Pennsylvania

With so much focus on the US federal budget deficit, it is easy to forget that the directed legislation, subsidies, and political bias plaguing our national government exist at the state and local levels as well.  While this certainly complicates the process of trying to figure out who is getting what, Pennsyvlania Fossil Fuel Subsidies: An Overview, written by Christine Simeone at PennFuture, highlights that greater transparency is possible everywhere.

The report documents some of the long-lived biases in state tax codes that favor fossil fuel production and consumption.  For example, though nearly all goods and services have to pay a sales tax, fuel purchases don't.  This is clearly a subsidy that encourages more consumption.  Industry sometimes argues that fuels already pay too much relative to other industries.  Too often, however, those comparisons overlook the fact that many of the fuel taxes are not for general revenue purposes, but rather to pay for fuel-related infrastructure (e.g., roads), problems (mine reclamation or fuel tank cleanups), or in some cases even resource rents on the fuel being extracted. 

PennFuture's findings on taxes are generally in line with multi-state work done in the early 1990s by Joe Loper, then with the Alliance to Save Energy.   Loper's analysis is still among the best work I've seen on state-level energy subsidies.  He estimated that reductions or exemptions for energy from state sales taxes alone was worth $18 billion (1992$) per year.  At the time, rate reductions were highest for the residential and industrial sectors, and for gasoline.

There is probably room for dialogue on how to treat various tax exemptions in the subsidy tallies.  For example, if a particular fuel charge is earmarked entirely for roads, I wouldn't view agricultural exemptions as a subsidy so long as the vehicles using the fuel are used only on private roads.  In contrast, agricultural exemptions from fuel charges linked to general revenues or amelioration of fuel-ralated problems such as tanks would be a subsidy.  Another interesting issue involves governments exempting themselves from fuel taxes or charges, something the PennFuture report calls attention to.  The issue of "self-charging" comes in many forms:  not paying rent for space in public buildings or for services provided by other government agencies; getting discounted power from municipal utilities (an issue in my town); or not paying fuel taxes on energy used during government business. 

While at first blush instituting full cost recovery seems like a complicated way simply to have government pay itself, that view misses the core value of price signals.  Because governments compete with others (including other parts of the government) for space, energy, or other resources, charging full price is a necessary part of proper cost accounting and decision-making for government managers and for the taxpayers who fund them.  Full prices ensure governments see the proper incentives to invest in demand-reduction options (be it smaller offices or more efficient appliances), and that they contribute their fair share of public spending on energy-related clean-up or infrastructure.  It's useful to remember that corporations routinely charge different parts of their organization full price on required inputs for quite similar reasons.

What is striking about Simeone's listing of subsidies (see table below) is not just that a single state could potentially have tax subsidies favoring the use of conventional fuels of close to $3 billion per year, but also that PennFuture didn't do much to identify and quantify the many other non-tax subsidy mechanisms that exist in the state.  Pennsyvlania, for example, allows the use of waste coal to qualify under its renewable portfolio standards (albeit at a lower tier, and called "alternative" instead of "renewable").  PA is also an old coal state, and studies of TN, WV, and KY have found subsidies to coal roads and mine cleanup were large and continuing sources of government support to the fossil fuel sector -- spending that in some situations actually resulted in net losses to the state on coal operations.  Looking in more depth at some of these additional forms of support would seem a useful task for subsequent work.

Kudos to Sierra Club and Synapse Energy Economics for taking a look at coal subsidies.  In a report released yesterday, the authors highlight the disparity between Administration goals to cut greenhouse gases and continued federal policies that subsidize coal. 

The paper is a great first step into an area that has not gotten enough attention.  I hope it will be a conduit to more analysis and transparency of this important issue.  I'd like to see a systematic review of the growing array of subsidies to carbon capture and storage, of particular benefit to coal plants.  More work as well is needed on coal-to-liquids technology, an area that in the past even (then-) Senator Obama has sought to include in federal renewable fuel standards. 

More resolution on state-level support (following on this work in Kentucky) would also be helpful, and should include states such as Pennsylvania that include coal bed methane as a top tier resource in their "advanced energy portfolio standard" and waste coal as a second tier resource.   Finally, more work to evaluate the impact of the current suite of subsidies on the economics of new investment would be extremely useful.

Fundamental policy questions need to be answered.  Even if one accepts as given that coal will be part of the energy equation for some time to come, should that imply that we should subsidize it's place at the table?  If a main benefit of many renewable energy technologies is that they are low carbon, doesn't subsidizing the cost of handling carbon in the coal sector rather than letting the full cost flow through in market prices go directly counter to the country's energy transition goals?  This core issue relates not only to CCS subsidies, but to potentially even larger windfalls through grants of emissions credits under the various cap and trade scenarios.  Finally, if the industry itself doesn't think greenhouse gas emissions are a game-changing event requiring a massive research and retooling program, why should taxpayers foot the bill?