Imagine that you were considering buying a home. However, let’s say your income is inclined to wild swings and the mortgage interest deduction is only approved on a year by year basis. Perhaps it is allowed to expire on occasion. In a situation like this, you would be wise to be very conservative with your purchase, or to even forego the purchase altogether.

This is analogous to the way energy companies plan and execute projects. Decisions hinge on the economics of the project. These projects are large capital expenditures and they only pay out over many years. Thus, when considering the economics of a project, it is important to have a stable environment around regulations and tax policies. Failure on these two items makes for dysfunctional energy policy.

Below are three recent examples of an unstable environment that can result in projects that will be either delayed or cancelled because  of the uncertainty this causes for project economics.

Case 1: The Production Tax Credit (PTC)

The Renewable Electricity Production Tax Credit (PTC) is a per-kilowatt-hour tax credit for electricity generated by renewable energy resources such as wind, biomass, geothermal, landfill gas, and hydropower. Solar power is eligible for various subsidies, but is not currently eligible for the PTC.

The PTC was originally established by the Energy Policy Act of 1992 to incentivize renewable energy technologies for power production. Since it was first established, the credit has lapsed on several occasions only to be later extended — generally in periods of only one or two years at a time.

Congress is once again debating an extension of the PTC, set to expire again at the end of 2012. The constant political posturing over the PTC creates uncertainty for renewable energy developers. If we as a nation believe that we should encourage production of renewable electricity (and I do believe we should), these extensions of one or two years at a time are not helpful.

On the other hand, there are technologies that may never be competitive and that will need subsidies forever to survive, and that is not a prescription for success either. So a reasonable compromise — in my view — is to extend the PTC for a long period of time but reduce it over time. The current credit is 2.2 cents/kilowatt-hour for power derived from wind and geothermal, as well as for some biomass power plants. The credit is 1.1 cents/kilowatt-hour for some of the other options like power from municipal solid waste.

One might envision a 10-year extension in which the credits drop by 10% each year. Through a combination of economies of scale and improving technology, the economics should improve over time. If they do not, then opponents of these subsidies will have some assurance that we will not subsidize uneconomical options forever.

Case 2: End Polluter Welfare Act

Senator Bernie Sanders, an Independent from Vermont, has cointroduced legislation with Minnesota Democratic Congressman Keith Ellison called the End Polluter Welfare Act. The legislation is aimed at domestic U.S. oil companies, and with a title like that is there any wonder why our level of discourse on energy is so dysfunctional?

Senator Sanders does have an agenda, but it isn’t based on being informed on energy matters. He has made highly inflammatory comments on the Senate floor about ExxonMobil which PolitiFact.com deemed “false” after fact-checking his statements. He promoted misinformation on the Senate floor, and that misinformation has been repeated endlessly. So with this kind of misinformation running rampant (and it certainly isn’t just him) among our elected officials, it should be no surprise that we get ignorance-based legislation.

Senator Sanders lists the “welfare” he proposes to eliminate on his website. I would be willing to make a bet that Senator Sanders knows neither the purpose of the tax incentives he proposes to eliminate, nor the projected impact from doing so. I am not going to go through them here; you can refer to some of my previous columns (here, here, or here).

The biggest problem with the legislation is that it is not conducive to U.S. energy security. It is legislation that is politically driven, and if oil prices decline it is a prescription for a rapid decline in domestic drilling. In other words, it isn’t sensible long-term energy policy.

There are ways to capture more revenue from oil companies when oil prices are rising, and I will detail that in a future column. My proposal would actually capture more revenue than Senator Sanders’ proposal in an environment of rising oil prices, but would not have the same chilling impact if prices fall.

