Should The Government Really End Oil Subsidies?

That’s what the New York Times is asking.

During his State of the Union speech, President Obama said he wanted to do away with the $4 billion in annual subsidies and tax breaks for the oil companies, in an effort to cut spending.

This isn’t the first time that a president has proposed this, but every time it’s proposed it gets shot down. Both Republicans and certain Democrats count oil and gas companies as larger supporters, and the lobbying industry turns up the heat whenever it’s mentioned. The industry says that these companies, like Exxon Mobil, Conoco Phillips and Chevron actually subsidise the government, through taxes and royalties.

Despite all the talk from the president, his administration will still provide substantial aid to oil and gas companies, as well as other fossil fuels.

David W. Kreutzer, an energy economist at Heritage Foundation, said the government should stop subsidizing all forms of energy. “We would like to get rid of all subsidies,” Dr. Kreutzer said. “We know that petroleum and coal survive just fine in places where there are no subsidies. I don’t know if that’s true for wind and solar now, but someday it will be, when the price comes down.”

H. Jeffrey Leonard, president of the Global Environment Fund, a private equity firm that invests in clean-technology ventures, echoes these sentiments.

They aren’t alone in their views either. “My view is the country is better off on having a neutral playing field for all forms of energy,” said Douglas Koplow, founder of Earth Track, a group in Cambridge, Mass., that studies global energy subsidies.

“President Obama defines ‘clean fuels’ as natural gas, coal with carbon capture, nuclear,” Mr. Koplow said. “From my perspective, if you subsidise carbon capture and storage, that’s a big subsidy for coal. Nuclear is massively subsidized through a risk transfer from shareholders to ratepayers. It’s hard to justify these technologies that can’t make it on their own.”

“If we’re really concerned about greenhouse gases, we should deal with the problem and cap them,” he added. “Instead, politicians and lobbyists want to carve out policies for their own industries.”

The idea is not without its critics though, like Jack Gerard, the president of American Petroleum Institute, the main lobbying firm for the industry in Washington. “This is a tired old argument we’ve been hearing for two years now,” said Gerard. “If the president were serious about job creation, he would be working with us to develop American oil and gas by American workers for American consumers.”

Gerard went on to talk about all the money the industry gives back to the government. “The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”

It’s an interesting debate because without subsidies for all forms of energy, then fossil fuels will continue to win out, due to their low costs. The government also can’t afford to keep subsidizing energy, thanks in large part to ever-growing deficit.

What do you think should happen?

— Roger Nachman

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