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Comment by ryao | Hacker News Reader

"efforts made to slow this transition by Trump and others in his administration should be seen as a protectionist, nonsensical, and amoral top-down defense of the harmful fossil fuel industry."

As a solar panel owner, I want to know, is this a response to the tax credit going away or is there something else of which I am not aware? If solar is able to stand on its own, the tax credit would seem to have served its purpose. The discontinuity in the level of feasibility when it goes away will not be fun, but I thought that people expected that to happen when it eventually does go away.

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Oil, gas, and coal enjoy their own subsidies. Both direct and indirect. Increasing these subsidies for fossil fuels will slow the transition.

I always hear these vague allusions to oil and gas subsidies, but never concrete examples. In fact, we actually tax the hell out of oil and gas at retail, so it seems a bit strange that we would actually be subsidizing it at the same time.

What kind of/magnitude of subsidies does oil and gas enjoy?

https://en.wikipedia.org/wiki/Energy_subsidies#United_States

$3.2bn / year for fossil fuels, about half of what went to renewables

Those figures seem to come from here:

https://www.cbo.gov/publication/43993#section0

In particular, the $3.2bn/year is a tax write-off sort of 'subsidy', not a grant sort of subsidy, which I believe solar has received recently (section 1603).

Without doing more digging, I can't tell whether what those oil and gas write-offs are for. Exploration? Research?

Why is that an important distinction here? Both direct subsidies and tax credits/rebates/write-offs have the same net effect on the government's coffers.

The Wikipedia article cites another article that has the breakdown (over a period of years):

1. Foreign tax credit ($15.3 billion)

2. Credit for production of non-conventional fuels ($14.1 billion)

3. Oil and Gas exploration and development expensing ($7.1 billion)

https://www.eli.org/sites/default/files/eli-pubs/d19_07.pdf

Have you read that pdf you linked to?

Similarly, the study counts funds used to support carbon capture and storage programs1 as a fossil fuel subsidy, despite their potential to reduce the emissions associated with burning coal.

If that's counted against oil and gas 'subsidies', that doesn't seem right.

Foreign Tax Credit ($15,300) - IRC Section 901. This is a generally applicable credit that is intended to enable taxpayers earning income or profits abroad to avoid double taxation.

Wait - so a good 40% of the total is actually a non-subsidy that is the consequence of the US having a tax treaty with a foreign country? Not being able to double-tax oil and gas companies is considered a 'subsidy'? The US has a tax treaty with just about every civilized country in the world that has provisions to avoid double-taxation because to do otherwise would be pathological. Counting that is 40% of the 'subsidy'?

The foreign tax credit is an oil subsidy since the 'creative' oil companies started structuring their royalties to foreign governments as taxes, so they can deduct them against profits.

If Exxon has to pay a royalty of $1/barrel to Nigeria for access to their oil fields, rather than account for the royalty 'properly', they structure the deal to pay a $1/barrel tax to Nigeria. Then they can claim that they paid taxes instead of royalties and get the offset from the foreign tax credit.

I don't doubt you but can you explain this in greater detail? I have filed for the foreign tax credit and it disqualifies most non-income taxes. I would presume royalties would be covered by this.

Royalties are excluded, and the IRS has clamped down more in defining what exactly counts as income tax, but it's still common for oil and gas companies to structure their payments as taxes to get the credits. For instance, in Saudi Arabia, there is an 85% corporate tax rate on oil/gas companies and a 20% corporate tax rate on the average business. It sure looks to me like that's a 20% tax rate plus a 65% royalty rather than an 85% rate, no?

http://taxfoundation.org/blog/treating-royalties-governments...

http://taxfoundation.org/blog/treating-royalties-governments...

> Why is that an important distinction here? Both direct subsidies and tax credits/rebates/write-offs have the same net effect on the government's coffers.

It has a different effect on the entity being taxed. A tax write-off increases the rewards for an already profitable proposition, but tax write-off don't normally incentivise someone to do something that is a loss (unless the write-off is transferrable to other profits, but that's a separate question). Subsidies, however, can make a loss into a profit, incentivising people to do it. That's exactly the point of the original solar subsidies.

Now that the solar industry appears to be relatively well bootstrapped, it's not unreasonable to remove the straight subsidies. I think solar still enjoys many if not all of the same tax write-offs as other energy sources.

Looking at the gross subsidy is misleading. Federal gas tax revenues alone are about $35bn/yr.

The excise tax is intended to pay for transportation infrastructure though, not to disincentivize gasoline consumption.

Whatever the intentions of the people imposing the tax, the effect is to disincentivize gas consumption. My point is, if the government taxes certain activities by $x and subsidises the same activity by $y, quoting only $y doesn't give the full story.

As far as I know gas tax isn't paid by the producers, but sure we can combine gas producers and users for this discussion. Money taken or given to either one has the same effect on the demand for gas production.

