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Obama Can Cut Fossil Fuel Subsidies and Save $39 Billion, But Will Congress Go Along?

The cuts were included in the last two budgets submitted to Congress, but were never implemented. Will GOP budget hawks now get on board?

Jan 14, 2011

WASHINGTON—Lately, President Obama seems to be suffering from a case of laryngitis on the topic of shaving subsidies for the fossil fuel industry.

Thus, not too surprisingly, it appears Congress has been infected with the same bug.

Environmentalists and deficit hawks are eager for the president to find his voice again by using his 2012 federal budget to once again take a whack at propping up oil and coal. Last year, the idea he dangled of eliminating $38.8 billion in such subsidies through 2020 went nowhere. It’s unclear if Obama might try to duplicate those savings when he unveils his latest budget proposal in mid-February.

David Goldwyn of the State Department made it clear during a talk in Washington this week that reining in fossil fuel subsidies worldwide would help to make a significant dent in greenhouse gas emissions. The Group of 20 has committed to doing so and the International Energy Agency will be keeping score, said Goldwyn, who is stepping down today from his position as coordinator for international energy affairs.

In the United States, he pointed out, reducing subsidies “will be a political battle.”

“The one piece you can lay at the Obama doorstep is a failure to push this issue,” Steve Kretzmann, executive director of the Washington-based nonprofit Oil Change International, told SolveClimate News in an interview. “He has put it in his budget the last two years and Congress didn’t pick up on it. A campaign from the White House about eliminating subsidies could do a lot.”

Subsidy Numbers Booming

Obama drew kudos from Kretzmann and others for his resolve in September 2009 at the G20 Pittsburgh Summit when he called on member nations to wean the fossil fuels industry of taxpayer-funded subsidies and outlined specifically how the United States would undertake such cuts. But nothing more than talk happened on either front yet.

For decades, tax breaks and federal incentives have been a boon to the U.S. fossil fuels industry. Numbers compiled by the Environmental Law Institute reveal that those figures totaled $72 billion between 2002 and 2008—about $10 billion annually. Figures from Kretzmann’s organization put annual U.S. subsidy figures to these mature technologies somewhere between $6 billion and $39 billion annually, depending on what is included in the count.

Graph of energy subsidies

The International Energy Agency (IEA) estimates that worldwide, countries spent $312 billion to subsidize fossil fuels in 2009. That figure casts a daunting shadow over the $43 billion to $46 billion governments provided to renewable energy, according to 2009 figures from the London-based research group, Bloomberg New Energy Finance. The latter came through tax credits, alternative energy credits and guaranteed electricity prices known as feed-in tariffs.

At $18.2 billion, the United States led the way with clean energy subsidies in 2009, according to New Energy Finance.

Opportunity Slipping Away at Congress?

After Republicans dominated the mid-term elections last fall, Capitol Hill trackers speculated that slicing away at fossil fuel subsidies could provide common ground for Democrats who are longtime advocates of taking such action and Republicans intent on righting the national deficit and debt crisis by whittling away at budget waste.

It wasn’t perceived as an issue confined to the extreme left or right. None other than the Bipartisan Policy Center, a levelheaded, Washington-based think tank, endorsed the paring of such subsidies.

Just a few weeks into the 112th Congress, however, observers are already doubting that such a harmonic convergence can occur.

“This is a chance for Congress to decide what’s more important, deficit reduction or the oil industry that pays for campaigns?” Kretzmann said. “It’s about principle rather than rhetoric.

“It’s not as simple as saying the industry may be buying people off,” he continued. “Every legislator knows that taking away these subsidies will cause industry to threaten to raise the price of gas. But nobody has the (gumption) to tell the oil industry that they’ve had record profits for years and years and years. Now, they’re going to make a little less of those astronomical profits.”

Recent rule changes announced by the new GOP-majority House have observers at the advocacy organization Friends of the Earth on edge.

Drifting away from pay-as-you-go as a guiding rule exposes the House as more interested in attacking government than reducing the deficit, Ben Schreiber, FOE’s climate and energy tax analyst, said in an interview.

“This had the potential to be a bipartisan issue but that slipped away,” Schreiber said. “Congress isn’t being serious now because they’re playing politics. There’s a lot of rhetoric about dealing with the financial crisis. When they get serious about dealing with the national debt, these tax giveaways to corporations and the fossil fuels industry are going to have to be part of it.”

Renewables Need Boost Worldwide

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