[Graeme]

IMF: Want to fight climate change? Get rid of $1.9 trillion in energy subsidies.

What’s the simplest way to tackle global warming? Make sure that fossil fuels are priced properly and not subsidized.

That’s the core idea behind a large new report (pdf) from the International Monetary Fund, which argues that the world “misprices” fossil fuels to the tune of some $1.9 trillion per year.

Eliminating these subsidies, the IMF argues, and replacing them with appropriate carbon taxes could cut global greenhouse-gas emissions by 13 percent, curtail air pollution, and shore up the finances of many poorer countries now in debt trouble.

So let’s take a closer look at the IMF’s numbers. Energy subsidies, the report argues, come in two very different flavors:

–$480 billion in direct subsidies for consumption. This is what we typically think of as “fossil fuel subsidies.” In 2011, governments around the world spent some $480 billion to lower the price of petroleum, natural gas, coal, and electricity for their citizens.

–$1.4 trillion in “mispricing.” This is the trickier part of the analysis. The IMF report argues that governments should be taxing fossil fuels appropriately in order to take account of the air pollution and climate damage they cause. Standard economic models peg these “externalities” at about $25 per ton of carbon dioxide. So, the failure to price these fossil fuels correctly amounts to a subsidy of some $1.4 trillion worldwide.

Once this is taken into account, the countries that subsidize fossil fuels most heavily are the United States ($502 billion per year), China ($279 billion per year), and Russia ($116 billion). Here’s how it breaks down by region:


The IMF’s Carlo Cottarelli has some more commentary on how to phase out energy subsidies here. His bottom line? “Eliminating energy subsidies is not impossible.”

washingtonpost

[Plantagenet]

the countries that subsidize fossil fuels most heavily are the United States ($502 billion per year), China ($279 billion per year), and Russia ($116 billion).

I can understand how countries like China subsidize fossil fuel use---the Chinese national oil companies buy oil at the market price and sell gasoline at below market prices within China. And oil producing countries like Mexico and Saudi use their own oil production to subsidize selling gas cheap and under market prices within their own borders.

But how does the US subsidize fossil fuels? Gas, Oil and Coal are all sold at market prices within the USA, and the "tax breaks" for US oil companies don't come to anything like 502 billion per year.

[kiwichick]

plant

it's called climate change; powered by GHG emissions

cost; infinite

[Plantagenet]

plant

it's called climate change; powered by GHG emissions

cost; infinite

OK--I get that---but look at the data. China's GHG emissions are larger then those of the USA, but the IMF says their fossil fuel subsidy is smaller.

Why is that?

[dissident]

The IMF leaves out the most important subsidies and those are the tax breaks for the fossil fuel industry itself. Here in Canada they are over several billion per year thanks to the coddling of the Republic of Alberta and other provinces. This Canuck analogue of Texas is now in the red thanks to all of the charity for corporations.

Instead, the IMF, being a good little corporate bootlick, focuses on consumers as the source of the problem. It's hard for consumers to turn to alternative energy when the market is skewed to serve entrenched fossil fuel interests. But this is heresy to the IMF. The IMF should go and help raid Cyprus bank deposits again and of course push some "austerity" aka sell off to corporations for pennies on the dollar.

[Beery1]

But how does the US subsidize fossil fuels? Gas, Oil and Coal are all sold at market prices within the USA...

LOL. Are you joking, or are you really that blinded by your dogma?

[Plantagenet]

how does the US subsidize fossil fuels? Gas, Oil and Coal are all sold at market prices within the USA...

Beery---you might be gullible enough to swallow everything the IMF says, but the IMF (and the IEA and EIA) have been wrong so many times on peak oil and other energy issues it might be wiser to question authority when they make yet another pronouncement.

So I think I'm asking a reasonable question. Apparently Beery can't answer it---does anyone else know what in heck the IMF is talking about?

Where is the 500+ BILLION DOLLAR subsidy for fossil fuels from the US government? How much is it? How does this imaginary subsidy that doesn't appear anywhere in the federal budget reduce the cost of fossil fuel energy to US consumers?

When Saudi sells oil on the open market for $120/bbl and then provides gasoline for its citizens within Saudi Arabia for 49 cents a gallon then you see the subsidy. When China buys oil on the market and one price and then delivers it internally at a lower price, you see where the government of China is spending to reduce the cost of energy to its citizens, i.e. you can see the subsidy.

