Perverse Incentives for Fossil Fuels

Renewable forms of energy might be more competitive with fossil fuels if the latter weren’t so heavily subsidized.

According to a new study (pdf) by the Environmental Law Institute, from 2002 to 2008, U.S. subsidies to fossil fuels totaled $72 billion. Over that same period, subsidies to renewable fuels (including biofuels, solar power, and wind power) totaled just $29 billion.

Most of the fossil-fuel subsidies come in the form of fossil-fuel companies holding on to money that other companies have to hand over to the government. For example, they get tax breaks and don’t have to pay royalties for using government land. The authors of the study don’t advocate eliminating all of these subsidies; some, for example, might arguably be good for society, such as the $6 billion that goes to help poor families keep their houses heated in winter.

Some experts have argued that the actual subsidies include defense spending to protect sources of oil and environmental costs that aren’t reflected in the price of electricity and gasoline. But even without these figured in, the study suggests, the playing field is tilted unfairly toward fossil fuels, supporting established industries that you’d think could fend for themselves.

It’s ironic that Congress is contemplating climate-change legislation that would increase the price of fossil fuels at the same time that its tax policy decreases the price of fossil fuels.