US House Takes on Big Oil

...Other economists say the industry's federal subsidies are far higher. They average about $39 billion annually if items such as defense of oil lanes in the Persian Gulf, guarding domestic infrastructure like the Alaska Pipeline, and paying to maintain the nation's Strategic Petroleum Reserve are also included, says Doug Koplow, founder of Earth Track, a Boston consulting firm that analyzes natural-resource subsidies.

"There probably is a public interest in government involvement in maintaining security of supply and reducing price, but those costs should be borne by oil markets and not by taxpayers," he argues.

The strategic reserve, for instance, stores about a two-month supply of oil for the nation in salt domes in Louisiana and Texas. Maintaining it costs the nation an average $2 billion or so a year, Mr. Koplow says. Guarding Middle East oil lanes averages about $19 billion a year, he found, which doesn't include the recent surge in spending because of the Iraq war...

Of course, renewable-energy industries also get government help, with ethanol receiving half the subsidies, Koplow estimates. Roughly half of that largesse comes in the form of a tax credit worth 51 cents per gallon to ethanol producers. Overall, ethanol subsidies in 2006 were about $6 billion a year using Koplow's broader definition, which includes federal tariffs, renewable fuel standards, and other factors.

Here, too, energy subsidies distort markets and are a negative for taxpayers and the economy, he argues.

"Right now Congress is giving billions to ethanol, biodiesel, and the nuclear industry," Koplow says. "There may end up being a positive impact on climate change from these. But it may not be the quickest, or the cheapest, way to deal with the problem."