When that $x in taxes is paying for the infrastructure used, then the gas producers/users are actually getting $y+x from the government. The $x, being a service charge, cancels out, and the only thing left is $y. $y is the difference between the world we live in vs. a world where the government paid no special attention to the industry. It's the most important number.

Even granting your argument, if the government takes $x as a service charge for infrastructure, and subsidises by $y, that would be a net subsidy of $y, not $y+$x.

But $x is not a service charge. It bares no relation to the amount of anything used. They can't opt out of the road part of the service charge and build their own roads. The tax is not hypothecated. Whatever the rhetoric of politicians, it doesn't bare any resemblance to a service charge.

> that would be a net subsidy of $y, not $y+$x.

That's exactly what I was arguing, yes. That $y is important and $x is irrelevant.

> They can't opt out of the road part of the service charge and build their own roads.

That has no real bearing on the economics of the situation. Paying $x to the government for roads and paying $x to a private contractor for roads work the same way. That's why the net subsidy is $y.

If there is a tax that's applied specifically to gas companies that isn't directly paying for infrastructure they use, then that tax can be subtracted from the subsidies. But the gas tax doesn't fit that bill; if anything it undercharges.

> If there is a tax that's applied specifically to gas companies that isn't directly paying for infrastructure they use, then that tax can be subtracted from the subsidies. But the gas tax doesn't fit that bill; if anything it undercharges.

The gas tax is only one of many taxes that these companies pay - you have to sum all their subsidies and subtract all their taxes. That's the point. If you're not doing that, comparisons with subsidies to other industries are going to meaningless.

You subtract the taxes specific to the industry. Not all their taxes. Are there any such taxes?

I subtract all their taxes. If Exxon pays $100bn/yr in various normal taxes, and the government pays them $1bn/yr in fossil fuel subsidies, that's a net subsidy of -$99bn/yr.

How can it be a fair representation of their situation to only say they receive $1bn/yr in subsidy?

Because something like income tax is a given. We're not comparing against a world with no government. We're comparing against a situation where they get no special attention. You can use whatever word you want for it, but if a company pays half as much tax as everyone else that's a big deal.

You're right to say that it's not fair to only list the $1bn. It should be put in context of the $100bn of normal taxes. But reducing it to "$99bn" is not a fair representation either. It doesn't tell you if they otherwise would have paid 100 or 200.

I'm quite happy to accept the reporting of both gross taxes and gross subsidies. My objection is to only comparing the gross subsidies.

Wait, are we talking gasoline for cars here, or natural gas for energy production? Because those are very different things. It's entirely possible for gas and oil power plants to receive subsidies while gasoline for cars is heavily taxed.

The gas tax is paid for by customers at the pump. It is not a tax being paid by the oil companies.

Who cares? If there's a tax being levied it's going to be passed on to consumers wherever it's applied.

Add the military spending to ensure control of oil producing countries and cheap oil, and it's more like $1 trillion.

That's only federal subsidies.

The wikipedia link: https://en.wikipedia.org/wiki/Energy_subsidies. e.g. in the UK north sea oil exploration is heavily subsidised: http://www.independent.co.uk/news/uk/politics/uk-government-.... Of course there's lots of politics and commercial interests here, so I don't overly trust the upfront numbers given by articles in newspapers.

As a reference point the UK has about the lowest consumer energy taxes in the EU, and the highest consumer prices.

in the UK north sea oil exploration is heavily subsidised

It seems very misleading to say "taxpayer support" for a tax preference, especially when tax revenue for north sea oil is going to be well over that 6bn.

It's all accounting at the end of the day. The oil belongs to the nation, they're "hiring" industries to extract it. Whether it's called a tax or a payment is all semantics at some level.

This is part of why Norway can make around £400 Billion more money than the UK from a similar amount of oil, extracted from basically the same place:

http://www.resourcegovernance.org/blog/did-uk-miss-out-%C2%A...

See also "Hollywood Accounting".

From the linked page, about half of that £400bn is equity in state-owned oil companies with no stake in oil fields outside the north sea; as someone who lives in a country that had an albatross state-owned oil company, that's going to become a very interesting investment once those oil fields dry up in the next 20 years.

The article itself says the rest is partly because of lower taxes on the oil industry, but mostly because

1. The peaks of oil production in the UK's and Norway's fields were at different times when the market price of oil was different.

2. Norway has fewer fields but more reserves which made extraction more efficient.

It's also worth pointing out that the £6bn/year figure in the Independent article seems to be a bit of a wank too.

> As a reference point the UK has [...] the highest consumer prices.

No it doesn't, not even close...

http://ec.europa.eu/eurostat/statistics-explained/index.php/...

Unless I misunderstand what you mean by consumer prices?

Ah sorry, I missed a key phrase out - _pre-tax_ UK prices are the highest, and they are by a long way. Post-tax they're nearer the middle as the UK has by far the lowest energy taxes.

