Overhauling US Energy Policy: Rethinking Fossil Fuel Subsidies and Clean Energy Regulations By Ricardo Jaramillo
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Energy & Environment: 64
merican energy policy is in vast need of reform. In order to make the necessary emissions reductions to avert catastrophic climate change, policymakers need to revisit energy development policies – most notably, fossil fuel and clean energy subsidies. Every year, American taxpayers subsidize fossil fuel and coal companies a remarkable $4.9 billion dollars every year.1 Although subsidies to renewable energy companies have increased over the past 8 years, the competitive disadvantage that renewable energy companies experience in the face of an energy infrastructure that was constructed on carbon based fuels is substantial.2 Moreover, the subsidies that the fossil fuel industry receives are vestiges of a time in which drilling for oil was dramatically more risky and expensive. Advanced technologies have radically decreased production costs and made drilling both easier and more profitable3. Given the entrenched economic strength of the fossil fuel industry and environmental necessity of keeping the majority of fossil fuel reserves in the ground, American taxpayers should no longer be subsidizing fossil fuel extractions. Specifically, the United States federal government should eliminate current tax credits including, but not limited to, the “Intangible Drilling Costs” tax credit and reform the current land-leasing process for coal companies. Additionally, the federal government should enact serious reforms for licensing of hydroelectric and nuclear power in order to encourage investment and research. Nuclear and hydroelectric energy sources remain hampered by ineffective government regulations. Removing some of the excessive red tape for these energy sources – particularly in terms of the licensing process – of hydroelectric and nuclear energy would go a long way towards reducing US emissions, meeting energy demands, and lowering electricity prices.
Given the environmental and economic unsustainability of fossil fuels, it is clear that the United States should rethink the necessity of economic benefits towards fossil fuel companies and some over burdensome regulations that hamper renewable energy development. Background Since the 1800s, the United States has subsidized the extraction and development of fossil fuels. Originally, fossil fuel extraction was a costly and risky affair and it made sense to provide a cushion in case an oil well came up dry4. Additionally, given the risk that exploring a site for an oil well could be empty, Congress subsidized the costs of oil drilling even if the well came up empty. This subsidy, known as the “Depletion Allowance,” enables companies to indefinitely claim 15 percent tax depreciations on gross incomes. Estimates of the Depletion Allowance subsidy suggest that costs the taxpayer around $1 billion a year.5 The largest subsidy for the fossil fuel industry, however, is the “Intangible Drilling Costs” subsidy. Intangible drilling costs -- which comprise two-thirds of the overall US drilling costs -- are non-taxed costs related to drilling that have salvage value such as labor or drilling fluids. Combined, total production-related fossil fuel subsidies total to $41.4 billion over a ten-year period.6 These subsidies, many of which are over a century old, has allowed the fossil fuel industry to drill even when it would otherwise not make economic sense to do so. The state of nuclear and hydroelectric energy in the United States is a very different scenario from that of fossil fuels. Nuclear energy provides around 20 percent of the nation’s overall energy and yet the industry is in need of revitalization: the average age of a nuclear reactor is 34