Case 3: Navy Purchases of Biofuels Curtailed

One of the top priorities of Navy Secretary Ray Mabus has been to aggressively pursue biofuels for Navy ships and planes. The Navy’s goals are summarized in a 2010 interview that I conducted with Tom Hicks, who is the Deputy Assistant Secretary to the Navy (Energy). In part, Mr. Hicks said:

“So what we are saying is that by 2012, to test the fleet and do the local ops that I mentioned with the Great Green Fleet, we need 8,000 barrels of biofuel. To deploy that in 2016, we need 80,000 barrels. Those are certainly quantities that – we have talked to industry – and they will have no problem with delivering. By 2020, we go from 8,000 to 80,000 to 8 million barrels, is what our need is to meet that goal of 50% alternative fuel. So if we were to sit passively back and not send out the demand signal, perhaps we would have a different outcome. We choose a leadership position, and part of that position is sending out a strong demand signal to the market, that if you can deliver this; if you establish this; if you can meet it at a competitive cost long-term, then this is something we are going to commit to.”

In support of these objectives the Navy has made major purchase over the past few years of biofuels made from various feedstocks, including algae and camelina. However, the prices paid were well above the price of petroleum-derived fuel, and last week the House Armed Services Committee voted to put a stop to the practice — once more marking an abrupt change in energy policy.

Again, whether you agree or disagree with the Navy’s commitment to purchase biofuel, here is another example of changing legislation that can totally stunt the development of advanced biofuels. If you are an opponent, you may think this is a fine idea, but there has to be a better way.

The biggest problem with the Navy case is that the amounts paid for the fuel were 4 or 10 or even 100 times more than the price paid for petroleum-derived fuel. Further, the prices paid were not transparent. The fuel contracts frequently contained money for research which made it difficult to determine exactly how much was paid for the fuel. I think it was fairly obvious that this sort of practice would eventually be stopped, but as in the case of the PTC it would have probably been politically feasible to provide long-term incentives that phase out over a period of 10 years or so.

Conclusions

Excerpting from my book:

“A sound energy policy should take into account the supply side, the demand side, and the possibility that projections will be wrong on one or both counts. Energy policy decisions must also factor in the impact on current and future generations, and they should be capable of weathering changing political climates.”

In order to develop long-term alternatives to oil (or as in the previous example, to develop our domestic oil), it is important that the rules don’t change every 2 to 4 years. Energy projects span much longer than election cycles, and if energy policy can’t withstand changing political climates the result is paralysis.

I believe the best possibility of passing energy legislation that is stable for energy producers, yet palatable to both major political parties is to build in mechanisms that either phase out subsidies over time, or that automatically change tax incentives based on the price of oil. However, even then there is nothing to prevent the next election from ushering in new leaders who will completely overturn existing energy policies.

Thus, the real reason we have dysfunctional energy policies is that we elect dysfunctional leaders. We just have to figure out ways of working around them.

Link to Original Article: If We Only Had an Energy Policy

By Robert Rapier

Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or leave the question after this post (at the original source). Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: The Most Important Problem in Renewable Energy — R-Squared Energy TV Ep. 22

By Robert Rapier

However, I did manage to recently finish Peter Tertzakian’s A Thousand Barrels a Second : The Coming Oil Break Point and the Challenges Facing an Energy Dependent World. This one had been on my bookshelf for a while (as opposed to the growing stack of books I have been sent to review), but it has been pretty high on my list of books to read.

The book was written in 2006, and the author made what turned out to be some very accurate predictions about the volatility and higher prices ahead in the oil markets. (Here is an interview with Jon Stewart shortly after the book was published). His writing style is different from mine, but many of the themes he wrote about are the same themes I write about: Growth in developing countries, loss of spare production capacity — we even both talked about the transition from whale oil to crude oil in our respective books. However, he went into much greater detail on that topic, and I found that to be one of the most enjoyable sections in the book. The author shows that even in the days of whale oil, producers were trying to establish cartels to control prices.

One very interesting issue he writes about is the rate at which energy substitutions have taken place throughout history. Moving from wood to coal took 75 years, which was the fastest substitution in history. Coal to oil took 100 years (but of course coal never went away; it just lost market share to oil). The point is that a transition away from oil is likely going to take far longer than many people believe. There is no historical precedent that shows that these transitions can occur quickly.

