Category Archives: Climate Change

Covering climate change news, policy, opinions and the related.

Externalities, Subsidies, and Taxpayer Cost of Fossil Fuels

There are many challenges to overcoming our dependency on fossil fuels. In his book, How the world really works, Vaclav Smil goes into detail how everything from the oil derived plastics used in lifesaving tools in the operating room to the coke that’s necessary for creating steel have no equivalent replacements. On the other hand, fossil fuels used in energy production and transportation do have alternatives which can yield significant decreases in greenhouse gas emissions sooner than later if readily adopted. Meanwhile, despite the many alternatives, we are instead, as taxpayers, fronting the costs to prop up the fossil fuel industries, paying for the damages and recovery of warming related weather events, and paying for the increasing health care costs from carbon extraction and processing operations all while they have raked in record profits.

In the latter half of his book, The Nutmeg’s Curse, Amitav Ghosh dives into the economics of fossil fuels, specifically oil, framing it as today’s nutmeg, which drives and props up the Anglosphere. He makes reference to the term homo economicus, as a descriptor of modern day citizens obsessed the notion that capitalism is the prime mover of the modern world and geopolitics, empires and power come into play after (Ghosh, 2021, p. 115). In the often-heated debates about climate change, sustainable economics and capitalistic friendly policy, the narrative against rapid adoption of renewables makes claims of high costs and economic burdens for taxpayers. Anti-renewable politicians, think-tanks, and other NGO organizations continually spin a narrative of the drawbacks, economic woes, and horrors of green energy. As ex-speaker McCarthy said “end the green giveaways that distort the market and waste taxpayers’ money,” back in April of 2023 during the debt ceiling limit debates (Zack Budryk, 2023).

In keeping with the idea of homo economicus, then we should explore the true cost of fossil fuels. In the free market system, the ideal is when signals from producers and consumers will play back and forth to create a sort of balance between supply and demand, an equilibrium of efficiency along a growth curve. When this balance isn’t achieved by the “invisible hand” of the market, then the market fails and requires intervention. The government has two tools for market correction, taxes, and subsidies. Taxes are used to reduce the negative impacts of externalities while subsidies are used to stabilize markets by shifting supply or demand curves to the equilibrium price point. In essence, a subsidy offsets expensive purchase prices or production costs and is usually provided by the government to stabilize the economy. We’ll come back to these definitions shortly, but first we’ll look at negative externalities in more detail.

Climate change is an externality, that is, it is a public good where the costs spill outside the market and are not captured in market prices. The most significant of all environmental externalities is global warming (Nordhaus, 2019), and the burning of fossil fuels is the largest contributor to the increase in greenhouse gasses (GHG) that drive global warming. When we say costs are not captured in market prices, it means that the money made by a producer of the goods or services causing the externality, in this case CO2 from fossil fuel burning. The profits are not used to redress the negative effects of increased hurricanes, hotter summers with longer, deadlier heatwaves, more wildfires, flooding, and the list goes on. 

Each hurricane that makes landfall, atmospheric river that fuels extreme flash floods, hectares charred by wildfires, crops lost to droughts and fishery closures from heat induced die-offs all come with large price tags per event. Between 1989-2020 there have been 71 federally approved fishery disasters, events where a fishery has been deemed overfished and shutdown. To offset the estimated $3.2 billion (USD) in direct revenue losses, over $2 billion in Congressional allocations have been approved (Bellquist et al., 2021). That’s $2 billion in taxpayer dollars paying for the losses and recovery from extreme environmental events (marine heatwaves, hurricanes, harmful algal blooms). In a report by the National Resources Defense Fund, federal expenses on extreme weather events in 2012 exceeded $100 billion (Lashof & Stevenson, 2013, p. 4) with $96 billion in direct taxpayer dollars. Fast forward 10 years and the situation has only become worse.

As taxpayers continue to pay the cost of climate change related events, while also paying directly for fossil fuels to heat their homes, generate electricity and power their cars, they also pay to subsidize the fossil fuel companies. Global companies that brought in a combined $200 billion in profits for fiscal year 2022 (Grantham-Philips, n.d.). A true homo economicus, thinking rationally about what’s been discussed so far would hopefully be raising an eyebrow at the thought of subsidizing fossil fuel producers when they are already paying not only for the product, but then again to cover the negative externalities.

