Subsidizing Oil Exploration/Extraction
In response to my recent piece calling for an end to subsidies for the oil companies, senior energy analyst Glenn Doty writes: Actually, while the oil subsidies – like the renewable subsidies – are terribly structured, they are defensible. Right now we live in a society that CANNOT withstand an oil shortage. We cannot.
It therefore behooves us to make certain that private industry continues to explore and develop oil fields even when it’s not economically in their best interest, because it takes at least 2 years to go from exploration to pumping oil in a new field… and geopolitical events could tighten oil markets in months.
I see your point. But since you defend subsidizing the front end, I presume you support taxing the back end, i.e., recovering tax-payer money that went into creating earnings for this, the most profitable industry in the history of humankind.
Of course, I don’t object to our government taking steps to defend its interests, even if this means more fossil fuels for a finite period of time. But clearly, there are ways this can be structured that make sense for all concerned. Another idea I’ve suggested dozens of times is internalizing the externalities, i.e., asking those who produce and consume fossil fuels to pay the full costs associated with damage to human health and the environment.
Of course I don’t mind taxing the industry, though I think that taxing the capital gains made on the industries – especially gains made in the form of dividends, is more sensible.
Regardless, we largely agree. I still advocate that rather than internalizing the externalities (something I believe would hurt the competitiveness of U.S. manufacturing by increasing energy costs), we would be better served to subsidize renewable and efficiency technologies to a level that is equal to the cost of the externalities that they mitigate over the first 5 years… (which I believe would improve the competitiveness of U.S. manufacturing by decreasing energy costs all while rapidly stimulating infrastructure of more eco-friendly energy sources and more efficient energy demands).
But in the end, we both want to see the externalities priced, we both want to see renewable options advance… and we’d both support the other’s proposals as opposed to the status quo.
🙂
Craig and Glen,
The oil industry is already America’s largest taxpayer and most valuable taxpayer.
Attempting to build into the tax system vague concepts such as “externalities” is detrimental and unworkable.
Using taxation as a means of ‘social engineering’, always results in the economy stagnating due to being burdened by ideological distractions.
Likewise, continuing to subsidies uneconomic industries with subsidies or mandates for ideological reasons, will ultimately cripple the entire economy.
National governments can legitimately offer short term stimulus incentive support for new technology or other aspects of the economy, but such actions should have definite goals and include sunset clauses.