The optimal position for your industry in any tax reform is to see general tax rates drop while also keeping all of your old subsidies. The political lobbying on these bills is enormous, and given the scale of the energy sector in the US economy, and the need to transition towards lower carbon fuel sources, it seemed important to look at the tax reform proposals through the lens of energy.
fossil fuel subsidies
PJM Interconnection is a regional transmission operator (RTO) serving more than 60 million customers in 13 states and the District of Columbia. The service region is centered in the mid-Atlantic region of the United States. Incumbent base load generators within PJM have complained that subsidies to renewable resources have been cutting their ability to win capacity market auctions, stripping them of revenue, and harming them competitively. They have been proposing adjustment factors that would improve their competitive position by adjusting bid prices to exclude the subsidy.
1) Earth Track congressional testimony. Read Earth Track's testimony to the Subcommittee on Energy of the Committee on Energy and Commerce, U.S. House of Representatives: Federal Energy-Related Tax Policy and its Effects on Markets, Prices, and Consumers.
2) New work on subsidies: US public lands, European coal, Asian fossil fuels.
In yesterday's confirmation hearings for Rex Tillerson, the former ExxonMobil CEO stated that
'I'm not aware of anything the fossil fuel industry gets that I would characterize as a subsidy... Rather it is just the way the tax code applies to this particular industry.'
You can review the relevant testimony, and commentary on it by Oil Change International, here.
The mysterious Q Division in the James Bond movie franchise was always on hand with inane, though coldly effective, inventions that would save Bond and defeat even the most diabolical enemy. In the magic of the movies, a bit of public money directed towards the R&D staff of the British Secret Service always seemed to save the day.
The steep decline in the world oil price in the last quarter of 2014 slashed fuel price subsidies. Several governments responded by announcing that they would remove subsidies for one or more fuels and move to market-based pricing with full cost recovery. Other governments took advantage of low world prices to increase taxes and other charges on fuels. However, the decision to move to cost recovery and market prices, ending budgetary support, has not been implemented consistently across countries.
Understanding who benefits from fuel price subsidies and the welfare impact of increasing fuel prices is key to designing, and gaining public support for, subsidy reform. This paper updates evidence for developing countries on the magnitude of the welfare impact of subsidy reform and its distribution across income groups, incorporating more recent studies and expanding the number of countries. These studies confirm that a very large share of benefits from price subsidies goes to high-income households, further reinforcing existing income inequalities.
Here's hoping that 21 will be the magic number, and there will be real progress on a global agreement to constrain greenhouse gas emissions at COP21 meetings now underway in Paris.
G20 country governments are providing $452 billion a year in subsidies for the production of fossil fuels. Their continued support for fossil fuel production marries bad economics with potentially disastrous consequences for the climate. In effect, governments are propping up the production of oil, gas and coal, most of which can never be used if the world is to avoid dangerous climate change. It is tantamount to G20 governments allowing fossil fuel producers to undermine national climate commitments, while paying them for the privilege.
I'll say right up front that I am not an unbiased observer of this particular effort by OECD to tabulate support measures to fossil fuels. I've collaborated with Ron Steenblik, one of the project supervisors, for decades at this point; and with project manager Jehan Sauvage since his early days of deciding to enter the bizzarre-but-fascinating world of energy subsidies. I also contributed directly to the 2013 version of the Inventory.