Last week, the IMF put out a report, How Large Are Global Energy Subsidies? It found that worldwide, we subsidize the energy companies (mostly fossil fuels) to the tune of $5.3 trillion per year. Okay, okay. Brad Plumer is right that these are not actual subsidies. All this money is just an externality. If it were taken into account, some of it would result in lower profits but some of it would result in high prices. But even Plumer noted that worldwide, the fossil fuel industry gets $500 billion in direct subsidies — and that doesn’t take into account all the externalities that benefit them.
The externalities matter a great deal. They distort the energy market. They make clean energy sources like solar far less competitive than they would be in a properly functioning market. It makes sense to subsidize new technologies and infant industries. But it makes no sense whatsoever to subsidize mature industries. It is a sign of nothing but the use of economic power to distort the political process. In fact, here in America it is hard to find a rich person who doesn’t owe large parts of her fortune to one kind of government welfare or another. So the idea that solar energy has some unfair advantage is rubbish — it’s just the opposite. And nuclear power — after all these years — still requires subsidies.
At Vox last Friday, David Roberts wrote, Fossil Fuel Companies Impose More in Climate Costs Than They Make in Profits. It is about another recent study by Chris Hope that looked at the various companies in the years 2008 through 2012 to see if they were profitable if the externalities were included. It turns out that they aren’t. In fact, for coal companies, the costs were ridiculously high: “varying between nearly $2 and nearly $9 per $1 of revenue.” The cost was not nearly as high for oil companies: taking into account the cost of carbon represented between 10% and 50% of their total revenue.
The problem with these studies is how exactly we account for the future damage that is done by these emissions. We can’t assume that carbon pollution today will always harm us. Carbon dioxide is eventually removed from the atmosphere after all. Hope assumes a 2.3% per year decrease in the cost of it. This is quite reasonable. Assuming a 33 year half life for carbon-dioxide in the atmosphere, my calculation is that a 2.1% per year decrease should be consistent with this. So he is assuming less of an impact that I think is reasonable.
What’s shocking about Hope’s findings is how they lay all the blame on our corrupt political system. It is only now that solar is becoming competitive with fossil fuels. But if it hadn’t been for the direct subsidies and the extreme externalities, solar would have been profitable long ago. And that’s not to mention all the other effects of “cheap” fossil fuels like resistance to efficiency and conservation.
What we’ve had instead, is a system designed to hurt the vast majority of people for one purpose alone: enriching the already rich. To personalize it, we’ve allowed the rich Koch brothers to get even richer. And they’ve used that extra money to buy more influence to skew the economic system even more to get more money. The question is not just how much longer we will allow this to go on — it is how much longer we can allow it to go on.