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Comment by spodek | Hacker News Reader

Can we stop subsidizing oil and corn too?

It sounds facetious, but this comment is completely on point. It's pretty egregious that governments (e.g. the UK where I live) have stopped subsidising renewables, but continue to subsidise fossil fuels. People saying fossil fuels are cheaper often seem to forget this.

How exactly do these governments subsidize fossil fuels?

Tax claims, usually. Spent X dollars on fuel for farming or mining? Here's Y dollars off your tax bill.

Isn't every business allowed to depreciate their purchases?

Spending money on a commodity isn't like buying a mainframe. And these are specific deductions and claims for fossil fuel products.

For land producing minerals, there is a special tax rule called “percentage depletion” available to some taxpayers. With percentage depletion, the owner can deduct a fixed percentage (15%) of gross income every year. This can add up to more than the original amount invested in an oil field.

Normally, the depreciation allowance for capital investment over a period of years can only add up to the amount originally invested.

If the business has to pay tax to the government it isn't really a subsidy, which I think it usually the case with oil and gas. The UK govt seems to have received £1.2 bn from the oil and gas businesses in 2018/19. (https://assets.publishing.service.gov.uk/government/uploads/...)

While there are some direct incentives for fossil fuel producers, most of the subsidies go to commercial use of fossil fuel products.

Why? The net effect is exactly the same.

Government takes money from business = tax

Government gives money to business = subsidy

The oil industry is the first one even if depreciation allowances are involved in the tax calculation.

You might want to check out the concept of a Tax Expenditure https://en.wikipedia.org/wiki/Tax_expenditure, which is when a government lowers tax on something.

It's still an odd use of the word subsidy. I wish I could subsidise the oil industry by having them send me large amounts of money. Maybe we can kill the oil industry by tripling the subsidies so they have to send the government three times as much? It makes it hard to have sensible discussion.

Is there a word for whether the government pays to the industry or visa versa if tax and subsidy have been redefined to no longer mean that?

Many governments set the price at the gas pump and subsidize the difference.

The UK in particular charges 5% VAT instead of the normal 20% for natural gas, heating oil, solid fuel and electricity for residential use. They claim that this isn't a subsidy but tax breaks for specific product categories sure sounds like a subsidy to me.

Well, most food has 0% VAT, as well as other necessities... I gather at least home energy should have a similar treatment. At least up to some level.

How do you split food into "luxury" and "basic" foods? A 1 pound loaf of bread is "basic", a 5 pound loaf is "luxury"? What an impossible task. Far easier to put the VAT on all food and then send a rebate check to everybody on the assumption that the average food spend is "basic" and anything above average food spend is "luxury". Same thing for home energy. Heating a 1000 square foot flat is "necessity", heating a 5000 square foot flat is "luxury"....

It is not that hard. See what is sold in a luxury store deduct what is sold in average Joe grocery stores and what you got is luxury food items.

Is it that easy? I suspect you'll get an objection or two about junk food from doing that.

Imagine how much fun marketers will have with that kind of measure, if it's a 20% difference.

It isn't about size, it's about the nature of the foodstuff.

A biscuit is basic.

A chocolate biscuit is luxury.

Cake is basic

Meals you cook at home are basic

Meals someone cooks for you (e.g. restaurant or takeaway) is luxury.

(among other examples)

Normally the rules are pretty good but there are some cracks.

Google Jaffa Cakes and VAT...

TLDR cake is a basic food whilst chocolate biscuits (cookies to Americans) are luxuries.

Sure, there are bound to be edge cases.

If you're a big or tall 15 year old boy chances are your clothes are taxable because they're the same clothes as an adult and those are taxed. But if you're a petite woman you may rarely pay tax on clothes because you're fitting in stuff that was targeting a typical 15 year old girl.

Why is cake a basic food but not cookies? Does cake mean something different in the UK?

Biscuits are basic, but chocolate biscuits are luxury.

Chocolate cakes are basic.

Cake is a made up drug.

> Cake is a made up drug.

I know that I am not supposed to comment on upvotes but I wish I could upvote this more than once. The world needs more of this series.

Every child deserves a birthday cake... Every married couple deserve a wedding cake... We use cake to celebrate important life events that every member of society has the right to enjoy.

Ah, thank you for the explanation!

As far as I understand, the low vat on home energy is more to do with electioneering than anything else:

http://www.lse.ac.uk/GranthamInstitute/news/why-the-uk-gover...

I'd argue that a lower tax rate is actually better than a traditional subsidy: the discount is applied at the time of purchase, while the subsidy is applied at a later date (such as at tax time, for many subsidies in the US).

Anything residential is complicated since VAT can be regressive for essentials like heating oil.

That 5% rate applies to all sources of energy for heating and power, and a good chunk of our electricity comes from solar and wind. it also currently applies to the cost of domestic solar and wind installations and insulation retrofits, though that's going to have to change soon due to EU rules.

