The Economist, Fossil Fuel Subsidies and ‘Climate Disaster’

By Andy May – Re-Blogged From

I’ve been a subscriber to The Economist for years. It is one of the few mainstream media publications I still read. But, I found a very annoying article in the October 1, 2016 issue. The title and link are “Notes from the undergrowth.” It starts out with a false assertion that is easily debunked, but often stated:

Media myth #1

“DESPITE deluges in the South, droughts in the West and fires throughout national forests this year, the words “climate” and “change” have seldom been uttered together on the campaign trail.”

The UN World Meteorological Organization (WMO), Nature magazine, and the IPCC all have said extreme weather cannot be reliably linked to climate change.

From the WMO:

“There were fewer deaths, even while exposure to extreme events increased as populations grew and more people were living in disaster-prone areas. According to the 2011 Global Assessment Report, the average population exposed to flooding every year increased by 114 per cent globally between 1970 and 2010, a period in which the world’s population increased by 87 per cent from 3.7 billion to 6.9 billion. The number of people exposed to severe storms almost tripled in cyclone-prone areas, increasing by 192 per cent, in the same period.”

Yes, you read that correctly. There were fewer deaths, even though the number of people exposed to serious storms increased.

From the IPCC SREX report on climate change and extreme weather:

“Long-term trends in economic disaster losses adjusted for wealth and population increases have not been attributed to climate change, but a role for climate change has not been excluded…”

Hardly an endorsement for man-made extreme weather. Here is another quote from the same report:

“There is medium confidence that some regions of the world have experienced more intense and longer droughts, in particular in southern Europe and West Africa, but in some regions droughts have become less frequent, less intense, or shorter, for example, in central North America and northwestern Australia”

Finally, from the Nature editorial:

“Better models are needed before exceptional events can be reliably linked to global warming.”

So, pretty easy to completely destroy the initial statement of the article. But, we aren’t through yet, later in The Economist article we read the following:

Media myth #2

“An important step [toward lowering carbon dioxide emissions] was unveiled last year: The Clean Power Plan. This proposes the country’s first national standards to limit carbon dioxide emissions from power plants … Legal challenges from fossil fuel groups and two dozen mostly Republican-led states saw the Supreme Court put it on hold …”

This is almost true as written, but very slanted. There are only 50 states and 27 of them are against this plan by the President and the EPA, an agency that has no congressional oversight. Thus a majority of the states and the Supreme Court ruled against it. We are a republic with a division of powers. The Economist continues:

“Mrs. Clinton is vague about how she would pay for [green energy], but slashing fossil-fuel subsides could be part of the answer. Such handouts came to nearly $38 billion in 2014.”

There are very few, if any, fossil fuel specific subsidies in the United States. The most recent and well researched study of energy subsidies in the US is by the EIA, it was completed in 2015. According to this EIA report total federal energy subsides for energy in the US declined from $38B in 2010 to $29B in 2013. So The Economist mixed up total energy subsidies in 2010 with fossil fuel subsidies and got the date wrong. Of the $29B, the EIA claims 12% went to fossil fuels and 68% went to renewables, including hydropower, nuclear, solar and wind. The remaining 21% went to energy assistance for low income families, mainly through the LIHEAP (Low Income Home Energy Assistance) program. It is interesting that the EIA has computed that fossil fuels produced 84% of the energy consumed in the world in 2012. They forecast that in 2040, fossil fuels will still produce 78% of the world’s energy. In 2012, excluding nuclear, renewables (including biofuels which are mostly wood and dung) produced 12% of the world’s energy. Table 1 summarizes the subsidies discussed in the EIA report.


Table 1, 2013 energy subsidies according to the EIA

The so-called fossil fuel subsidies

Most of the fossil fuel “subsidies” listed by the EIA are not specific to the fossil fuel industry. They are not direct payments to the companies, government loans, industry specific tax “loopholes,” mandates to buy fossil fuel products, or tax deductions for purchasing fossil fuel products (except possibly the alternative fuel mixture deduction, which expired in 2013 anyway). The much larger subsides to wind, solar, and biofuel companies include all of the above. The EIA totals $3.4B in fossil fuel subsidies. The 2016 G20 US self-assessment of fossil fuels tabulates a total fossil fuel subsidy of $8.1B (page 16, Table 1). But, they include LIHEAP and the domestic manufacturing deduction which we consider invalid.

