and almost invariably IS contorted to whatever the powerful want.

incentives, subsidies, grants, tax exempt status, and WELFARE, all sorts of carrots.

Fees, fines, taxes, audits, oversight, unfunded mandates, and legal scrutiny are sticks. IRS, NSA are just most prominently in the news about it right now.

It isn't supposed to be that way. It is supposed to be federalist, as a bottom up, citizen-sovereign, servant-government arrangement, where people are supposed to be entrusted with authority to represent the larger population, and protect them from crime from within, and invasion from without.

They aren't supposed to be managers at all, let alone micromanagers.

But that may be too tall an order for fallen human nature in the electorate, and the elected, to handle.

As Churchill said (and he was half-American):

"Democracy is the worst form of government, except for all those other forms that have been tried from time to time." (from a House of Commons speech on Nov. 11, 1947)

Although, perhaps more appropriately, it should have been 'A Republic is...'

Pure democracy is mob-rule, and might-makes-right corruption, and probably is more accurately included among 'all those other forms'.

lorem ipsum > Brian Tschiegg
08/08/2013 at 21:47

Great post. I don't understand what's so controversial about this. The UK taxes the shit out their gasoline/diesel, and people over there don't seem to think it's a problem. They just buy more efficient cars. And it's not like they're starving, either. Germany is a cool example of green technology: they line their highways with solar panels— great use of space that's otherwise filled with dying grass. China and wind power is an example we should be following as well. Off-shore wind turbines could reduce our emissions hugely.

Otter > Brian Tschiegg
08/09/2013 at 17:40

I think your hed is a bit misleading or confusing. 'Fuel subsidy' generally refers to a subsidy of the consumer price of the finished product, e.g. gasoline. The gold standard for this is my native country of Venezuela, where gasoline is subsidized to the extent that it is practically free. In this way, fuel subsidies are indeed very harmful economically. But what you are discussing are subsidies in the same way that we subsidize industrial farming through the farm bill, etc. etc. These are also, on the whole, harmful as policy, but they're an entirely different thing.