U.S. Oil Subsidies Fuel Global Warming, Say Analysts

by Danielle Knight

As countries continued negotiations on details of the international treaty to reduce greenhouse gases blamed for increased global warming, Greenpeace and the Industrial Economics, Inc., an economics consulting group, pointed out that the United States government provided between $15.7 and $35.2 billion in subsidies to the U.S. oil industry in 1995.

"Not only do these subsidies divert needed public support for emerging clean energy technologies, but they often make it more difficult for cleaner fuels to compete in the marketplace," said Kalee Kreider, director of Greenpeace's U.S. climate campaign.

While is has been recognized that oil prices do not reflect the environmental costs of petroleum consumption, the report, "Fueling Global Warming, charged that prices do not even reflect the direct costs of petroleum production.

The government also provided $2.3 billion in tax breaks to domestic oil exploration and production. It supported $1.6 billion worth of oil-related exports and foreign production.

"Subsidies to oil are simply too large to be ignored as the world tries to shape a global climate change strategy and address the many competing needs for scarce government funds," wrote Doug Koplow and Aaron Martin, researchers with Industrial Economics.

Most scientists have blamed current warming of the earth's climate on greenhouse gas emissions, including carbon dioxide, caused by the burning of coal, gas, and oil. The United Nations Intergovernmental Panel on Climate Change predicted in 1995 that average global temperatures could heat up by between one and 3.5 degrees Celsius during the next century.

On June 8, the administration announced that, according to government scientists, the average global temperature has been at an "unprecedented" high for the first five months of 1998. The global average for January through May jumped half a degree from the same period a year earlier.

Scientists have also said that 1997 was the warmest year on record and that nine of the past 11 years have set new records for warm temperatures. Over time, these increases can cause changes in climate -- including increasingly frequent and intense storms, floods, heat waves, and droughts.

To address this climate change, industrialized countries drafted a binding treaty in Kyoto, Japan last year which aims to reduce emissions of six greenhouse gases by an average of six percent below 1990 levels. The agreement mandates that these reductions be completed between 2008 and 2012.

Facing political pressure from congress, the United States has not yet ratified the treaty. Not wanting to be held back by congress, Clinton designed a programme to begin the process of reducing greenhouse emissions. These plans included switching energy research dollars toward "cleaner" renewable energy such as wind and solar .

Despite these efforts, environmentalists charge that the federal government continued to subsidize the oil industry and that the "historic bias" in government support against renewable energy remained.

At the end of the last decade, federal subsidies to oil were more than four times higher than those to all renewable energy and energy efficiency sources combined, said Greenpeace's Kreider. The subsidies to all fossil fuels were ten times higher, she added.

Despite reforms intended to reduce tax breaks for oil and gas, the industry continued to benefit from tax subsidies, said the report. Tax breaks for oil exploration and production reduced oil industry tax payments by between 1.1 and 2.3 billion during 1995. Oil companies continued to pay taxes at a rate more than 20 percent below the going or "statutory" level.

Tax credits through the U.S. Export Import Bank and the Overseas Private Investment Corporation provide for U.S.-based oil companies operating overseas provide between $.8 and $1.6 billion per year in subsidies for exports and foreign production, according to the report.

This bias toward fossil fuel impedes real competition by distorting relative fuel prices, said Kreider. While oil industries have argued that the relative high costs of solar and wind mean that these alternative energy sources are not economically viable, Kreider argued that the playing field is not level.

"The viability of these energy alternatives must be evaluated taking into consideration the five to $35 billion in annual subsidies to oil documented in this study, as well as the billions in additional support to other fossil fuels both in the United States and abroad," she said.

"Eliminating subsidies and incorporating environmental (costs) into energy prices are achievable, market-based solutions that can play an important role in combating climate change," she added.