Oil Subsidies are Not Smart Spending

Oil as a combustible fuel is a 19th-century improvement on the 18th-century paradigm of burning coal to produce steam to run industrial machinery. The efficiency and portability of carbon-based fuels, in terms of the built-in energy they can store and which is released when they are burnt, has long been the driving factor in their popularity as an energy source. But new technologies are now making it possible to produce large amounts of portable energy sustainably, with none of the atmospheric damage resulting from the burning of carbon-based fuels.

In 2008, the five most profitable companies in the world were oil companies, their annual profits ranging from $20 billion to over $45 billion. No commercial entity in the history of humanity had ever made such immense profits. In 2009, two of the top 5 were banks, largely because oil companies’ profits had fallen as prices came back down to earth. In 2010, it again looks like oil companies were the most profitable businesses on the planet. They do not need subsidies to survive.

The United States government provides over $40 billion in subsidies, in the form of direct funding and tax credits, to oil companies. This is money that is designed to make it easier for those companies to provide cheap fuel to the people of the United States, something they are basically failing to do. Prices remain high, even as the companies in question ask for more subsidies and continue to rake in record profits.


Only 38 countries in the world have government budgets larger than $40 billion. Argentina, one of the wealthier countries in the developing world, with a population of 40.7 million people, does not spend that much on running its entire government. In fact, there are 192 nations that spend less on running their country than the United States does in free giveaways to the most profitable companies in the world.

Does this make any sense? Supporters of the oil subsidies say the oil companies are profitable, yes, but that without these subsidies, they could not be. That is, usually, the logic of providing subsidies to businesses: they provide a needed service and so we need to support them. But let’s look more closely at this idea, with respect to oil…

What if the removal of those subsidies would mean the oil industry is not profitable? That would seem to suggest the entire logic of the industry —that it’s the cheapest, best way to produce energy— is a lie. Even if we are not concerned with that, we might argue that we could use just enough in subsidies to make oil profitable, maybe even very profitable, without having to donate tens of billions of dollars to making companies that would not know how to make a profit without getting free taxpayer money the most profitable in history.

In short:

  • The $40 billion in subsidies are immensely wasteful
  • 192 nations spend less running their countries than the US does funding big oil
  • The industry should, by now, be mature enough to make its own money
  • If it is not, there is no way to justify the record profits it takes in

If fiscal conservatives in the United States are serious about cutting the federal budget in ways that will be constructive for building long-term prosperity and eliminating fraud, waste and abuse, it seems clear that giving enough money to oil companies to fund the world’s 39th largest government is not something they should be doing.

We could save whole agencies, avoid cuts to the Centers for Disease Control and Prevention, avoid cuts to home heating fuel cost assistance to underprivileged seniors, avoid depriving the infant children of low-income mothers of baby formula, avoid eliminating funding for public broadcasting (that’s media that belongs to you and me, not to multinational corporations).

We could make sure veterans’ benefits are not cut, as is proposed in the House Republicans’ “cut to grow” budget proposal. We could actually support the hard work of innovation being done by small business start-ups and entrepreneurs, instead of just telling them to fend for themselves. We could assist those entrepreneurs by making sure they have access to the best quality of publicly funded research, so they are not boxed out of the marketplace by ultra-wealthy multinationals with an interest in slowing the pace of progress.

We could expand funding for student loan programs, transportation infrastructure and the development of the much-needed renewable energy sector and smart grid, and we could do all of this without spending the $40 billion handed out to oil companies.

Where is the ideology in opposing these subsidies? What principle of American conservatism says the most profitable multinational corporations in the history of humanity should have the largest subsidies as well, even as the government plans to systematically roll back services and benefits people across the country have worked for and rely on?

Is it conservative to tell senior citizens they don’t need to have medicine, because ExxonMobil wants to add a few billion dollars more to its bloated profit statement? Is it conservative to tell working mothers they need to live in homeless shelters and spend only minutes a day with their kids, because BP wants taxpayers to fund its operations in the Gulf of Mexico?

Is it conservative to tell veterans who have put their lives at risk and possibly suffered serious wounds that they need to give up some of their benefits, or be barred from having sustained treatment for brain injury or PTSD, because the US government needs to ensure that oil companies don’t have to work too hard, diversify or innovate, to meet their quarterly profit projections?

Does any of this make any sense? Will any principled conservative come forward to explain why the United States government needs to devote $40 billion to subsidies for an outdated technology, while the recipients of those subsidies refuse to participate in building a more prosperous, more sustainable future for all Americans?

There’s one thing no one supporting the oil subsidies seems willing to discuss openly, which is that the reduction in those subsidies doesn’t have to deprive Americans of access to affordable energy: the same subsidies can be redirected to alternative energy technologies, and the same companies could participate in that contest for major innovation, and actually earn the subsidies, if they produce the best alternatives.

We need a 21st-century energy subsidy model, which considers the need to innovate, to move away from combustible fuels altogether, to achieve alternatives that, like wind and solar, allow us to dramatically increase the productive potential of the technology, as the technology advances, and leave static energy sources like fossil fuels in the past.

This is the common-sense thing to do. And we should not waste any more money trying to buy back an inefficient past from companies that will not cooperate in building the future. We are better than that. The hard working people of the United States deserve better.

One response to Oil Subsidies are Not Smart Spending

  1. J.E. Robertson

    Coal’s hidden costs top $345 billion in U.S.-study

    BOSTON, Feb 16 (Reuters) – The United States’ reliance on coal to generate almost half of its electricity, costs the economy about $345 billion a year in hidden expenses not borne by miners or utilities, including health problems in mining communities and pollution around power plants, a study found.

    Those costs would effectively triple the price of electricity produced by coal-fired plants, which are prevalent in part due to the their low cost of operation, the study led by a Harvard University researcher found.

    “This is not borne by the coal industry, this is borne by us, in our taxes,” said Paul Epstein, a Harvard Medical School instructor and the associate director of its Center for Health and the Global Environment, the study’s lead author.

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