But the US government doesn't produce or purchase oil and then sell it internally at a lower cost like Saudi or China do. The US government doesn't underwrite or subsidize the cost of any fossil fuel that I'm aware of. Oil, NG, coal are all produced by private companies and sold and marketed at whatever price they are currently priced at in the open market. Thats why the price of gasoline in the USA goes up and down as the price of oil goes up and down on the world market---there are no US government subsidies setting prices or controlling prices or reducing prices for fossil fuels in the USA.

There are large federal subsidies paid to private companies for production corn ethanol, but thats not fossil fuel.

[Pops]

Blind Dogma


In the US I don't think there are any big subsidies that show up as a line item somewhere. The off road exemption for farmers makes sense, they don't use roads, the assistance for poor people that keeps them from freezing makes sense, the SPR makes sense.

But there are lots of giveaways not even counting the cost of opening up new markets like Iraq, protecting pipelines and oil fields worldwide, highway subsidies here at home of perhaps $12B/year, etc. Then there is the Halliburton Loophole, deferral of taxes on overseas income, the Domestic Production deduction, last-in-first-out accounting and of course the capital gains giveaway, blah blah. I'd link all of those but you can look them up if you want.

Republican rank and file think the oil companies should be taxed more but of course congressmen of the R variety don't vote that way because the oil cos filled their coffers $273k to $7k for Ds in 20ll.

So it is the same old story, the little guy pays while the big guy pockets the fare.

[Pops]

[Plantagenet]

Pops---I don't doubt that there are tax breaks for the oil industry, just as there as tax breaks for banks, farmers, home owners, the internet, manufacturers, ethanol, etc. etc. etc. For instance, I think exploration companies get to write off part of the cost of drilling wells.

But most numbers I've seen put the tax breaks for the US oil biz at a much much lower number than the 500+ Billion the IMF is claiming. The number I remember is maybe 2-3 billion a year of tax write-offs--or about the amount Obama is spending on the Obamaphone welfare program.

For instance, if you look closely at the infographic you posted that supposedly details these subsidies to the oil biz, you see that some of the "subsidies" that it is complaining about don't actually exist----if you read the text on the right side of that infographic it says that subsidies were in bills that WERE NEVER PASSED.

That means some of those supposed horrible subsidies that we supposed to be outraged about don't actually exist.

[ralfy]

The amount in subsidies goes up because according to the article the report includes $1.4 trillion in "externalities."

[Pops]

The graphic is what it is, that doesn't diminish the benefit gained by the oil cos from the Cheney EPA Clean Water Act exemption does it?

Or that they receive an tax break under the domestic production act that was designed to encourage manufacturing in the US - how, I'm wondering, would Chesapeake for example be able to extract Bakken gas without doing it in the US? Sounds like a bought and paid for 9% write off to me.

Or what advantage it is to the US citizen when refiners purchase oil at say $70/bbl in march and $90 in December but are able to pretend they paid $90 for all purchases, all year? The LIFO dodge assumes the cheapest purchase stays in inventory, it gips the US $72B a year and 80% of that gift is to oil cos.

[Plantagenet]

The LIFO dodge assumes the cheapest purchase stays in inventory, it gips the US $72B a year and 80% of that gift is to oil cos.

LIFO (Last in First out) is just an accounting measure.

Yes...if an oil co. buys $70 oil in Jan and $90 oil in March and then sells some, for accounting purposes they assume they are selling the $90 oil first. But if they buy $90 oil in Jan and $70 oil in March, then they get dinged for MORE taxes under LIFO because they must sell the $70 oil first.

Its like blaming high oil prices on evil speculators----folks love to blame high high oil prices on evil speculators, but when oil prices go down the evil speculators never get the credit.

You can't just look at the worst possible scenario and assume that is what occurs all the time when the opposite situation also occurs. Sometimes LIFO helps the oil companies---sometimes it hurts them.

[vision-master]

greedy speculators

greed·y (grd)
adj. greed·i·er, greed·i·est
1. Excessively desirous of acquiring or possessing, especially wishing to possess more than what one needs or deserves.
2. Wanting to eat or drink more than one can reasonably consume; gluttonous.
3. Extremely eager or desirous: greedy for the opportunity to prove their ability.

