US Government Policy: Fossil Fuels vs Renewable Energy

While renewable energy has made impressive strides in the US over the last couple of years, the reality is that we continue to live under a government that is actually not vested in seeing renewable energy take off, and continues to remain an avid supporter of fossil fuels. Our politicians go where the money is, and while there is great promise and potential in renewable energy, the killer profit is still in the oil, coal and gas industries.

image of Fossil Fuel emissions

The danger in this situation is that supporting fossil fuels not only hurts our environment, it creates a none-level playing field for the developing renewables industry. In addition to the fact that globally the fossil fuel industry gets subsidies of around $400 billion annually, while renewables get only around $60 billion, private investors also take cue from government policy. Wavering government support both in the US and Europe has made private investors wary of investing into renewable energy, because at the end of the day they want to realize maximum profits with minimal risks. From that perspective, the fossil fuel industry (movie FUEL), which continues to be heavily supported by governments worldwide, remains to be a highly attractive investment opportunity. This combined lack of investment and government support make it next to impossible for the renewable energy industry to become competitive with the heavily subsidized and more mature fossil fuel industry. And yet this is the miracle that the world expects the renewable energy industry to deliver.

Perhaps, the saddest part of the story is that the American public is often misled to believe that renewable energy is at best not viable, and at worst actually wastes taxpayer dollars and contributes to loss of jobs. Popular media outlets tend to emphasize problems and failures in the renewable energy sector, while giving very little air time to the industry’s many successes. If renewable energy is to have any real future in this country, the government needs to be on board, and the citizens need to be informed to demand action from the people in power who represent them.

US government supports fossil fuel industry

We castigate many countries like China for their polluting production practices and lax environmental laws, and yet without blinking an eye, the American government subsidizes the most polluting fossil fuel industry and completely lets it off the hook for a number of environmental costs, which include toxic waste in our water. A fossil fuel subsidy is any policy that lowers the cost of fossil fuel energy production, increases the price received by energy producers or lowers the price paid by energy consumers. Overall, subsidies to the domestic fossil fuel industry are estimated to be around $10 billion plus annually.

Subsidies currently in place include tax breaks and giveaways, loans at favorable rates, price controls, purchase requirements and more. It is important to note that the largest subsidies to fossil fuels are written into the U.S. Tax Code as permanent provisions. On the other hand, many subsidies for renewables are time-limited initiatives implemented through energy bills, all of which have expiration dates that limit their effectiveness in helping the renewables industry grow. It is no wonder that renewable energy cannot compete with fossil fuels, given such blatant favoritism for the latter in our government policy.

It begs the question why one of the wealthiest industries in the world needs such heavy subsidies? Last year, the three biggest U.S. oil companies took home more than $80 billion in profit. Whenever the price of oil goes up, and prices at the pump go up, and every American family’s budget is strained, the oil companies make a killing. Research shows that every time gas goes up by a penny, these companies usually pocket another $200 million in quarterly profits. Meanwhile, oil companies pay a lower tax rate than most other companies on their investments, partly because they are getting billions in tax giveaways every year.

President Obama’s efforts to decrease subsidies for fossil fuel companies have been shut down by the Republican – controlled – House. In his most recent call to cut subsidies to fossil fuel companies because they are perfectly able to stand on their own, Obama proposed the roughly $2 billion a year in tax breaks and subsidies for oil companies to be used as a source of revenue for clean energy development. The procedural vote of 51-47, which failed to reach the needed threshold of 60 in favor, killed the measure.

At the same time, “green” US companies have to struggle and get leftovers from the BIG-Oil table, and very promising innovations such as Electric Vehicles, Algae, Bio-Fuels, etc. are left in the dust.

Obama criticized for supporting domestic renewable energy industry

While the Obama administration has been particularly supportive of the renewable energies industry, providing it with generous subsidies and opportunities for growth and development as part of pursuing a diversified energy policy and creating more jobs in a struggling economy, the president has gotten slammed with criticism and negative press for his commitment to renewable energy. In fact, because of the 2012 presidential election, renewable energy has become a hot polarizing issue. The strings of bankruptcies declared by US solar manufacturers (many of whom were subsidized under the Obama administration), closing factories and lay-offs have been used by the Republicans as a beating stick against Obama every chance they get.

One such bankrupt solar company – Solyndra – which once used to be Obama’s poster child for American renewable energy industry success, has gotten the most bad press. The company has been investigated by a Congressional Republican Committee, and has publicly become synonymous with government waste. On his campaign trail, Mitt Romney paid a secret visit to Solyndra’s headquarters and gave a talk there accusing Obama of cronyism and misusing the taxpayers’ money to fund failing enterprises of the President’s friends. Overall, Republicans attack Obama’s energy policy, accusing it of contributing to high gas prices and stunting domestic oil development.

The truth is that a large part of American political class, which essentially includes the entire G.O.P., is deeply invested in the fossil fuel industry and derives massive profits from continuing their support. As a result, this political class is actively hostile to alternatives, using both direct political power, as well as indirect media influence to ensure that subsidies to the fossil fuel industry remain intact, while renewable energy lags behind as an “unrealistic” alternative. What we as citizens need to know is that while today our tax dollars go towards making more money for oil, gas and coal companies, our children will be paying a hefty price by having to deal with the grave environmental consequences of our decisions.

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