The author also says that over the past 100 years, there has only been one new large-scale energy platform introduced: Nuclear power. He says that there have been eight large-scale platforms (although he does not define “large-scale”) in the history of energy: Wood, whale oil and animal fat, coal, oil, natural gas, water (hydropower), and uranium. He acknowledges that several renewable technologies could be added to the list, but argues that their lack of scalability will make it difficult for them to make a fast, large-scale contribution to the global energy mix.

He describes four phases that a society goes through as they undergo energy transitions: 1). Complain and pay up; 2). Conserve and increase efficiency; 3). Adopt alternative energy sources; and 4). Make societal, business, and lifestyle changes. When the book was written in 2006, he argued that the world was still solidly in the “complain and pay” stage. During this stage politicians will tend toward gridlock and finger-pointing, as pursuit of real solutions and a movement away from the status quo is politically risky. We are still very much in this phase, as evidenced by the political posturing over energy issues, but we have made some progress in Phases 2 and 3. Some might argue that we are making progress in Phase 4, but I think the sort of changes he is talking about are far greater than what we have seen to date. I expect the sort of change he is talking about might involve (as an example) an end to affordable commercial airline flights.

The core message of the book is one that is very close to my heart, and that is that we need a good dose of pragmatism. Yes, we always have to make trade-offs in our energy options, but these trade-offs need to be carefully considered. We can all name many negatives from our oil dependence, but then we generally take for granted the many positive impacts that oil has on our lives. Because of this, we may pursue impractical solutions that will be quickly tossed aside if they can’t fill the role that petroleum currently fills. The image of an oil-covered bird is very powerful, but it may push us into trade-offs that endanger far more that just birds.

Generally when I read a book about energy, I find myself making little notes on points of disagreement. I was about 90% finished with this book before I finally started to find some significant points of disagreement, and those were about some of the specific details of how the author feels like the future is going to play out. On this particular point, he envisioned himself in the year 2017, after we had gone through some very painful readjustments with respect to our oil consumption, and that he was purchasing one of the first commercially available hydrogen cell vehicles. I just don’t think that’s going to happen, and certainly not by 2017. But that’s a minor point, and one that does not detract from the strength of this book.

In summary, this was a really great book that doesn’t take political sides, and a book that has thus far stood the test of time. Many of the author’s predictions from 2006 have taken place or are in the process of taking place. If you want to have a better view of how the future is likely to unfold with respect to energy, I think this book does an excellent job of laying that out.

Link to Original Article: Book Review: A Thousand Barrels a Second

By Robert Rapier

• Japan’s decision to abandon nuclear power (which will contend for the top energy story of the year — regardless of how it plays out)
• ConocoPhillips’ successful methane hydrates drilling test in the Arctic, and whether that means that methane hydrates will soon be a viable energy option
• The likelihood that gasoline prices have indeed peaked (for now)

Link to Original Article: Nuclear Power in Japan, Methane Hydrates, and Gasoline Prices — R-Squared Energy TV Ep. 21

By Robert Rapier

Biofuels Design Cases

The presentation explored the question of whether the U.S. government is spending money on the right technology pathways. Costs were presented for biofuel produced from pyrolysis, algae, Fischer-Tropsch (FT), and methanol-to-gasoline (MTG) routes.

I want to share several slides from the presentation to give an idea of what the DOE thinks about the costs for producing biofuels via the various pathways. The first slide below shows the projected cost of production of biofuels via MTG, pyrolysis, and FT for the “Nth Biorefinery Plant” — which is defined as the projected fuel cost after a number of plants have been built and the learning curve has been mastered.

 Figure 1. DOE projections of costs for biofuel from MTG, pyrolysis, and FT routes.

This slide projects a future best case scenario of about $3.50/gallon for the MTG route, $2/gallon for the pyrolysis route, and $5/gallon for the FT route. So if that is for the Nth plant, where do costs currently stand?

 Figure 2: Projected cost reductions for biofuel from pyrolysis oil.

