Nov 112014
 November 11, 2014  Posted by at 7:24 pm Finance Tagged with: , , , , ,

Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942

There are things in this world which simply look plain stupid, and then there are those that at closer examination prove to be way beyond stupid. How about this one:

1) G20 taxpayers (you, me) subsidize the fossil fuel industry. That in itself is crazy enough, and it should stop as per last week; industry participants must be able to fend for themselves, or fold. That they don’t, speaks to a very unhealthy level of power in and over our political systems. Subsidizing coal and oil is as insane as bailing out Wall Street banks. It’s money that defies gravity, by flowing from the bottom to the top, from the poor to the rich.

2) Then there’s the huge amount of the subsidies: $88 billion a year. That could solve a lot of misery for a lot of people. It adds up to well over $1 trillion in this century alone. Next time you feel good about prices at the pump, please add that number, it should set you straight.

3) But that’s just the start. Those $88 billion go towards exploration for new oil, gas and coal resources which, according to the UN’s IPCC climate panel, can never even be ‘consumed’ lest we go way beyond our – minimum – goals for CO2 concentrations and a global 2ºC warming limit.

4) And it keeps getting better. For who do you think pays for the research conducted for the IPCC reports? That’s right, the same G20 taxpayer. As in: you and me. We pay for both ends of the divine tragedy. We got it al covered. We pay for exploratory drilling in the Arctic, the Gulf of Mexico and all other ever harder to find, riskier and more polluting resources.

If this were not about us, we’d undoubtedly declare ourselves stark raving mad. Since it does directly involve us, though, we of course favor a more nuanced approach. Like sticking our heads in the sand.

I got that $88 billion a year number from a new report by British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International, The Fossil Fuel Bailout: G20 Subsidies For Oil, Gas And Coal Exploration. The Guardian has a few more juicy tidbits:

Rich Countries Subsidising Oil, Gas And Coal Companies By $88 Billion A Year

Rich countries are subsidising oil, gas and coal companies by about $88bn (£55.4bn) a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change.

The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields.

The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International.

Britain, says their report, proved to be one of the most generous countries. In the five year period to 2014 it gave tax breaks totalling over $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves. A breakdown of that figure showed over $1.2bn of British money went to two French companies, GDF-Suez and Total, $450m went to five US companies including Chevron, and $992m to five British companies.

Britain also spent public funds for foreign companies to explore in Azerbaijan, Brazil, Ghana, Guinea, India and Indonesia, as well as Russia, Uganda and Qatar, according to the report’s data, which is drawn from the OECD, government documents, company reports and institutions.

The figures, published ahead of this week’s G20 summit in Brisbane, Australia, contains the first detailed breakdown of global fossil fuel exploration subsidies. It shows an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico.

“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors.

“This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI.

“The IPCC [UN climate science panel] is quite clear about the need to leave the vast majority of already proven reserves in the ground, if we are to meet the 2C goal. The fact that despite this science, governments are spending billions of tax dollars each year to find more fossil fuels that we cannot ever afford to burn, reveals the extent of climate denial still ongoing within the G20,” said Oil Change International director Steve Kretzman.

The report further criticises the G20 countries for providing over $520m a year of indirect exploration subsidies via the World Bank group and other multilateral development banks (MDBs) to which they contribute funds.

That’s right, as you see in the graph we pay more towards Big Oil’s future profits then the companies do themselves. Without getting shares in those companies, mind you. We pay Big Oil and coal to produce more fossil fuels, and at the same time we pay the UN to publish reports demanding they produce less of them. Feel crazy yet?

Did you have any idea that your government sponsors oil companies with your money, which they don’t need, and certainly shouldn’t? Aren’t we supposed to at least take a serious look at alternative energy sources, and more importantly, use less energy, whether it’s coal or solar? If only to show we do indeed understand the 2nd law of thermodynamics?!

Big Oil, like Wall Street banks, should be, and can, take care of themselves, and very well. May I suggest you try and find out who in your respective government has given the thumbs up to these crazy handouts, and when you do, make sure they’re fired.

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    Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942 There are things in this world which simply look plain stupid, and
    [See the full post at: And Then There’s The Things You Couldn’t Even Make Up]

    Euan Mearns

    Roel, This OECD governments subsidising oil companies thing has been bugging me for a very long while. Below is my understanding / view of things. Appreciate if you can correct me where I go wrong and explain your side.

    The oil industry can be split into maybe 5 parts:

    1. Exploration
    2. Development (building pipelines and platforms)
    3. Production
    4. Refining
    5. Retail

    It is traditional in OECD accounting practices that CAPEX can be paid over the life of the asset (offset against tax initially – you get a big tax rebate that you then repay over time). In the oil industry, exploration costs are counted as CAPEX initially. Successful exploration effort gets charged to profits over the life of the asset. Unsuccessful exploration costs have no asset to charge against and companies are allowed to write down these losses against their aggregate pool of assets. The $88 billion so called subsidy is I believe simply $88 billion of losses that oil companies get to write off against the substantial taxes they pay.

    So what is the aggregate tax bill paid by the oil industry world wide? I don’t know. I hope someone can answer. In the UK, companies producing oil pay something like 65% tax on the oil produced. And then there is an additional 60+% tax paid by consumers at the pump. Virtually all the revenue ends up in the hands of the government – and you are portraying this as a subsidised industry.

    Without the exploration relief there would be no exploration and there would not have been exploration which would mean that you and none of your readers would be here!