This is a tricky one to eliminate because of the problem of "fuel poverty": people, especially the elderly, who are unable to heat their houses to acceptable levels in winter. There's even a separate "winter fuel payment" for OAPs, but that's not tied to any actual consumption.

Really there should be a plan to transition away from those tax breaks for everything except green electricity. Oil first, natural gas last. The few remaining people dependent on heating oil are having trouble affording it anyway - but they tend to be rural.

Electric heating isn't terribly viable as an option in the UK. An awful lot of our winter electricity comes from fossil fuel generation especially during cold winters when demand is highest, it's expensive and inefficient to convert gas to electricity and run that through a heater instead of burning it directly, and we're too temperate a climate for heat pumps to be viable except maybe on new builds. Also, electricity supplies to rural areas aren't terribly reliable during bad winter winter so it's probably not that suitable for heating.

We're supposed to be phasing out gas for new build homes in a few years but I'm not convinced it will actually happen.

I have move to UK, and to my surprise it has exceptionally poorly insulated and leaky homes, even new builds, even compared to ex-Soviet Europe.

It's really a colossal waste of money, as insulation would pay for itself very quickly. A government program is needed to rebuild a lot of older homes. Combined with general shortage of new housing and quality issues, housing in UK is quite a sore point for me.

Yes, it's a disgrace. There is an insulation programme, and it's achieved very little.

I'm not really sure why. Belief that being cold is "character forming"? Obsession with traditional architecture? Failure to realise the real temperature swings?

> I'm not really sure why.

Cheap fossil fuels?

Australia subsidises vehicle fuel for use in coal mining[1]. It is totally bananas.

[1] among other things but this is the most ridiculous

Regulatory capture. We exempt mining companies from fuel tax because they don't drive on public roads. sigh.

Isn't the point of a fuel tax to pay for road repairs? Why should they pay a fuel tax if they aren't using public roads?

I don't drive, so I may be completely off here - I'm genuinely asking because I don't know

They may not drive their enormous mining trucks on public roads, but they benefit from the society (including other public roads) that our taxes support. Plus it's absurd that we're incentivising the use of fossil fuels at all, let alone to dig up fossil fuels.

If the stated goal of a rule is X, it's entirely reasonable to request an exemption based on how you act relative to X. As a matter of principle, I object to denying said exemption because the request comes from the requester's position on Y.

In this particular case, if the tax is indeed levied on the basis of how it impacts road use and repairs, it's perfectly fair to exempt fuel meant to be used only in private property, irrespectively of how I feel about its polluting nature.

I do agree it's absurd that we don't disincentivize the use of fossil fuels, and the mining of said fuels in general, but two wrongs don't make a right.

By that measure everyone benefits from public roads and should pay fuel tax even if they aren’t driving on them. That makes no sense.

You know farmers are exempt from diesel tax for farm equipment too, right?

How do they get their vehicles and equipment to the non public sections of roads?

Keep mind these are trucks with tires that are more than twice as tall as you or I. They were shipped there, oversized, by semi and assembled on-site. The semi that moved it paid its fuel/road/use tax, so taxing the truck being shipped as well amounts to double taxation. Not that there's necessarily anything wrong with that in this case. In California, any vehicle that travels on, or over (as in, shipped on a truck) must legally be registered with the DMV, regardless of if it will be run on public roads, or not. California's car culture has resulted in large race tracks on private land which may be the only place some motorcycles and other racing vehicles will be used. Still have to pay the car tax on it though.

What if cars are imported to a California port, for sale in other states? Do they all need to be registered as soon as they arrive?

Transported by trucks that do pay road taxes

That's a fairly contentious subject. Yes, fuel taxes often pay for roads; but they also are used for other purposes, as well as to incentivize behavior. Trying to reduce carbon output? Make carbon-based fuels more expensive to purchase, and let the market optimize for alternatives.

I'm more upset about them not paying for the minerals they dig up. We've let a lot of money out the door for very little return.

I can't talk for anywhere else, but historically in the UK, all tax went into a central pot. More recently cigarette tax is earmarked for the NHS and VED (Vehicle Emission Duty [thought of popularly as Road Tax]) is ear marked for transport improvements. I'm not a fan of this - as a cyclist I was often told (at least a few times a year) but drives that I should get of the road as I dont pay for it. Ignoring the fact that I owned two cars and paid a lot of tax...

That seems to be specific to the UK. In most places I've looked into this, taxes on things like fuel and cigarettes do not go into the general fund. The reason is the taxes are meant to achieve something, and so they go towards that purpose. Otherwise it would present a corrupting influence that misaligns the incentive of the government going forward.

In the US, fuel taxes are earmarked for road building and repair, but aren't enough to pay for them at either the federal or state level. That completely ignores the negative externality of carbon emission.