Despite the successful bottom line on the balance sheet, fossil fuel producers benefit from a variety of government subsidies such as (Fact Sheet | Fossil Fuel Subsidies: A Closer Look at Tax Breaks and Societal Costs (2019) | White Papers | EESI, n.d.)  :

  • Providing tax credits to oil producers based on the location they’re extracting or exporting to.
  • Write offs for oil speculation and exploration costs.
  • Consumption subsidies to reduce end user costs.

As it becomes more evident that a shift away from fossil fuels to renewable and alternative energy is the only way to secure a safe and viable future for generations to come, homo economicus would expect energy subsidies be used to further green and renewable sources. Instead, between 2010 and 2017 the U.S. Department of Energy (DOE) provided $2.66 billion (USD) towards fossil energy research and development projects. Of that total, 91% was research and development money (1.4 billion) used on coal-related research, including gasification (turning coal into gas). (Fact Sheet | Fossil Fuel Subsidies: A Closer Look at Tax Breaks and Societal Costs (2019) | White Papers | EESI, n.d.)

Artificially keeping the cost of fossil fuels low (though, with profits like above, are they as low as they can be?) through subsidies erodes incentive and motivation to invest in renewable and green energy, thus impeding innovation (Timperley, 2021). Elimination of fossil fuel subsidies would return an estimated $121 billion annually as federal revenue increases which in turn could be used to spur innovation in climate focused solutions to energy. (Fact Sheet | Proposals to Reduce Fossil Fuel Subsidies (2021) | White Papers | EESI, n.d.)

In the free-market system, rising fossil fuel prices should in turn decrease demand and spur innovation to increase the reliability, efficiency, and affordability of green and renewable sources. Instead, current policy, both domestic and globally, ensures the success of fossil fuels as an energy mainstay, with no regard for the true total cost of these policies. The first step to helping spark this correction is undoing the economic policy that is designed to benefit the producers. Easier said than done as we continually see pushback from house republicans on any attempts to promote clean energy initiatives and reduce fossil fuel production (House Republicans Pass Energy Bill to Roll Back Regulation of Fossil Fuel Production, 2023).

As U.S. direct subsidies reach an approximate $20.5 billion annually with $14.7 billion in federal subsidies and $5.8 billion in state subsidies, that’s a hefty amount of tax dollars. Now, combine that with the annual cost of negative externalities from fossil fuels, the new estimated U.S. subsidy amount is $649 billion per year (Fact Sheet | Proposals to Reduce Fossil Fuel Subsidies (2021) | White Papers | EESI, n.d.). At such a high cost, homo economicus should now really be convinced that it’s time for a policy change which makes better use of their tax dollars.

The 117th Congress has introduced a handful of legislation to help reform fossil fuel subsidies including the Ending Taxpayer Welfare for Oil and Gas Companies Act of 2021 (H.R. 1517) and the End Oil and Gas Tax Subsidies Act of 2012 (H.R. 2184). These bills were introduced in 2021 and have made little progress since. President Biden, and former President Obama have both made reforming and eliminating fossil fuel subsidies a part of their platforms, but neither have had success (“Biden Budget to Target U.S. Fossil Fuel Subsidies,” 2023).We are living on borrowed time economically, ecologically, and sociologically by continuing to use subsidies to prop up the fossil fuel sector. The continuation of fossil fuel subsidies through influence of big oil and acquiescent policy makers is a devastating setback in the progress towards large scale robust renewable energy solutions. I hope homo economicus would agree that our taxes should be put towards securing our welfare not just for today, but for our future. We need to secure the welfare of everyone, not just the CEOs of big oil and their lapdog politicians. I only hope more folks would truly adopt the homo economicus persona and take a true, rational, and academic approach to understanding these issues, in turn making well informed decisions at the polls to support those who support us.

References

Bellquist, L., Saccomanno, V., Semmens, B. X., Gleason, M., & Wilson, J. (2021). The rise in climate change-induced federal fishery disasters in the United States. PeerJ, 9, e11186. https://doi.org/10.7717/peerj.11186

Biden budget to target U.S. fossil fuel subsidies. (2023, March 9). Reuters. https://www.reuters.com/business/energy/biden-budget-target-us-fossil-fuel-subsidies-2023-03-09/

Fact Sheet | Fossil Fuel Subsidies: A Closer Look at Tax Breaks and Societal Costs (2019) | White Papers | EESI. (n.d.). Retrieved October 12, 2023, from https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs

Fact Sheet | Proposals to Reduce Fossil Fuel Subsidies (2021) | White Papers | EESI. (n.d.). Retrieved October 12, 2023, from https://www.eesi.org/papers/view/fact-sheet-proposals-to-reduce-fossil-fuel-subsidies-2021

Ghosh, A. (2021). The nutmeg’s curse: Parables for a planet in crisis. University of Chicago Press.