    In the UK the renewables industries are running on consumer paid subsidies – ROCs and FIts – paid for mainly by the poor. The oil industry forks out a huge amount of tax that pays for the hospitals and well fare that keeps the poor alive.

    Happy to be corrected if my view of the Orwellian Greenspeaking Gruniad is at fault.

    Euan Mearns

    PS – looking at your $37 billion to $88 billion graphic, I believe it is this way because the ol industry PAYS SO MUCH TAX!

    37+88 = 125
    88/125 = 70%

    It is the very fact that the oil industry pays such a high rate of tax that makes these numbers.

    Euan Mearns

    PPS – in fact I think unsuccessful exploration is treated as R&D – and anyone who knows anything about the oil industry will know that exploration is innovative R&D out of the top drawer.

    I’m not 100% sure of my facts here. But if I’m correct, then the general tenor of the Gruniad is that unsuccessful R&D expenditure should no longer be tax deductible. Good luck to the world with that!

    Roel, sorry about leaning on TAE on this one. I may be wrong. But its an itchy itch that has been itching a long while.


    Government support and subsidies are everywhere. Step right up and get your Obamaphones!

    “The $2 billion a year Lifeline program has handed out more than 13 million free cellphone plans across the country in the first six months of this year. In Colorado, the program handed out more than 117,000 free cellphone plans in the first half of this year, or about 20,000 cellphones every month.”

    Who is getting rich off of this? The cellphone providers who get paid for the service each month AND for providing the cellphones. Plus, “Payouts under the program have shot up from $819 million in 2008, as more wireless carriers have persuaded regulators to let them offer the service.” I bet they have. “Americans pay an average of $2.50 a month per household to fund a number of subsidized communications programs, including Lifeline.” So taxpayers are subsidizing the carriers, all under the guise of helping the poor, which as you’ll see from below is not really happening.

    ““Want to sign up for a free phone?” an agent representing Total Call mobile asked a CBS4 producer. The representative then asked if the undercover producer had a food stamp card, a Medicaid card or any other evidence that he qualified for a phone.

    “No,” replied the CBS4 employee. But one of the cellphone agents then ordered his colleague to “push it through,” by using someone else’s food stamp card to provide eligibility for the CBS4 employee.

    “Did you just use that guy’s food stamp card for me?” questioned the CBS4 employee.

    “Yeah,” responded the Total Call representative. “It’s verification that you are on some kind of assistance program. It’s to get you through.”

    He promptly gave the CBS4 worker a free phone. The Total Call agent said he received $3 for every phone he is able to give away.”

    Let’s sing it all together: “The land of the free and the home of the depraved.”

    Free Stuff From POTUS—–They Are Even Stealing Obamaphones!


    everybody thinks government money is free money, and yet it is everybody’s money in general but nobody’s in particular….make me have fond memories of when the only example anyone could cite was of paying farmers not to grow crops, JUST CRAZY… before tax policy was seen as an economic goody bag to encourage or discourage the activity du jour…strip alll that out of the budget and what is left? i really am curious what that number might be


    The Corporatocracy at work. So firmly entrenched now, it will take a revolution to dislodge it.

    John Day

    Smashing VIX (volatility) by short selling it, has made volatility go negative recently.
    However high the risk (infinite when VIX is negative, I read) this is a really nifty way to juice the stock market up into the close.
    Who would do that?


    Actually, it makes perfect sense from the perspective of peak oil. They want increased discovery and decreased consumption. In a world of scarce oil, that is a survival tactic.


    Ishkabibble, I had a somewhat different thought. The opposite thought actually. Given that the authorities have not been able to stimulate economic activity though extraordinary monetary policy, why not try manipulating the price of the most important energy input artificially low to try to jump start growth again? They won’t stop at anything to hasten a return to growth, will they? Sure it causes pain to the North American suppliers in the near and mid term, but they will have their 15 minutes of fame sometime in the future when those supplies are really needed.



    I doubt that we can say much about this in anything but very general terms. You’d have to know what costs and taxes, including hidden ones, are exactly in play. That said, I doubt even more that the world’s perhaps most politically empowered corporations pay high taxes; it would shatter a well-established pattern.

    Here are some more estimates; they vary very widely:

    Fossil Fuels With $550 Billion in Subsidy Hurt Renewables (Bloomberg)

    Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy, the International Energy Agency said. Oil, coal and gas received more than four times the $120 billion paid out in subsidy for renewables including wind, solar and biofuels.

    Energy Costs – Necessity, Not Folly

    According to the SEEDS model, the total trend cost of energy this year should be of the order of $5 trillion.

    John Day

    Thanks for the insights.
    If the definition of “subsidy” is actually the deduction of a routine business expense, such as exploration, then things make more sense, and become less shocking.
    I can’t find a definition of “subsidy” in relation to the oil industry.
    It’s the critical piece, huh?

    John Day

    I’m not certain that this IEA statement about definition of “subsidy” for fossil fuels is the right one, but it derives implied-subsidy from the difference between aggregate consumer cost, minus a calculated “market cost”, based on theoretically derived virtual markets in various areas.
    The subsidy numbers given here appear a bit different, but maybe it’s raw/unfiltered.
    That’s pretty fancy.
    It looks like any government support of transportation infrastructure, like railroads, roads, shipping and pipelines, would count as a subsidy.
    Over subsidies like price controls for gasoline in Iran and Venezuela sure count
    This analysis makes it look like the implied subsidies are set up in a way to favor economic activity in general. So far, total economy rides fossil-fuel use pretty closely, from what I have seen.
    Applying subsidies to certain parts of any economy might help avoid economic collapse/reset and/or revolution.

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