Too Big to Shale: Truth Behind Government Support for Fossil Fuel

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I think one of the overlooked reasons as to why Nazi Germany and fascist Italy lost the war in Europe was the inability to win in North Africa and cut across to the Middle East for endless oil reserves that certainly could’ve helped the ground offensive against the Soviets. However, it is well known that Hitler offensives in Northern Africa weren’t the only time a great power tried to pry their hands on the vast oil reserves of the Middle East, as America still hasn’t really left.

The reality is that the oil industry, low prices or not, has survived for decades and will not die off in the near future. I’m not here to explain how the evils of capitalism have allowed it to thrive and I really wouldn’t care if that was the case, but it isn’t. The reality is that few people understand or want to face is that the government has allowed multinational fossil fuel companies to survive for years; this is not true capitalism, and it is about time the people opposed it.

A number of people donated to the Bernie Sanders campaign in 2016, though I was never a supporter of the old, misled socialist. They can do as they please with their own money, but the relationship between big oil and Uncle Sam has become grotesque. Let’s start with welfare; I’m not talking about social safety net welfare for the poor and unemployed, but corporate welfare for large companies. (Do not mistake this as support for other forms of government assistance, it isn’t.) Despite the fact that food stamps, veteran benefits, and unemployment checks receive the vast majority of airtime in politics, they are much smaller in comparison to what the welfare queens in the fossil fuel industry receive. The fact is that discontinuing government support at taxpayers’ expense for fossil fuels will have many positive consequences, and it is time for capitalists to go to war with the perhaps the worst use of public spending.

There have been many estimations of the size of fossil fuel subsidies, but perhaps one of the more credible sources was a research done by David Coady, Ian Parry and Baoping Shang of the International Monetary Fund, and Louis Sears of the University of California, Davis. The group of researchers estimated the value of fossil fuel subsidies to be a staggering $606 billion in the United States and $5.3 trillion in 2015. Just to wrap your head around the size of $606 billion, you could add up the GDP of every country ending in “stan” and still end up short. (You should get about $592 billion if using 2015 numbers to be consistent with the 2015 numbers the economists used.) Through government aid to multinational oil and coal companies, they’ve formed an unholy alliance and international conglomerate that is responsible for heightened warfare, stupendous environmental destruction, and economic strain.

Heightened warfare

The degree to which the oil lobby has influenced foreign policy and Middle Eastern conflicts has become far more than noteworthy. Not only have they spent a tremendous amount of money lobbying, they’ve gotten prominent politicians into presidential administrations, including Vice President Dick Cheney (R-Halliburton) and Secretary of State Rex Tillerson (R-ExxonMobil). One of the more notorious examples is when Halliburton made just short of $40 billion on the Iraq War. In 2009, lobbying from the oil and gas lobby hit an all-time high of almost $175 million. Further, a full two thirds of oil lobbyists have previously held a top government job and the top three 2017 recipients were Ted Cruz, Donald Trump and Hillary Clinton (in that order).

The reality is that the more bombs that drop, the more stock prices and oil prices jump. The best example is during the expensive and horrendous Iraq War in which the price of a barrel of oil rose from $11.91 in 1998 (before the war) to $91.48 by 2008. Now, it’s one thing for an individual to donate to a Hillary Clinton or Lindsey Graham campaign because they believe a ground war is the best way to defeat ISIS or Assad, but it is another for a taxpayer funded oil company to promote costly wars that send Americans back in body bags for more oil revenue, all the while furthering an innately statist agenda. That said, I don’t mind a firm — no matter what industry — employing good business tactics without public assistance to make a buck. However, taking $606 billion a year in subsidies and tax credits while trying to start wars in the Middle East is far from honest profits.

Stupendous environmental destruction

My name is not Al Gore, Ralph Nader or Jill Stein. I’m not here to fear monger over climate change. I’m also not in the crowd that paints capitalism as the evil perpetrator of global warming, either. In a pseudo capitalist system, a government might subsidize an industry, perhaps energy, if it isn’t producing enough or an abundance of that good or service, but there is nothing fair or free about the energy market. Simply put, the total amount of government expenditures in the forms of tax credits and subsidies to renewable energy was a mere $12 billion, or one dollar for every fifty and a half that went to fossil fuels. At current rates, the United States, the distant third largest oil producer behind Saudi Arabia and the Russian Federation, could produce at normal rates and sell every barrel for $51 a barrel and surpass $12 billion in a short 25 days, and that is only one country and one fossil fuel.

It should come to no surprise that this practice is having a substantial effect on CO2 emissions and global warming. Wind, solar, geothermal, and hydroelectricity cannot compete against coal and oil, whose pockets are loaded with Uncle Sam’s filthy money. Estimates from the previous study showed that an elimination of these subsidies by every country in the world would’ve cut carbon emissions by 21% and fuel-related air pollution deaths by 55%. Keep in mind, the $606 billion is only American subsidies, and doesn’t include China, which spends more than the US on energy titans like PetroChina. Russia, India, and the EU, all of which are highly responsible for global warming, combined for 60.42% of greenhouse gas emissions in 2013. The fact that the top five culprits most responsible for redistributing tax dollars from poor citizens to international oil tycoons are also disproportionately emitting carbon dioxide and other pollutants into the air should come to no surprise for anyone that isn’t left of Lenin.