Meanwhile, in a few states, cigarette taxes are actually targeted at the negative externality: health problems, including secondary smoke.

So I guess it depends on what you want to achieve. Failing to tax a negative externality like carbon emissions would seem to be corrupting influence that misaligns the entire economy.

I came across them too, I usually respond that they are paying for damage to the road their car causes. Bikes don't.

It really should be for offsetting the externalities from burning fossil fuels _and_ wear on the road, so if you burn it, you clean it up.

At least in the US, fuel taxes only partially cover road costs. Even if they did, fuel taxes hit more than just vehicles on roads (boats, lawnmowers, etc.) so it’s not that clear cut

"Isn't the point of a fuel tax to pay for road repairs"

Depends on the country.

In the UK it just goes into the big tax pot. That obviously doesn't stop various groups claiming they pay for the roads. Comments normally aimed at cyclists.

And in the UK, tractors are exempt from (may be just a reduced level?) fuel duty, they can still use the road though.

UK Renewable energy production is still subsidised by Contracts For Difference. What happens is the government says OK, for this power we're willing to pay extra. Bid for how much you want. Some offshore wind farm builder might say OK, pay us £65 per MWh in 2020. No better offers in that category (low risk zero carbon power)? OK. Every MWh you generate in 2020 the electricity grid pays whatever they'd pay for gas or coal or anything else, then, the difference between that and £65 per MWh is from the government. Maybe the grid pays £20 right now, subsidy is £45. But, maybe the wants every amp they're paying £95 right now, the government gets £30 back from the wind farm.

CFDs make investors comfortable. Wind farms are expensive, what if we take out a loan to build this expensive wind farm and only get £15 per MWh we'd go bankrupt. If the government promises £65 we're profitable so long as we build that wind farm. CFD bidding also drives down costs, if your rival will take £35 the government may not accept your bid.

It’s worth noting that ‘established technologies’ have not been eligible since CfD round 2 in 2017. This includes onshore wind, solar PV, energy from waste with CHP, hydro (>5MW and <50MW), landfill gas and sewage gas technologies. [1]

From phase 1, roughly 670MW of onshore wind and about 75MW of solar were supported. [2]

[1] - https://www.ashurst.com/en/news-and-insights/legal-updates/u...

[2] - https://www.gov.uk/government/publications/contracts-for-dif...

Fair.

On the other hand, what is there to subsidise? For onshore wind in particular, the remaining role of a CfD at competitive prices would be solely consistency/ predictability. I think the Private Sector would like to believe they can compete effectively in offering that.

If I were a UK government that wasn't trying to eat its own tail over Brexit (so this is pretty hypothetical) I'd be focused on storage. People are going to build on-shore wind farms because they make sense. I need to subsidise figuring out how to smooth out the system load, or else all the wind farms in the world won't help me.

Why is subsidizing corn a bad thing? Honest question.

It distorts the market by incentivising corn farming. Want to know why so many US farmers grow corn, lobby for bio ethanol fuel laws, and why an ungodly amount of US food is based on corn and corn byproducts (e.g. high fructose corn syrup)? Corn subsidies.

It sucks because high fructose corn syrup tastes worse than sugar for a lot of people too.

The corn monoculture in the United States is so pervasive, we hardly notice it—especially for someone like me that's lived under the regime my entire life (I'm in my mid-30s). It's caused us to use corn in places where other materials may be more optimal—for the environment, our health, and even economically—if it weren't for subsidies.

I know someone who has a severe corn allergy (or reaction of some sort). He has to be careful even purchasing "fresh" non-corn vegetables at the supermarket, as they are often coated with a corn-based preservative.

Reminds me of this thread: Corn is not a food, it's a platform.

https://twitter.com/SwiftOnSecurity/status/10748100434957967...

If most of the world's practical alternative to US corn is palm oil and other cheap slash and burn crops - abandoning corn won't be good for the environment.

Is that the case, though?

It distorts the market so you get things like high fructose corn syrup drinks instead of sugar -- which, BTW, has high tariffs to protect domestic growers -- while consumers would probably prefer sugar drinks if they had a real choice.

HFCS is common not just because of corn subsidies, but also because of sugar tariffs. The US has very high protective tariffs for our domestic sugar industry, which makes sugar more expensive in the US relative to the rest of the world. HFCS steps into that price differential.

Because too much is grown, at meh quality, and so we end up with byproducts like HFCS (instead of cane sugar) or cheap animal feed because farmers aren't responding to market demand.

We might also note that many farmers grow types of corn bred and genetically tweaked such that it's not even really fit for human consumption but rather maximizes properties ideal for industrial processing.

> HFCS (instead of cane sugar)

Minor suggestion but the more realistic alternative is beet sugar, which is far more local to most of North America and Europe. Cane sugar is typically a more expensive imported thing, at least in much of the US and where I currently live in Europe.

