Is Petroleum Subsidized More Than The Electrified Vehicle Industry?

Critics of plug-in vehicle subsidization observe consumers and manufacturers get favorable treatment over the conventional vehicle space and while arguably true, one might also ask how things compare to what the oil industry receives year after year.

More pointedly, one could also ask whether accusations against alternative energy subsidization are a byproduct of vitriolic politics in a country without a unified energy policy yet with a long history of subsidizing all sorts of industries and special interests.

But it’s clear that producers – automakers, battery companies, others – and consumers alike are eligible for federal and in cases state and local incentives, tax breaks, subsidies, and more. What’s been elusive is quantifying or qualifying actual costs for plug-in vehicles versus the incumbent petroleum-based industry.

With U.S. gas prices now relatively lower, and new oil and gas sources having decreased petroleum imports to 33 percent according to the U.S. Energy Information Administration, some consumers pay little heed to these and related details.

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But if this is the case, they are afforded this luxury in part because the paradigm in this society based on oil is heavily underwritten and has been for decades.

Meanwhile others question whether taxpayer dollars spent on hopeful alternatives – or even sacrificed on bets like Solyndra and Fisker – are worth it for the U.S. to transition away from near-exclusive reliance on petroleum.

During the last presidential election opponents to Barack Obama chided him as not just picking winners and losers, but that he really was adept at picking losers.

Today we still hear echoes from 2012 repeated on what a taxpayer boondoggle alternative-energy transportation is, so let’s highlight just some of the issues surrounding money thrown at preferred industries and what society stands to gain or lose.

While of necessity touching on politicized issues, this article takes no position on specific policy, nor does it side with any party. The focus will instead be an attempt to raise some salient issues within practical space limitations.

Subsidy Briefly Defined

Investopedia defines “subsidy” as:

A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.

 
Further, subsidies can come in many direct and indirect forms but they amount to savings or compensation for a certain group – such as oil companies, or electric car buyers or start-up companies, and so forth.

Definitions can vary as to what clearly constitutes a subsidy and the broadest defining scope simply asks whether a group or entity gains or loses due to policies in place. This is particularly true of the oil industry, and estimates range broadly depending on who is counting what benefits.

Reasons For Plug-ins

The U.S. consumes two-thirds of its oil presently on transportation. Reasons for weaning away from an energy source President George W. Bush once said America is “addicted to” are varied and include something for everyone.

Environmental – Battery powered vehicles like Nissan’s Leaf or Tesla’s Model S emit no greenhouse gas and rely on electricity that can be renewably sourced and generally cleaner.

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Among others, the International Energy Agency said last fall globally fossil fuels are being subsidized more than renewables and a shift in policy is yet needed in light of climate change.

It said by century’s end the world’s temperature could rise 3.6 degrees Celsius increasing risk of serious storms, drought, rising sea levels and dire consequences beyond.

“The huge subsidies fossil fuels enjoy worldwide gives incentives to their consumption, which means that I’m paying you to pollute the world and use energy inefficiently,” said Fatih Birol, IEA chief economist November 12.

Energy Security – Battery electric cars are powered by domestically sourced energy. Gasoline and diesel vehicles use a commodity whose price is set on world markets, outside of U.S. control, and which costs billions in military protection annually to help keep supply and prices relatively stable.

Even if the U.S. did produce 100-percent of its own oil the world market price could still mean it is not cheap. Presently prices are dropping because the OPEC cartel is reportedly driving down petroleum’s market rate to try and hurt the U.S. oil and gas industry, not because the U.S. is oversupplied.

Anne Korin, co-director of the Institute for the Analysis of Global Security (IAGS) who advocates fuel choice – plug-ins being just one type – says dependence on strategically important oil is like when nations once needed salt for the preservation of food. Before improved preservation techniques and eventually refrigeration came along, salt was of strategic importance and nations dictated policy around this vital commodity and even went to war over it or decided where to colonize based on its availability.

Korin attributes the salt dependence solution to Napoleon who recognized his army’s vulnerability. The emperor offered a prize and within 10 years a French chef devised canning that made salt far less a matter of a national security risk.

Today, Korin observes, the U.S. and other nations so dependent on petroleum’s monopoly are just as vulnerable as nations of old that lacked salt. One might see significant irony in this: For all the sophistication represented by today’s internal combustion vehicles and the society that is so proud of them, their fuel represents an Achilles’ heel and effectively backward state of affairs likened to a geopolitical dilemma from the 18th century.

And, experts note, the stakes may even be higher today. In a 2006 testimony to the Senate Foreign Relations Committee – recommended to us by Korin – Milton R. Copulous, president of the National Defense Fund Council observed nations will go to war over oil. Even in peacetime petrodollars wind up in the hands of terrorists and drug cartels.

However, oil is needed and Copulous said a supply disruption could tally into the trillions showing another irony: For anyone who is pro plug-in and detests oil, you may want to call it evil, but it is a necessary evil if so. The world runs on the stuff, and there is no getting around it yet, but plug-ins and other alternatives do pose a latent solution at least in potential.

Economic Leadership – The U.S. also once signed off on bipartisan-sponsored bills allowing for the limited $7,500 federal consumer tax credit for PEV purchases on the theory that this would prop up a global technological advantage.

SEE ALSO: Does The $7,500 Plug-In Car Tax Credit Need Reform?

Other first-world nations are working on electrification of transportation, and it was recognized the industry needed a jump start in the face of the entrenched oil industry.

Oil Industry Subsidies

Believed-reliable estimates on what the oil industry receives annually in the U.S. vary from $10 billion to $52 billion.

Discrepancies can depend on what is counted as a subsidy and there is disagreement obviously on what to count.