Grantham-Philips, W. (n.d.). “Outrageous”: Big oil made almost $200 billion in 2022 as world faced energy crisis. Here’s the breakdown. USA TODAY. Retrieved October 26, 2023, from https://www.usatoday.com/story/money/at-home/2023/02/10/oil-companies-2022-profits-exxon-bp-shell/11170023002/

House Republicans pass energy bill to roll back regulation of fossil fuel production. (2023, March 30). PBS NewsHour. https://www.pbs.org/newshour/politics/house-republicans-pass-energy-bill-to-roll-back-regulation-of-fossil-fuel-production

Lashof, & Stevenson, A. (2013). Who Pays for Climate Change? (IP: 13-05A; p. 13). National Resources Defense Council (NRDC). https://www.nrdc.org/sites/default/files/taxpayer-climate-costs-IP.pdf

Nordhaus, W. (2019). Climate Change: The Ultimate Challenge for Economics. American Economic Review, 109(6), 1991–2014. https://doi.org/10.1257/aer.109.6.1991

Timperley, J. (2021). Why fossil fuel subsidies are so hard to kill. Nature, 598(7881), 403–405. https://doi.org/10.1038/d41586-021-02847-2

Zack Budryk, R. F. (2023, April 19). Republicans seek to repeal renewable tax credits, pass energy package in debt limit proposal [Text]. The Hill. https://thehill.com/policy/energy-environment/3959517-republicans-seek-to-repeal-renewable-tax-credits-pass-energy-package-in-debt-limit-proposal/

Example of How to “Do Your Own Research” on Climate Skepticism

I provide this quick analysis as an example of using basic logic, common sense and a little digging to show how climate skeptics promote misinformation and warp real science out of context.

The Science and Public Policy Institute is a non-governmental organization that alleges to promote sound legislation and policy making through factual science as described in their mission statement:

The Science and Public Policy Institute (SPPI) provides research and educational materials dedicated to sound public policy based on sound science. We support the advancement of sensible public policies rooted in rational science and economics.  Only through science and factual information, separating reality from rhetoric, can legislators develop beneficial policies without unintended consequences that might threaten the life, liberty, and prosperity of the citizenry. [1]

The majority of the publications available on SPPI’s website are authored by either “staff” or Christopher Monckton, who is listed as the organization’s Chief Policy Advisor.  Mr. Monckton has a long history of controversial views on various topics including climate change, AIDS, and social policy to name a few [2], suggesting he is a combination of a combative confrontationalist and a professional controversialist.  The particular article I’m examining is labeled as an original SPPI paper titled “No Global Warming For Almost Two Decades” and is freely available from [3].

The article by Monckton is a response to an inquiry asking SPPI “to comment on the apparent inconsistency between the news that July 2012 was the warmest July since 1895 in the contiguous United States and the news that the Meteorological Office in the UK has cut its global warming forecast for the coming years.” [3] Monckton claims that NOAA’s temperature data is heavily skewed and the Met Office’s models were previously flawed and the newer models show no long term temperature increase.  

The article itself does not provide a single  reference or citation to the many data and claims made by Monckton, which is seemingly counter-productive to SPPI’s mission by deviating from a non-standard publishing format.  In the rest of this essay I examine some of the claims or quoted information Monckton.  My goal is to provide a more thorough examination of the mentioned sources in hopes of demonstrating the gross manipulation of factual science into a warped and skewed climate skeptic’s “science”.