This slide shows that in 2009 they were estimating costs of production for biofuel based on pyrolysis of $7.68/gallon. By this year (2012) they projected the cost dropping to $4.55, and then over the next 5 years they project costs will fall to $2.32 (again, the Nth plant cost for pyrolysis was projected at $2.00/gallon). They project that the largest savings will come from the upgrading step.

So what do they say about fuel from algae?

 Figure 3: Baseline costs for algal fuel.

This slide shows the 2012 selling price for algal products in four categories: Triglycerides (TAG) from open ponds (OP) at $9.28/gallon and from photobioreactors (PBR) at $17.52/gallon, and then the finished diesel (which requires hydrotreating the TAG) at $10.66 from OPs and $19.89 from PBRs.

The following slide projects future algal fuel costs under a number of different scenarios:

 Figure 4: Projected future algal fuel costs.

In each case they assume various improvements over the base case, with the final case for both open ponds and photobioreactors being one in which a high value coproduct is produced.

So what are we to make of these slides? First, as I have said in the past, I don’t believe photobioreactors are the future of algal fuel production. Those artist renderings of futurist algae farms such as this one are pure fantasy in my opinion:

 Figure 5: Computer-generated futuristic PBR farm.

In the most optimistic case the DOE could only get the projected cost of the fuel down to $6.10. More conservative assumptions would project that the fuel derived from PBRs will still be more than $10/gallon. As algae expert John Benemann noted here in a guest essay, “The use of closed photobioreactors…is totally absurd.”

Open ponds show more promise, but algae has been grown in open ponds for many years. Some areas that are specific to fuel production might see some significant cost savings, but other areas have already had decades to work on lower costs (e.g., harvesting). I suspect that Target 1 for open ponds might be achievable ($5.45/gallon) but lower than that will be challenging.

The fermentation route that Solazyme utilizes was not covered, but it would be interesting to see how that stacks up. The cost of converting the TAG to diesel should be about the same (~$2.40/gallon), but I know that Solazyme believes that their productions costs will beat both the open ponds and PBR routes.

But I think the real story from this presentation is the DOE’s projections of the pyrolysis to fuel route. They clearly believe that this route can ultimately be competitive with petroleum. The technology currently exists to convert pyrolysis oil into transportation fuel, but it is fairly new and therefore should have room for some improvements. This is the type of route that KiOR is pursuing. A partnership between UOP Honeywell, Ensyn Corporation (those two formed a JV called Envergent) and Tesoro was awarded a DOE grant to build a demonstration facility based on pyrolysis at Tesoro’s refinery in Hawaii.

The overall ranking in terms of future costs would appear to be: pyrolysis < MTG < FT < OP algal << PBR algal.

Link to Original Article: Current and Projected Costs for Biofuels from Algae and Pyrolysis

By Robert Rapier

The questions answered this week are:

1. Can you discuss the uses of ‘rare earth’ elements in the production of renewable energies (i.e., wind and solar)? Furthermore, can you comment on the supply of rare earth elements? I recently watched this video from Real Clear Energy. Is it accurate that China controls 97% of the current supplies? What implications does this have on growth of hybrid transportation, the wind and the solar industry in the USA?

2. I was watching your reports and was wondering your opinion about the feasibility of pyrolysis. I’ve seen a lot of companies advertising that they have take plastic or tires and produce 80+% and 45% pyrolysis oil respectively. Is that accurate? You also mention upgrading of pyrolysis oil, are there any companies out there who can do it on a commercially viable process? If so could you point me in the right direction?

Link to Original Article: Rare Earth Elements and Pyrolysis Oil — R-Squared Energy TV Ep. 20

By Robert Rapier

However, I created a couple of graphics specifically for this presentation that I believe explain the majority of the oil price escalation over the past decade. True, part of the price rise may be due to speculation, but the following two graphics show just how robust demand has been even in the face of $100 oil. The data source for both graphics is the 2011 BP Statistical Review of World Energy:

This graphic shows that despite the quadrupling in the price of Brent crude over the decade (and I used Brent crude because it is more representative than West Texas Intermediate of what Asia pays for crude), regional demand in Asia Pacific’s developing countries still grew by 7 million barrels per day. (Demand in Japan — one of Asia Pacific’s developed countries — fell by 1.1 million bpd over the decade).

