Obama’s Bid to End Oil Subsidies Revives Debate

Tuesday, February 01, 2011

From an article by John M. Broder in the New York Times:

WASHINGTON — When he releases his new budget in two weeks, President Obama will propose doing away with roughly $4 billion a year in subsidies and tax breaks for oil companies, in his third effort to eliminate federal support for an industry that remains hugely profitable.

Previous efforts have run up against bipartisan opposition in Congress and heavy lobbying from producers of oil, natural gas and coal. The head of the oil and gas lobby in Washington contends that the president has it backward — that the industry subsidizes the government, through billions of dollars in taxes and royalties, not the other way around.

But even as the president says he wants to do away with incentives for fossil fuels, his policies continue to provide for substantial aid to oil and gas companies as well as billions of dollars in subsidies for coal, nuclear and other energy sources with large and long-lasting environmental impacts.

Mr. Obama’s proposal rekindles a long-running debate over federal subsidies for energy of all kinds, including petroleum, coal, hydropower, wind, solar and biofuels. Opposition to such subsidies — often euphemistically referred to as incentives, tax credits, preferences or loan guarantees — spans the ideological spectrum, from conservative economists who believe such breaks distort the marketplace to environmentalists who believe that renewable energy sources will always lose out in subsidy fights because of the power of the entrenched fossil fuel industries.

David W. Kreutzer, an energy economist at the conservative Heritage Foundation, argues that the federal government should take its thumb off the scale by eliminating subsidies for all forms of energy, even it if means slowing development of cleaner-burning fuel sources.

“We would like to get rid of all subsidies,” Dr. Kreutzer said. “We know that petroleum and coal survive just fine in places where there are no subsidies. I don’t know if that’s true for wind and solar now, but someday it will be, when the price comes down.”

H. Jeffrey Leonard, president of the Global Environment Fund, a private equity firm that invests in clean-technology ventures, said that the current subsidy structure was the legacy of 60 years of lobbying and political jockeying in Washington that largely benefits oil, coal, nuclear power and corn-based ethanol. He calls for scrapping all subsidies and letting fuel sources compete on equal ground.

Mr. Obama is not willing to go that far. . . .