[rockdoc123]

In this sort of analysis it is important not to just look at what tax breaks oil companies make but also at what tax they pay directly and what income tax is directly attributable to the jobs they have created, what sales tax has been collected in various states as a consequence of purchase of everything from mud to steel, what land taxes have been paid for long term leases in various parts of the US. The trickle down economy is also worth looking at. How much service industry is directly attributable to oil companies being around and spending? How much income tax, goods and service tax, business tax is directly attributable to that service industry? You can't just look at one part of the equation.

Also last time I looked oil and gas companies are still in a business that has one of the lowest return on capital profiles in the world. Compare their return on capital with companies such as Apple or Google and you would wonder why the gov't isn't trying a tax grab from someone who is actually making windfall profits rather than from an industry that is returning around 5 - 6% annually.

[Pops]

LIFO (Last in First out) is just an accounting measure.

LOL, kind of an understatement, plant. There is no time frame as long as the inventory number doesn't fall:

Many companies using LIFO are pricing a good chunk of their inventory at prices of decades ago....

Yeah, these five US Big Oil Corps’ Inventory was stated on their books at LIFO Cost of $27.4 bil, which was a massive $54.8 bil less than the $82.3 bil of Actual Current Cost of their Inventory.

Thus the way I do the quick math, results in a Total US Federal Income Tax Loophole received by these five US Big Oil Corps through the end of 2011 of 35% US Federal Income Tax Rate times this $54.8 bil difference, or Total Tax Loophole of a massive $19.2 bil.

Some Blogger Who Sounds Knowledgable

The thread is about the consequences of GW and how to mitigate and you are arguing the typical conservative line about freedom to make all the money one can regardless of consequences.

Which, of course is why GW won't be addressed via subsidies, taxes, regulations or any other political method with the help of conservatives because the right does not accept responsibility for how they make money, how it affects anyone else even their own children, only that they have the "freedom" to make as much as possible and pay as little tax as possible.

The tax code is full of these types of scams and I'm sure Apple gets their share. If I was boss I'd eliminate them all and institute a simple progressive tax.

And, I'd slap a big fat excise tax on FFs that increases each year until we have a thousand year R/P ratio.

[Plantagenet]

The thread is about the consequences of GW and how to mitigate and you are arguing the typical conservative line about freedom to make all the money one can regardless of consequences.

??

I haven't said a word about "freedom to make money" or anything like that.

I've simply questioned the IMF claim that there are over 500 BILLION DOLLARS of subsidies in the US federal budget for fossils fuels. Where are the giant subsidies for fossil fuels? What in heck is the IMF talking about?

The LIFO you mentioned is an IRS accounting rule---in some cases it will save the oil companies and money and in some circumstances it will cost the oil companies more money. For instance, when the oil companies sell the cheap "first in" oil they have to pay MORE taxes then they would if they accounted for it some other way. LIFO hardly a subsidy---its no more favorable or unfair than other IRS accounting rules such as those for the manufacturing industries that regulate how the tax code deals with excess inventories, write-downs, etc. or the IRS rules set up for individuals, mutual funds, etc. covering long term stock profits, short term stock profits, stock loss sales, stock wash sales etc.

If you are concerned about unfair IRS rules tilting the playing field to help certain favored companies, check out GE, and especially Google and other tech companies who have jiggered the tax code so they make billions in profits and often pay ZERO taxes.

[Shaved Monkey]

I've simply questioned the IMF claim that there are over 500 BILLION DOLLARS of subsidies in the US federal budget for fossils fuels. Where are the giant subsidies for fossil fuels? What in heck is the IMF talking about?

The US military

[Plantagenet]

these five US Big Oil Corps’ Inventory was stated on their books at LIFO Cost of $27.4 bil, which was a massive $54.8 bil less than the $82.3 bil of Actual Current Cost of their Inventory.

Thus the way I do the quick math, results in a Total US Federal Income Tax Loophole received by these five US Big Oil Corps through the end of 2011 of 35% US Federal Income Tax Rate times this $54.8 bil difference, or Total Tax Loophole of a massive $19.2 bil.

That "loophole" isn't real. Oil companies aren't taxed on the value of their inventory. They are taxed on their PROFITS when they sell inventory.

When an oil company sells old oil inventory that they obtained at, say $30 bbl, for $100 in todays market they have to pay MORE TAXES, because they just made $70 bucks in paper profits. The IRS LIFO accounting rule makes sure oil companies have to pay the MAXIMUM in taxes on the old oil---their taxes would be much less if they were allowed to reprice old inventory upwards to match current oil prices before selling it.

[ralfy]

More details can be found in the report, which is linked in the article.