So when we wonder why gasoline prices haven’t fallen in the U.S. even though U.S. consumption has been declining for several years, that graphic supplies part of the answer. The 1.5 million barrel decline in U.S. demand in the past five years is far less than the demand growth in developing countries, and oil production has not managed to keep pace.

The following graphic shows that this trend is taking place all over the world:

So while the developing countries in Asia Pacific saw a nearly 50% increase in consumption — amounting to 7 million barrels — it wasn’t even the fastest growing region. That distinction belongs to the Middle East, which added 56% to their oil consumption between 2000 and 2010. The Middle East’s total increase in consumption was smaller than that of Asia Pacific at just under 3 million barrels per day, but that is primarily a function of the relative populations of the regions. OPEC countries like Saudi Arabia saw the strongest demand growth in the region. This is understandable considering that the high price of oil brought a huge influx of cash into oil exporting countries, and wealthy countries tend to increase their oil consumption.

This is why — even if we take peak oil completely out of the equation — I don’t ever foresee a sustained return to cheap oil. There are many who have placed most of the blame for increased oil prices on speculation, but those two graphics explain why I believe the issue has far more to do with fundamentals.

Link to Original Article: Why High Oil Prices are Here to Stay

By Robert Rapier

As I said then, gas prices are outside the control of a sitting U.S. president. As an aside, gas prices appear to have peaked for now and are on the way down. Does anyone who blamed Obama for higher prices think he is responsible for bringing them back down? That is in fact a dangerous issue to campaign on, because if gasoline prices fall between now and the election — and you have made a big deal out of how they are the President’s responsibility — guess what? President Obama now takes credit for falling gas prices.

Anyway, I am drifting off topic here. On his show, Alan and I discussed my new book Power Plays. Some of the topics we discussed were:

• What peak oil means
• The role of speculators in the oil market
• Why I am skeptical that we will address rising carbon emissions
• Whether methane hydrates are a viable alternative energy source
• The difference between our oil shale resource and oil reserves
• Which alternative fuels are promising

Next week I will try to have a new video up. Readers who have questions can send them to ask [at] consumerenergyreport [dot] com. Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: Discussing Peak Oil, Oil Shale, Speculators, and Alternative Fuels

By Robert Rapier

If you were to survey people and ask the question “Should we subsidize oil companies?” — the overwhelming majority would undoubtedly respond “No!” The notion that we are subsidizing oil companies generates outrage in many people, but in this article I will show why these subsidies aren’t going to go away any time soon. The reason may surprise you.

I decided to write this article following a a recent discussion in a CleanTech discussion group on the social networking site LinkedIn. The person who started the discussion asked the question “Why is it so Hard to Kill Fossil-Fuel Subsidies?” The discussion was prompted by a recent article by environmental activist and author Bill McKibben called Payola for the Most Profitable Corporations in History. In the article McKibben proposes “five rules of the road that should be applied to the fossil-fuel industry.” But McKibben himself demonstrated in his article that he doesn’t really understand the nature of these subsidies — and this sort of misunderstanding largely explains why so many people are outraged that they persist.

So let’s take the original question on subsidies and ask it in a different way: “Should we allow oil companies to take a tax deduction also available to any U.S. manufacturer such as Apple or Microsoft?” A lot of people will still answer “No” to that question, but certainly fewer than answered “No” to the original question.

Now ask the question “Should farmers be allowed a fuel tax exemption for the fuel they use on the farm?” In this case, some people are going to say “No”, but farmers are going to be near unanimous in saying “Yes!”