As I understand it beet only makes economic sense if you can process it where it's growing or nearby. The transport costs are so much higher (less sugar dense plant? not sure why) that cane producers will out-compete you unless you get rid of that problem.

Flip it around. Why is subsidizing corn a good thing?

It's great if you're trying to win a PR show against a cold war rival and bankrupt them. That was the original purpose of the USDA including roads, marketing, and subsidies.

These days its mostly because Iowa has an outsized role in our elections.

Not just PR. To have a stockpile of carbohydrates in case of Total War.

It's better to produce too much food and keep it cheap than to risk a shortage and have people starve.

In nature nothing is ever produced in a vacuum. There is a bill to pay for overproducing and the effects are coming for us.

I know you are alluding to climate change, but paying money for security is perfectly fine.

The US produces far more corn than is needed for a secure supply of human food for the US population.

Or immigration.

Besides the benefits to American agriculture and rural industry - cheap corn offers the world an environmentally better option compared to the alternatives of palm oil and other slash and burn crops.

I imagine if food production was not subsidized, much of it would naturally move to other countries with cheaper labour forces.

The USA doesn't want to be dependent on other countries for basic goods like food; imagine if there was an "OPEC" of food in 1973 and they decided to cut off the food supply to protest US support of Israel.

I'd rather tariff external corn than subsidize internal corn. That would mean we make enough to support ourselves but don't pay tax dollars to support someone selling their corn to other countries.

Most agriculture is not particularly labor-intensive now. We have robot tractors and ploughs and industrial scale feedlots and slaughterhouses. The average farmer cultivates over 300 acres, and that number is distorted downwards by large numbers of family farmers. Pure agribusiness can cultivate many square miles with basically no people.

The exception are soft fruits like strawberries, avocados, or apricots, where harvesting them mechanically will bruise them beyond what a consumer's willing to eat. These are luxuries, not staples, though. Things like wheat, corn, and other grains get harvested by giant machines and require little labor input.

It's still cheaper to export those machines to Brazil or something and have someone poorer drive the tractors and combine harvesters around and maintain them. No winter either so the utilization would be higher.

Not when you figure in transportation costs. Food is perishable, bulky, and labor-intensive to ship. Even with modern automated railroads and containerization (which aren't necessarily present in countries with cheaper labor), you can very easily spend more in transit than you do in growing & harvesting the food.

Sure, for labor-intensive crops, you might think that.

But the US doesn't subsidize labor-intensive crops.

Farming is very fossil fuel intensive.

Growing it to feed humans is fine. But that's a tiny sliver of the overall market. Then some if it gets made into HFCS, which is not good. Even more of it gets fed to cows, which is not good (they should be eating grass), and which have (not good) climate impacts of its own. And some of it even gets converted into fuel, which is downright dumb. Basically it's a massively subsidized crop which would never be grown at this scale without tremendous market distortion by the government. (To say nothing of the fact that it destroyed an entire ecosystem in the midwest.)

> And some of it even gets converted into fuel, which is downright dumb

Honest question, why is that dumb? Seems to be that would be the "correct" way of producing fuel, as it's zero-net-carb.

Growing the corn requires fertilizer, which is produced from oil, it requires irrigation and water, and it requires large amounts of land, all of which can be put to better use growing food for humans.

I wonder how much of US corn subsidies exist because Iowa is so important to getting elected President?

The biggest corn subsidy in the US is ethanol for vehicles. It can take as much as 2 gallons of gasoline to produce a single gallon of ethanol, so this is just insane. This was a known fact before the subsidy was passed and was an incontrovertible fact after it was passed, and yet it is now impossible to stay elected in the US and talk about rolling this subsidy back.

So it is absolutely horrible. (Fortunately car batteries are getting insanely good and this probably will likely fix itself.)

> It can take as much as 2 gallons of gasoline to produce a single gallon of ethanol, so this is just insane.

You got a source for that claim because wikipedia says it has a energy return on investment of 1.5:1 [0].

[0]: https://en.wikipedia.org/wiki/Corn_ethanol

It distorts the market, leading to suboptimal allocation of resources.

If you stopped subsidizing corn... meat price will go way up.

This is good for the environment.

In what concrete ways do we subsidize oil?

Intangible Drilling Costs to start.

https://www.investopedia.com/articles/07/oil-tax-break.asp https://www.americanprogress.org/issues/green/reports/2016/0...

Why do governments subsidize oil + corn?

Because some very rich people control a whole bunch of it, and they're very, very good at getting their way.

Because foreign corn is too competitive, too cheap, and pull the rug out from local farmers. It's a short term solution to a long term problem.

Well, if you want a free market then let them pull the rug if they cant compete and spend the money more wisely.

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