‘Green Scissors’ says to end coal subsidies

August 31, 2011 by Ken Ward Jr.

Last week, I did a quick overview post over on the Gazette’s Sustained Outrage blog about the annual Green Scissors report, which proposes ways to save government money by cutting environmentally harmful spending.

But I wanted to be sure to share with Coal Tattoo readers some of the report’s findings about the coal industry, for example:

Another conventional fossil fuel, coal, also continues to be the darling of Washington, despite its serious environmental consequences. The coal industry benefits from billions in federal subsidies, even as it makes substantial profits. Subsidies to the coal industry began in 1932, when the federal government first began allowing companies to deduct a portion of their income to help recover initial capital investments (the percentage depletion allowance). Since then, coal companies have enjoyed billions more in subsidies, including some hand- outs for simply following basic worker safety regulations, while earning billions in profits. Over the last decade, revenues at the largest domestic coal companies trended upwards, while profits have mostly followed. Peabody Energy, the largest private sector coal company, earned record breaking profits in 2008 and has already posted $461.3 million in profits in 2011, up 36 percent from the first six months of 2010. Consol Energy recorded nearrecord income of $540 million in 2009, and this year, first quarter profits nearly doubled from 2010 to reach $192 million.

The report went on:

Taxpayers also subsidize conventional fossil fuels projects through a host of national, international and regional development banks that use federal dollars to invest overseas in harmful projects like coal plants. On the national level, the Overseas Private Investment Corporation and the Export-Import Bank of the United States are examples of government-supported agencies that subsidize U.S. companies to invest in risky foreign markets by providing them direct and low-cost financing and insurance. While intended to help American small businesses compete in the global marketplace, these agencies actually provide subsidies to large, very profitable private companies like ExxonMobil. These public financing agencies continue to subsidize environmentally harmful coal, oil and gas projects.

In fiscal year 2010, the Export-Import Bank provided a record-breaking $4.5 billion in financing for these fossil fuels. The Export-Import Bank’s fossil fuel binge is continuing in 2011, including $805 million to finance the largest greenhouse gas-emitting project in its history, a 4,800 megawatt coal plant that will spew 30.5 million tons of carbon dioxide as well as enormous amounts of particulate emissions into the atmosphere each year.

Similarly, the World Bank and regional development banks, which also receive U.S. taxpayer support, continue to be some of the largest and most consistent funders of fossil fuel projects around the world. In fact in 2010, the World Bank provided a record-breaking $4.4 billion in coal financing, representing a 356 percent increase over 2009. This included funding for a South African coal plant that local and international advocacy groups say will not increase access to energy for many but will increase pollution.

You can read the full report, issued by progressive environmental group Friends of the Earth, deficit hawk Taxpayers for Common Sense, consumer watchdog Public Citizen and free-market think tank The Heartland Institute, here.

 

7 Responses to “‘Green Scissors’ says to end coal subsidies”

  1. Matt Wasson says:

    Doesn’t this just bring you right back to that cringing moment in newly-elected Sen. Manchin’s first committee hearing when he lectured Dr. Newell from the Energy Information Administration about how there was “not one penny of subsidies for coal?” I’ve never been represented by the guy, but even I felt embarrassed for him and had to hit pause on the video stream for a few minutes to recover.

    But I seem to recall that he continued to use the line even after that, and I think I’ve heard it from other WV politicians as well – or maybe that was Bill Raney. If anyone has any references to other WV reps, coal companies or trade groups using the “not one penny of subsidies” line, it would be awfully interesting to compile.

  2. scs2016 says:

    Funny that wind power is not mentioned at all, even though it receives all sort of direct (and far more market-distorting) subsidies in the form of loan guarantees, production tax credits, and mandates.

    Regarding the Ex-Im bank, the largest portion of its loan guarantees go to supporting foreign sales of Boeing planes.

  3. Ken Ward Jr. says:

    Matt,

    Here’s a link to a post about those comments by Sen. Manchin:
    http://blogs.wvgazette.com/coaltattoo/2011/02/04/common-sense-update-does-sen-manchin-really-think-coal-doesnt-get-a-penny-of-subsidies/

    And scs2016, Green Scissors doesn’t think that the wind subsidies are damaging to the environment. Their report is about subsidies they believe are damaging. You write that wind’s subsidies are “far more market-distorting” than those for other energy sources … Could you provide some evidence to support that? A link to a study or report? A citation to some published literature that compares the subsidies and supports your conclusion?

    Here’s just one study by the National Academy of Sciences that suggests you’re wrong:

    http://www.issues.org/22.3/realnumbers.html

    And here’s another:
    http://www.elistore.org/reports_detail.asp?ID=11358

    There’s a good discussion of comparing energy subsidies on Joe Romm’s blog, http://thinkprogress.org/romm/2011/08/01/283959/eia-review-energy-subsidies/.

    Ken.

  4. scs2016 says:

    Ken,
    I agree that the “Green Scissors” report doesn’t mention wind because they don’t think wind turbines harm the environment. However, I think it is Interesting to note that opposition to specific wind farms on environmental grounds as well as the additional transmission lines they require is relatively common.

    http://www.nationalreview.com/articles/print/275673

    In considering subsidies, it is useful to also consider what you are getting. Though more than 10,000 MW of subsidized wind turbines have been installed in TX (more than any other state), only 8.7% of that nameplate capacity is considered dependable by ERCOT (the grid operator) and during the recent record demand in TX, wind was contributing only ~15% of nameplate capacity to the grid.