Let’s ask one final question: “Should low-income families who struggle to pay their heating bills be helped with programs like the Low Income Home Energy Assistance Program (LIHEAP)?” The irony in this question is that some of the people who are the most vehemently opposed to fossil fuel subsidies will argue that this is an important program that helps keep poor people from freezing to death in winter, and thus it would be inhumane to eliminate it.

Yet unless you answered “No” to all four questions you support programs that have been identified as fossil fuel subsidies. Bill McKibben himself indicates sympathy for subsidies when he wrote: “Many of those subsidies, however, take the form of cheap, subsidized gas in petro-states, often with impoverished populations — as in Nigeria, where popular protests forced the government to back down on a decision to cut such subsidies earlier this year.” However, he then incorrectly asserts “In the U.S., though, they’re simply straightforward presents to rich companies, gifts from the 99% to the 1%.”

That’s just not true, and a failure to understand this is why there is so much outrage over fossil fuel subsidies in the U.S. (As an aside, characterizing the oil companies as “the 1%” is also misleading, because oil companies are overwhelmingly owned by the 99%). During the course of the LinkedIn discussion, a link was provided to Oil Change International, an organization devoted to pushing a transition away from fossil fuels. On their site they have a page on fossil fuel subsidies, which includes a link to a spreadsheet from the OECD breaking down various fossil fuel subsidies. The summary of oil-related subsidies for 2010 totals $4.5 billion. That is a number often thrown out there; $4 billion a year or so in support for those greedy oil companies.

But look at the breakdown. The single largest expenditure is just over $1 billion for the Strategic Petroleum Reserve, which is designed to protect the U.S. from oil shortages. The second largest category is just under $1 billion in tax exemptions for farm fuel. The justification for that tax exemption is that fuel taxes pay for roads, and the farm equipment that benefits from the tax exemption is technically not supposed to be using the roads. The third largest category? $570 million for the Low-Income Home Energy Assistance Program. (This program is classified as a petroleum subsidy because it artificially reduces the price of oil). Those three programs account for $2.5 billion a year in “oil subsidies.” So the next time you hear someone express outrage over oil company subsidies, you may want to ask them exactly which ones they are talking about.

Oil Subsidies that Liberals Love

So why do we still have fossil fuel subsidies? Because almost nobody — not even Bill McKibben — wants to get rid of all of the programs that are classified as fossil fuel subsidies. I suspect McKibben would not advocate eliminating the Low Income Home Energy Assistance Program. Two of the most outspoken Democratic opponents of oil subsidies have strongly defended this particular program — even though it has been identified by the OECD as the 3rd largest petroleum subsidy. When Republicans tried to cut funding for the program,  Sen. Chuck Schumer, D-N.Y., called the proposal an “extreme idea” that would “set the country backwards.” Rep. Edward Markey, D-Mass, states on his website that he is a “longtime Congressional champion of providing assistance to low-income families to heat and cool their homes.”

In fact, look at the reaction from Democrats when President Obama tried to reduce funding for the program. Rep. Markey’s office said: “If these cuts are real, it would be a very disappointing development for millions of families still struggling through a harsh winter.” Sen. Jeanne Shaheen, D-N.H., noted her opposition: “The President’s reported proposal to drastically slash LIHEAP funds by more than half would have a severe impact on many of New Hampshire’s most vulnerable citizens and I strongly oppose it.” Sen. John Kerry, D-Mass., wrote a letter to President Obama that stated in part: “We simply cannot afford to cut LIHEAP funding during one of the most brutal winters in history. Families across Massachusetts, and the country, depend on these monies to heat their homes and survive the season.” Each one of these Democrats was defending a program that has been identified as a subsidy to Big Oil.

What is the Impact of Eliminating the Subsidy?

Of course there are other tax deductions that do more directly benefit the oil industry, just like every taxpayer has tax deductions that benefit them. Many of us take advantage of a mortgage interest deduction when we pay our taxes, but I bet most people would resent being told they are collecting subsidies just because they sliced a small portion off of their tax bill with that deduction.