Unfortunately it's too late to edit my comment for clarification.

I'm just a simple investor and have no ties to the oil industry. I was surprised to learn about the tax incentives for investing in oil: http://www.investopedia.com/articles/07/oil-tax-break.asp

I think most of these are just a transfer of wealth from the high-tax-paying consumer to the low-tax-paying rich industry owners. Just business as usual.

I don't think they are even that. If you look a the list they are are just tax deductions so if you hit oil you may pay the govt $1m instead of some larger sum. Most of the "subsidies" seem to be of that nature. I'd like to personally subsidise the oil industry by them sending me $1m as a discount from the $2m I would have really liked.

Well, how about the fact there's an absolutely enormous, untaxed negative externality? It's implicit - normally you tax something to reduce use of something harmful. Renewable energy would be far more competitive if this was factored in.

Fossil fuels are causing incredible economic damage - but in a way that isn't captured by traditional economic models. It's going to have huge costs to future generations - if we taxed it, not only would we get off fossil fuels faster, we might then have extra cash around to soften the blow when it inevitably comes.

Yes, there should be carbon tax.

But the OP wants to know of the coal subsidies even Elon musk calls so huge that solar subsidies are "cents on the dollar".

How about providing actual subsidies for coal, also the difference between taxes for coal and solar. Of course they should be compared per Kwhr (which in my opinion Elon musk didn't do).

80% of US coal mined by the big three companies is sold by the federal government to them at 1 dollar a ton. That coal will cause between 22 and 237 dollars worth of costs to the nation.

http://www.greenpeace.org/usa/news/new-report-details-how-fe...

What's the market value of one ton of coal?

Has a group other than greenpeace done the accounting on the 'cost' to the nation?

Are you not intrigued by the enormous error-bars on that figure ($22-$237)? Maybe this is a complete wank?

How does the nation benefit from having inexpensive coal power available? What's the value per ton generated?

I believe that the "social cost" in the report is a value generated by the federal government itself.

Also, error bars generally make me more confident in a number. Coal can be burned in old or new plants with different levels of scrubbing for example.

I'd also point out that this conversation started with you "just asking questions" about subsidies, and you've attacked every answer you've received.

"Tax the hell out of" - As a swede this makes me laugh since 1 liter of petrol costs just over $2 here.

But we also are pretty much number one when it comes to being environmental friendly nation and no swede would deny climate change.

Just over $2? 95 octane costs around $1.5 (13.5 SEK) per liter. Still a lot more than US though.

$1.50 per litre is $5.70 per US gallon. According to the AAA, today's US average is $2.25, making gas in Sweden 2.5x as expensive. I think GP's point stands, even if the numbers were a little off.

For the record, gas prices in Germany are similar to Sweden, maybe a couple of cents lower (currently around 1.35€ per litre—around 2.35 times the US average)

Sorry, I wasn't aware that the dollar has increased so much in value..

That's an understandably mistake. The US dollar has increased significantly against the Krona since the US elections last month.

>we actually tax the hell out of oil and gas at retail

A sales tax is a tax on the consumer of the product, not the producer of the product. The producer is the one getting the subsidies.

From what I can tell, whenever you hear about "subsidies", as it relates to combustible hydrocarbons, it isn't the kind of free-taxpayer-money boondoggle you see with (for example) a loan guarantee to Solyndra. It usually takes one (or both) of two forms: 1) The tax treatment of any capital-intensive industry, with a tip-of-the-hat to the "how do we account for depleted resources" question (you see the same pondering happening now with bitcoin, for example), and 2) not properly accounting for externalities in taxing the extractor, the oxidizer or the consumer of the point-of-service joule.

In brief, #1 means: "I don't like it, and things I don't like should be taxed more, and until they taxed more, I will call this gift of non-taxation 'a subsidy'"

As for #2, the negative-externality objectionators make a very fair point!

To add to others, awesome (from a returns perspective) tax structures like MLPs mean that energy infrastructure is heavily subsidized because income generated through MLPs is either not taxed at all or taxed at a very advantageous rate compared to traditional corporations. The government in the US has set these up primarily to incentivize investment in energy infrastructure and real estate. Energy Transfer Partners - the company most recently known for trying to build the Dakota Access Pipeline - is one such MLP.

A reasonable different position to take would be to drop the subsidy in line with increases in effectiveness of solar panels, rather than dropping the subsidy all at once.

How about dropping the subsidy on the condition that coal and oil subsidies are dropped?

that sounds politically difficult, though I know next to nothing about politics so I could be wrong

As long as politicians bought by Oil/Gas/Coal get majorities in House and Senate there's no gatekeeper to impose such compromises. For this election cycle this seems a non starter to me.

The tax credit going away is not a big worry, but rather net-metering laws going away. It really depends on what state you live in. Arizona has been in the news lately regarding the net-metering fight. More states will follow.

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