    The subsidies for wind are about more than just the production tax credits, or the mandates: http://reason.com/blog/2010/11/11/corporate-welfare-watch-wind-f

    This from the Wind Energy Association:

    “Current status: Under present law, the PTC provides an income tax credit of 2.2 cents/kilowatt-hour for the production of electricity from utility-scale wind turbines. This incentive was created under the Energy Policy Act of 1992. The PTC is set to expire on December 31, 2012. Additionally, through Section 1603 of the American Recovery and Reinvestment Act of 2009, wind project developers can choose to receive a 30% investment tax credit (ITC) in place of the PTC. For projects placed in service before 2013, at which construction begins before the end of 2011, developers can elect to receive an equivalent cash payment from the Department of Treasury for the value of the 30% ITC. More information is available in AWEA’s summary of the Section 1603 program.
    http://www.awea.org/issues/federal_policy/index.cfm

    When the PTC briefly lapsed, wind turbine installations cratered, -93% (2000),
    -73% (2002), and -77% in 2004. That’s what I mean by “market distorting” subsidies.
    http://www.awea.org/issues/federal_policy/upload/PTC_April-2011.pdf

    Tax policy is “interesting” — should a US natural gas producer, that qualifies for a “manufacturing” tax credit, be called “subsidized” when they still have a net tax liability (in comparison to the the potential 30% of capital cost refunded in cash by DOE for ‘renewables’ projects). Should all the taxes on motor fuels be netted against the so-called subsidies that petroleum receives? (Should electricity for electric cars and plug-in hybrids be taxed at equivalent rates to support upkeep of the roads and interstates?)

    Ken, this graph on R&D spending by the gov. appears in your link: http://www.issues.org/22.3/images/realnumbers_f5.jpg
    The R&D bar for renewables looks pretty substantial, but the renewable contribution to the grid is so small I can’t really tell if I can see the bar or just the hairline around it.

    In terms of government policy, a potential burden not-imposed, is not the same thing as a subsidy: http://marginalrevolution.com/marginalrevolution/2011/07/the-great-fiction.html

    Finally, are projects like FutureGen subsidies to the coal industry or are they just run-of-the-mill government boondoggles? Plenty of money was spent on the FutureGen program, but did any coal companies sell coal to the project, were any miners employed? Did any big coal consumers receive free or subsidized technologies?

  5. Matt Wasson says:

    While I disagree with the thesis, the well-researched points and interesting questions posed by SC2016 should be read by anyone advocating government support for renewable energy development. What is so striking to me is how similar this current debate about subsidies for renewable energy technology is to the debate in the early 90s about commercialization of the internet. For instance, this transcript from a House subcommittee hearing in 1992 raises some very similar issues: http://tinyurl.com/3dvkazk

    It turns out that in 1992, the internet had less than 1% of the telecommunications information market (today it’s more than 97%). The same argument that SC2016 makes today in the context of early 90s telecommunications would suggest that proportionate distribution of government subsidies should have been going to telephone, telex, fax, etc… Is anyone going to argue today that providing free access to a government funded and subsidized network to for-profit innovators (a substantial and controversial subsidy) was the wrong thing to do? Or that those subsidies should have gone to developing more advanced Telex machines instead?

    The American people have an enormous interest in fostering development of new technologies that could have a transformative and beneficial impact on our economy and our quality of life. Renewable energy represents just such a technology. Some would argue the same is true for “advanced coal technology” (although I agree that FutureGen was more of a boondoggle, as it – and the technology it represents – has lacked the full support of the energy and coal industries).

    I hope that those who are skeptical of the potential of renewable energy will check out this article out today on Grist about how Germany just broke through the 20% mark for renewables’ share of their generation mix:

    http://www.grist.org/renewable-energy/2011-08-31-germany-sets-renewables-record

    A smart grid efficiently transmitting electricity generated from renewable power is coming to the US and it’s coming soon – the only question is whether US companies can lead that effort, fueling a far brighter economic future, or if we will have to purchase technologies developed in Germany and China and miss out on the economic boom.

    We all know what decision was made by policy-makers in 1992 in regard to the internet. But, sadly,whether that same forward-looking and risk-taking attitude is still alive today in this Congress appears very much in doubt.

  6. Ted Boettner says:

    Tax the bad, subsidize the good. The End. Let libertarians fight with each about distortions.

  7. PJD says:

    Matt,

    Thanks for an informative comment.

    Much of SCS2016’s opposition to government subsidies of renewable technologies seems to be that it “distorts markets”. Yes, it does distort markets. So?

    This obsession for a hypothetical “free Market” (caps deliberate) whatever the consequences seems to have more characteristics of a religion than science. Certainly, highly regulated Europe’s example with renewables throws a lot of cold water on the hypothesis that “free markets are always right”, while there are plenty of historical and geographical examples (the Applacian coal region being a good one) where strict adherence to “free markets” had very poor outcomes for everyone bit a handful of people in lavish estates far from West Virginia.

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