Congressman Dave Camp (R-MI), chairman of the House Ways and Means Committee, introduced a tax reform bill earlier this week that removed all subsidies for oil, gas, coal, renewables and other energy technologies.
So, what led a conservative congressman to call for killing oil and gas subsidies?
Some recent history: in 2011, the environmental advocacy groups Friends of the Earth and Public Citizen partnered with climate deniers at the Heartland Institute (which received funding from the Koch Brothers) under the watchful eye of the Taxpayers for Common Sense to produce the non-partisan Green Scissors report. It outlined wasteful government subsidies totaling $380 billion over the next five years
In 2012, the free-market R Street Institute contributed to the Green Scissors report and identified wasteful and environmentally harmful programs that could cost taxpayers almost $700 billion over the next decade. This does not include Department of Defense expenditures that are for protecting global oil trades -- something we don’t do for coal.
Even before Congressman Camp’s proposal was formally submitted, the American Petroleum Institute cried foul and called the bill “flawed.” But if API represents such mature energy industries, why do they need all those subsidies?
The outrage from API was actually a maneuver to fake us out. API doesn’t want the public to notice that the most important oil and gas tax credit, the intangible drilling credit, was included in the bill on purpose. This is a tax credit that allows folks to drill risky wells. T. Boone Pickens recently guesstimated that the oil and gas industry would drill one-third fewer wells without the intangible drilling credit. It seems clear that API is trying to misdirect us.
On the other side, the wind industry production tax credit expired in 2013 and the 30 percent solar Investment Tax Credit will expire in 2016. In June 2011, the ethanol industry voluntarily ended the main corn ethanol tax credit, known as the VEETC, as well as the ethanol import tariff.
Renewable energy advocates always envisioned subsidies simply as a way to kick-start an industry until it reaches the scale necessary to phase out this government welfare. Apparently, API never had a plan to wean itself off of subsidies.
The 2012 Green Scissors report featured cuts similar to Representative Camp’s proposed cuts:
- $270B from energy programs, including $159B of fossil fuel subsidies
- $167B of agricultural subsidies, including $90B of federal crop insurance disaster aid
- $212B of transportation subsidies, including $126B of general revenue transfers to the Highway Trust Fund
- $101B of federal flood, crop and nuclear insurance subsidies
- $25B from wasteful or environmentally damaging public lands and water projects
Subsidies are necessary in the incubation phase, but oil is a “mature” industry, and renewable energy technologies like ethanol, wind and solar are “proven and established” industries. As industries prove and establish themselves, and then mature, subsidies should be retired. So now is the time to end permanent federal subsidies for oil drilling and phase out subsidies for solar and wind technologies.
Texas Governor Rick Perry made this the center of his presidential platform; Ron Paul has always been for a level playing field; and now Representative David Camp has put this at the center of making the tax code fairer for all Americans.
During the Republican primary in 2012, Perry’s energy plan website stated: “As part of a broader tax reform strategy, I will also ask Congress to eliminate direct subsidies and tax credits that distort the energy marketplace. My plan levels the playing field.”
And according to Ron Paul: "We should start by ending subsidies for oil companies. And we should never, ever go to war to protect our perceived oil interests. If oil were allowed to rise to its natural price, there would be tremendous market incentives to find alternate sources of energy. At the same time, I can’t support government 'investment' in alternative sources either, for this is not investment at all."
Mitt Romney agreed in a 2012 Republican debate that subsidies should be pulled back. Newt Gingrich piled on later in Iowa, saying, “I don’t want to pick a fight with any of my good friends who are running, but I get a little weary of people who represent oil, which has consistently had tax subsidies for its entire history, explaining that they’re really not sure about these subsidies. Notice it’s always these subsidies. It’s never the ones down there. I notice that when Senator [Tom] Coburn [R-OK] introduced a bill that was anti-ethanol, he didn’t include subsidies for gas and oil, because as an Oklahoman, that would be suicidal. So I just think we ought to have a fair playing field.”
Today we sit at a critical juncture. We’ll see whether Congress finally phases out all subsidies for mature technologies, including the intangible drilling credit, in favor of a more level playing field -- or whether they follow API’s lead.
Jigar Shah is an energy futurist and founder of SunEdison. He's also a co-host of Greentech Media's Energy Gang podcast.