Is the Ship Starting to Turn Around On Energy Subsidies?

Thursday, February 11, 2010

The third in AgMag’s series of looks at the Obama budget is a hopeful one. First we examined attempts by the Administration to limit the taxpayer-funded payments that ensure profits for the wealthiest farm operations. That idea was instantly stonewalled by Minnesota’s powerful Congressional delegation, which has the Minneapolis City Pages fuming.

Next AgMag sounded the alarm on Obama’s proposed cuts to proven conservation programs, which would result in the permanent loss of 4 million acres of conservation land that is critical to protecting our water, soil and wildlife . Coupled with the dramatic loss of millions of acres in the Conservation Reserve Program and the annihilation of waterfowl habitat by the federally mandated ethanol push, the result will be a conservation disaster in this country.

There is welcome news, however, in the Obama administration’s plans to significantly trim subsidies and supports for dirty and non-renewable energy sources such as oil, gas and coal. With global energy demands slated to rise, it’s essential to unwind subsidies that prop up unsustainable fuel sources. Further, the recent news that China is going all in on clean energy development should be a wake-up call for those believing we can continue supporting energy sources that do not provide serious environmental benefits.

There have been attempts to limit these fossil fuel subsidies before, so nothing is certain. But if these proposed cuts make it through Congress, that signals a move toward a truly sustainable energy policy. The administration is projecting that trimming tax provisions friendly to coal production would produce $2.3 billion in taxpayer savings over 10 years, and that proposed cuts to oil and gas supports would save taxpayers $36.5 billion over the next decade.

And while Obama’s support for nuclear is worrisome, his bid for a 53% increase in support for wind power and a 22% boost for solar are reasons to pop at least one champagne cork.

For any policy to pay off for future generations of Americans, however, we need a system of supports that is fuel- neutral and scaled to the quantity of clean energy produced and the amount of fossil fuel energy that it displaces. It must also have a beneficial impact on water, soil and wildlife. A uniform system of supports should apply to all renewable energy sources, especially biofuels.

When questioned on the merits of corn ethanol’s dependence on federal support, the ethanol lobby has pointed a finger at oil and gas subsidies (here, here, and here). Hopefully the Obama administration will take a hard look at the merits 0f heavily subsidizing corn ethanol, a fuel that few believe is truly sustainable. Phasing out the Volumetric Ethanol Excise Tax Credit (VEETC) would be a good start.

VEETC is a $0.45 per gallon tax break given to companies that blend ethanol with gasoline. The 10.5 billion gallons of ethanol produced in 2009 created a $4.7 billion tax liability for the American taxpayer — a figure higher than what Congress allocated for farm bill conservation programs that protect our soil, water and wildlife habitat.


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