Last year CNN did a story where they put together their own list of the so-called oil subsidies, and they wrote that the “largest single tax break” — amounting to $1.7 billion per year for the oil industry — is a manufacturer’s tax deduction that is defined in Section 199 of the IRS code. This is a tax credit designed to keep manufacturing in the U.S., but it isn’t limited to oil companies. It is a tax credit enjoyed by highly profitable companies like Microsoft and Apple, and even foreign companies that operate factories in the U.S. Further, the deduction for oil companies is already limited. Apple is able to take a 9% manufacturer’s tax deduction, but ExxonMobil is only allowed to take a 6% deduction.

We can certainly debate whether the manufacturer’s tax credit is a subsidy that should be eliminated. But it is important to be informed as we discuss the issue. We need to ask three questions: 1). What is the purpose of this “subsidy?”; 2). Is the tax credit working as intended?; and 3). What is the projected impact from eliminating it?

The intended purpose of course is to keep manufacturing in the U.S. It is really irrelevant how profitable Apple might be; if there is a compelling financial advantage for them to build a factory overseas they will do so. This tax credit provides incentive for them to keep manufacturing in the U.S.

Likewise, ExxonMobil has access to oil fields and refineries in many foreign countries. If they are comparing projects here and abroad, that tax credit will factor into their decision. Whether it is enough to push them one way or another is something I don’t know. There should be some independent analyses to examine the impact. Many opponents of subsidies imagine that the impact will merely be taxpayer savings as ExxonMobil loses out on this tax credit. But what if the impact is that we lose domestic jobs as ExxonMobil shifts operations out of the U.S. (something that tax credit was designed to prevent)? What if the impact is that we continue to use just as much oil, but more of it now comes from overseas because we placed our domestic producers at a competitive disadvantage? Have those who are calling for an end to this tax credit actually studied the issue?

The Three Pinocchios

A recent fact check in the Washington Post took President Obama and the Democratic National Committee to task for characterizing these sorts of tax deductions as subsidies:

We explained in a previous column that reasonable minds disagree about whether it is appropriate to use the term “subsidies” to describe what are really just oil industry tax breaks. That’s because the average person understands the term “subsidy” to mean actual cash investments, the likes of which the Obama administration has given to alternative energy companies like the now-bankrupt solar-panel manufacturer Solyndra.

Technically speaking, the government has allowed only tax deductions to help oil companies recover the cost of doing business — this is standard in virtually all industries. No money from the U.S. Treasury goes to the oil industry, so it’s a stretch to describe the tax breaks as literal handouts like Solyndra received. Admittedly, we’re talking about a semantics issue here. But we can’t understand why the DNC and Obama continue to use the word “subsidies” in such a questionable way, especially when the term “tax breaks” is more accurate and indisputably true.

The subsidy claim being pushed by President Obama and others (like Bill McKibben) received a Washington Post rating of Three Pinocchios, which represents “Significant factual error and/or obvious contradictions.”

Conclusions

If we are to have a productive discussion of fossil fuel subsidies, it is important that participants understand what they are, their intended purpose, and what the impact of removing them is projected to be (and projected means conducting an actual analysis).  Because of misleading political rhetoric, people imagine these subsidies as cash payments to oil companies. But, these subsidies are not what people think they are, and in many cases they are benefiting people who have nothing to do with the oil industry.

That is why it is so hard to get rid of them; a majority of the population likely supports at least some of them. And until those who are loudly screaming that we must eliminate these subsidies actually take the time to understand what they are — as well as the impact of removing them — we can expect there will continue to be much heat and little light on this topic.

Link to Original Article: The Hard Truth: Even Liberals are Big Fans of Oil Subsidies

By Robert Rapier

Some of the topics discussed this week are:

• How I think natural gas prices will behave over the next 10 years
• Which industries will benefit the most from low natural gas prices
• The link between hydraulic fracturing (fracking) and earthquakes
• The relative strength of Canada’s economy

Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or leave the question after this post (at the original source). Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: Natural Gas Prices & Canada’s Economy — R-Squared Energy TV Ep. 19

By Robert Rapier