Economic strain

While I previously mentioned that the US spends more on subsidizing non-renewable energies than the value of everything in the “stan” countries, this is also a worldwide phenomenon, amounting to a grand total of $5.3 trillion internationally among all nations. There are numerous reasons why this is troubling and problematic. First, as far as job growth is concerned, oil and coal aren’t exactly dishing out jobs faster than they can take in applications. In 2014, the coal industry employed approximately 51,000 people. Meanwhile, solid biomass, despite garnering a fraction of the government support that coal gets, still manages to edge out coal at an impressive 80,000 employees. Now, there isn’t a good estimate to the value of the biomass sector, but if we were to look at the number of jobs in solid biomass relative to jobs in renewables, biomass makes up 9.8% of the renewable energy sector, which is worth $200 billion in the US, leaving the value of that industry to $19.78 billion, or $248,000 in revenue for every job. Seeing that coal revenue was $46 billion in 2014 and subsidies were estimated to be $104 billion based on a 2011 study, we would find that the $150 billion American coal industry creates one job for every $2.94 million in revenue and subsidies, or at less than one eleventh the rate of biomass.

It is apparent that subsidies towards non-renewables are a dead weight on the American economy. Cutting these subsidies entirely could cover the entire 2017 budget deficit and still have enough left over to match Michael Bloomberg’s net worth and Donald Trump’s claimed net worth combined. The economic benefits from a spending cut of this magnitude are tremendous. Further, this same study found that subsidy reform could lead to massive fiscal benefits, including a revenue gain of $3 trillion dollars internationally. Further, the global phenomenon of income inequality will be greatly affected, as a study of these subsidies in China found that the top 10% collects 33% of the benefits, while the bottom 30% receives about 13%. In other countries, these numbers are far more severe, as a separate economic study found that Haiti was the best example of wealth disparity as a result of energy subsidies, in which 83% of the petroleum and diesel subsidies went to the top 10% of income earners. Thus, the notion that capitalism is solely responsible for income inequality is as ridiculous as it is false, as evidence shows that the public sector is likely far more responsible for why these massive tax credits have little effect on lowering prices or supplying more energy.

Conclusion

John Rockefeller had an inflation-adjusted net worth far more than any current oil tycoon or billionaire. He was a capitalist, but also a philanthropist who donated most of his wealth, unlike the oil billionaires of today. However, the days of free-market oil are long past us, and so would most fossil fuels in general if the government would stop preventing the creative destruction of capitalism that would allow new energies to flourish. Rockefeller never sought public office and never dreamt of starting wars, he simply met the growing demand for oil.

You would think the “fiscal hawks” in the Republican Party that are always eager to attack the social safety net would be the first to demand we cut corporate welfare the same way they demand we cut welfare for the unemployed. They are not, perhaps because the GOP isn’t capitalist or pro-business, but merely they are pro-big business. (Which is a nice way to say pro-donor.) Perhaps you would think the Democrats that supposedly vehemently fight for better global warming policies and less income inequality would be next in line to cut this atrocity of a government expenditure that disproportionately thickens the wallets of those living superfluously. Yet, their jelly-filled spines haven’t mustered an ounce of courage to fight this, and the Republicans clearly aren’t the only ones looking for the best interest of their donors. For the sake of economic growth, less conflict, less corruption, less pollution, and everything libertarian in nature, corporate welfare, especially to the oil lobby and non-renewable energy market, must be eliminated.

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Jake Dorsch

Jake Dorsch is a libertarian activist, bank teller, investor and aspiring future economist from Green Bay, Wisconsin that is pursuing a bachelor’s degree in both political science and quantitative economics at Drake University. He is currently on track to graduate a year early and will likely continue to obtain a master’s degree in econometrics.

2 COMMENTS

  1. As someone who works in the evil fossil fuels industry how about this, as libertarians we agree to end forced taxation, thereby eliminating any subsidies for anything to anyone, and removing any justification for criticizing anyone, or any industry, for taking advantage of tax deductions offered by Big Bro. As a bonus we would end the financing for foreign interventions. Then we can just let the free market decide what industries fail or succeed? Sound like a good idea? Great, I thought so.

  2. A someone with a degree in history let me say your first paragraph has many, many errors. First, the North Africa campaign wasn’t Hitlers’, it was Mussolini’s. Hitler was “forced” to help Italy out in their attempted conquest of North Africa. Capturing the Suez, not totally undeveloped oil fields, was the Hitlers goal. His oil came primarily from Romania when that supply was lost was when he began to have problems with oil supply, not because he couldn’t conquer the middle east. This is obviously an overly simple description, but it should suffice to show what I mean.

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