The bulk of these incentives amount to tax breaks and giveaways according to Oil Change International, an advocacy “exposing the true costs of fossil fuels.”

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Five major producers counted are BP, Exxon, Chevron, Shell and ConocoPhillips. Beyond these a host of smaller but still substantial “independent oil companies” which round out a significant production volume in the neighborhood of 50 percent.

Counting the financing of overseas projects by the U.S., Oil Change International estimates $37.5 billion per year in subsidies go toward highly profitable companies that others would call “corporate welfare” to enable them to continue producing carbon.

One NGO, Earth Track, run by Harvard-educated Doug Koplow who was interviewed for this story figures $52 billion per year goes to the fossil fuel industry. This estimate counts costs of defending pipelines and Persian Gulf shipping lanes.

Ironically again, while Obama has been blamed for subsidizing the PEV industry, another consequence of his policies have sent more dollars per year to the oil industry.

Since Obama took office, the federal government under the “All of the Above” policy has increased subsidies for fossil fuel exploration and production from $12.7 billion in 2009 to $18.5 billion last year – a 45-percent increase.

The U.S. oil and gas boom has been the recipient and Oil Change International says this “amounts to nothing less than climate change denial.” Obama has tried every year to cut oil industry subsidies but Congress allegedly influenced by campaign financiers and lobbyists has never entertained ending these perks to the oil industry.

Hidden Costs of Oil

As touched on above, associated costs with staying reliant upon one fuel type is a far more complex equation than today’s price of gas at the pump. Extra costs are known by economists as “externalities.”

An negative externality is cost born by others because of a benefit received by someone else.

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Taxpayers and citizens also bear costs annually to the climate, local and global environment, and to physical health, among other concerns.

Most subsidy estimates do not factor these indirect costs which can vary between billions of dollars to potentially the end of civilization as we know it and the loss of millions of lives.

That sounds extreme, but depending on whose viewpoint you listen to, climate change is either a “scam” and a “hoax” or humans are doing untold damage to the environment that no actuary could reasonably tie a dollar amount to.

"ISIS is largely financed by private donations from the Gulf states Qatar and Saudi Arabia. Other sources of funding include the oil fields in northern Syria, as well as systematic extortion," says dw.de.

“ISIS is largely financed by private donations from the Gulf states Qatar and Saudi Arabia. Other sources of funding include the oil fields in northern Syria, as well as systematic extortion,” says dw.de.

Less controversial are aforementioned military costs around the world, occasional wars, as well as human health disorders including respiratory illnesses like asthma and major diseases like cancer.

In 2009 The New York Times reported the National Academy of Science pinned health related costs at $120 billion per year worldwide from burning fossil fuels.

For the U.S., military costs run many times this depending on estimates.

Subsidies for PEVs

Plug-in car buyers are eligible to apply for a $7,500 federal tax credit. It’s been estimated that if 100 percent of this were captured and maxed out for every manufacturer eligible for 200,000 PEVs each, it could cost $15 billion over several years in federal tax revenues.

Since many PEV buyers are not eligible because of their tax situation to claim the full credit, the actual dollar amount will be less.

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Beyond this, various states offer incentives of up to a third of the federal tax credit, but pinning a dollar amount on this has been elusive.

On the local level, various consumer perks amounting up to the hundreds or low thousands of dollars exist, such as credits to residents in certain California regions, as well as by utilities there and in other states such as Georgia and elsewhere.

SEE ALSO: Which States Offer The Best EV Incentives?

To manufacturers, Obama offered $2.4 billion in federal grants and up to $400 million for PEV infrastructure. Monies have also been allocated for charging stations partially or wholly subsidized for consumers.

Critics could make the case that the plug-in industry is taking more than the hybrid industry once did such as a $3,400 tax credit from the Bush administration in 2005 for the most efficient hybrid cars that expired end of 2010.

But all told, year after year, the total dollar amount toward the yet-tiny PEV industry is far less than the lowest $10 billion annual estimate toward the oil industry.

Externalities to the environment, climate, and health are less. And, military expenditures to defend U.S. electricity supply and pricing overseas, of course, are not an issue.

To be sure coal does pollute and emit greenhouse gases but the Union of Concerned Scientists figures the dirtiest grids powering EVs says these net less emissions than average gas cars and most grids are far cleaner.

SEE ALSO: Is Electricity a Clean Energy Source?

By 2040 the IEA estimates almost half the world’s energy will be by renewable sources.

Payoff So Far

Since December 2010 when the Nissan Leaf and Chevrolet Volt were launched and only a handful of PEVs had been sold, the U.S. purchase tally has been brought to over 320,000.

The standard $30,000-some battery electric car with 80-some miles range is due to be replaced by similarly priced second-generation EVs with 200-plus mile EPA-rated range.

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These are the Chevy Bolt, Nissan Leaf, and Tesla Model 3. Automobile magazine also reported Ford may introduce a similarly priced and specified dedicated EV for that same timeframe as well, but this is not confirmed.

This progress of more than doubling range happened inside of six years. Cars powered by batteries have not seen year-over-year increases as Moore’s Law dictates for the computer chip, but progress and momentum have been significant.

So government investments – not to mention efficiency mandates and corporate will – do appear to be paying off.

Further, there has been a spillover effect cascading benefits into the world of conventional internal combustion vehicles.

Tricks like regenerative braking and on-board batteries used for simply powering accessories and saving gas engines are a byproduct of the move toward electrification.

Meanwhile battery labs around the world are working on the next big leap.

In sum, there are always costs in shifting society. Yes the nascent PEV industry is being subsidized, but so is the mature oil industry – far more, and then you have the extra costs born.