The first portion of the paper is focused on the declaration of July 2012 being the hottest month ever on record in the contiguous United States, 

Early in August 2012, the NOAA issued a statement to the effect that July 2012 had been the hottest month in the contiguous U.S. since records began in 1895. NOAA said the July 2012 temperature had been 77.6 degrees Fahrenheit, 0.2 F° warmer than the previous July record, set in 1936. [3]

Following this Monckton proceeds to point out a discrepancy between the data where the recorded temperature for July 2012 according to the NCDC (National Climate Data Center, a NOAA service) is reported as 76.89 F, therefore making July 2012 the second hottest July on record, July 1936 being the hottest at 77.4 F.  Upon verifying the sources, the original statement from NOAA claiming July 2012 to be the hottest month was obtained from its monthly State of the Climate report available from [4].  The discrepancy comes when one accesses historical temperature data from NCDC [5] which provides the new temperature reading.

This prompts the author to frame NOAA as an unreliable organization by the following statement,

For some unaccountable reason, NOAA has not issued any statement correcting its original false claim that July 2012 was the warmest July since 1895. [3]

This statement holds no validity.  The State of the Climate report quoted by Monckton provides the following disclaimer,

PLEASE NOTE: All of the temperature and precipitation ranks and values are based on preliminary data. The ranks will change when the final data are processed, but will not be replaced on these pages. Graphics based on final data are provided on the Temperature and Precipitation Maps page and the Climate at a Glance page as they become available. [4]

Now we can see that NOAA has neither falsified data nor acted in any “unaccountable” manner, but perhaps Mr. Monckton has by either failing to thoroughly read and examine his sources or intentionally misrepresenting the data.

The second main topic of the paper focuses on climate model predictions, where the author strives to suggest that climate simulation models are highly exaggerated,

The NOAA, in its State of the Climate report for 2008, contained a paper by leading climate modelers which said: “The simulations rule out (at the 95% level) zero trends for 15 years or more, suggesting that an observed absence of warming of this duration is needed to create a discrepancy with the expected present-day warming rate.” On the modelers’ own previously-stated criterion, then, the long period without warming indicates that the models have been exaggerating. [3]

The statement the author quotes is from the BAMS State of the Climate report for 2008 [6], of which NOAA contributes and the particular paper from which the statement is quoted comes from [7].  The statement regarding “simulations rule out … zero treds…” is directly preceded by this statement,

Near-zero and even negative trends are common for intervals of a decade or less in the simulations, due to the model’s internal climate variability.

This is another great example that demonstrates how a simple statement out of context is easily used to provide a false premise to an author’s argument.  The results of the paper in [7] from which the author twisted the phrase if you will, state the following:

Given the likelihood that internal variability contributed to the slowing of global temperature rise in the last decade, we expect that warming will resume in the next few years, consistent with predictions from near-term climate forecasts (Smith et al. 2007; Haines et al. 2009). [6]

Perhaps Mr. Monckton’s decision to not cite any of his sources was purely intentional with hopes that those who read his paper would be too lazy to fact check them or simply content with the notion that because the paper came from a website claiming to promote factual science, then all of its originally authored content was accurate.  Regardless of the author’s motivation and his organization’s lax publication requirements, I would hope the everyday reader is just as skeptical as I was about an article that doesn’t cite it sources.

References

[1] SPPI Website. http://scienceandpublicpolicy.org/our_mission.html

[2] Christopher Monckton, 3rd Viscount Monckton of Brenchley.  In Wikipedia. Retrieved February 18th, 2013, from http://en.wikipedia.org/wiki/Christopher_Monckton,_3rd_Viscount_Monckton_of_Brenchley

[3] Monckton, Christopher. No Global Warming for Almost Two Decades. 2013. SPPI. Retrieved February 18th, 2013, from http://scienceandpublicpolicy.org/originals/no_global_warming_for_almost_two_decades.html

[4] NOAA National Climatic Data Center, State of the Climate: National Overview for July 2012, published online August 2012, retrieved on February 18, 2013 from http://www.ncdc.noaa.gov/sotc/national/2012/7.

[5] http://www.ncdc.noaa.gov/

[6] Peterson, T. C., and M. O. Baringer, Eds., 2009: State of the Climate in 2008. Bull. Amer. Meteor. Soc., 90, S1–S196.

[7] Knight, J.; Kennedy, J. J.; Folland, C.; Harris, G.; Jones, G. S.; Palmer, M.; Parker, D.; Scaife, A.; Stott, P. DO GLOBAL TEMPERATURE TRENDS OVER THE LAST DECADE FALSIFY CLIMATE PREDICTIONS? Bulletin of the American Meteorological Society;Aug2009 State of the Climate, Vol. 90 Issue 8, pS22.