The EIA report only includes what they call “financial interventions and subsidies” that are provided by the federal government and targeted specifically at energy. This seems logical, fossil fuel subsidies or energy subsidies should not include general tax provisions like the domestic manufacturing deduction. This deduction, often listed as a fossil fuel subsidy, is for all manufacturing companies. Gasoline, diesel, ethylene, etc. are manufactured just like cars and televisions. They do not include this provision in this list and they shouldn’t. Also not included are accelerated depreciation (except for the 15-year natural gas pipeline rule), local infrastructure projects like highways, and state and local incentives to get businesses to move to a specific location.

There are other tax provisions often called subsidies, that the EIA wisely did not include. One is the foreign tax credit, especially the dual capacity rule. Another is the publicly traded partnership, used by pipeline companies, cable companies and real estate companies. These are available for all companies and are widely used outside the energy sector. These tax provisions are obviously not energy subsidies. They are large amounts, so they are often used to pad the headline subsidy number.

State and local incentives are not included either. These are mostly for renewable energy. A lot of the local incentives are conservation oriented.

Finally, often lumped in as a subsidy are various safety funds, like the Black Lung Disability Trust Fund, the Nuclear Waste fund, the oil spill liability trust fund, etc. The various funds listed here (there are more listed in EIA report) are funded by the affected industries and have no budgetary impact. Including them (as some do) is the same as taking the payments made by the energy sector and calling them subsidies. How does a company subsidize itself?

Arguing that the tax law favors oil and gas is a little silly because according to the New York Times corporate tax database (2007 to 2012) ExxonMobil, Chevron and ConocoPhillips paid the most taxes overall. The overall average tax rate for the S&P 500 is 29%, oil and gas companies pay 37%. They do not provide numbers for coal, unfortunately. You will see people twist and distort these numbers to fit any agenda they like. The NY Times database is pretty complete and includes all taxes actually paid, so I tend to believe it over other statistics I’ve seen. Some try and say taxes do not affect corporate decision making, which is total nonsense, the NY Times article also makes this point. Reading about this makes one see the wisdom of a flat income tax with no deductions at all.

Of the EIA total fossil fuel subsidy of $3.4B, $0.5B is from the IRS deduction for costs spread over the productive life of a well or mine. The percentage depletion deduction has been in the tax code since 1926. It is available to all mining companies (gold, copper, iron, etc.), small oil and gas companies and royalty owners of oil and gas properties. It is not available for large integrated oil and gas companies like ExxonMobil. Calling this general deduction, that large oil and gas companies are not permitted to use, a fossil fuel subsidy takes big cojones. Under some circumstances, the percentage depletion allowance can exceed the costs of a well or mine. This was deliberate on the part of Congress; they did not want small wells or mines shut down just because of our tax laws. Most wells and mines in the US have very low rates of production and would be closed if this tax provision were eliminated.

Another $0.5B is due to expensing of exploration and development costs, this includes intangible drilling costs (engineering, site preparation, research, etc.). These are legitimate business costs that every other business is allowed to deduct. This provision has been in the tax code since 1913. Again, as with the percentage depletion deduction, large oil and gas companies are specifically singled out to receive a reduced deduction. This is analogous to the development cost for a new drug. The pharmaceutical industry is allowed to deduct research and development costs. It is extremely difficult to call this a subsidy.

The credit for investment in clean coal costs the government $0.2B. This can reasonably be counted as a fossil fuel subsidy. It is specifically for the coal industry. It is the same as wind or solar subsidies, just much smaller.

Other so-called subsidies include treating natural gas pipelines as 15 year properties, amortizing geological and geophysical expenses over two years (equivalent to research, enjoyed by every company), treating coal royalties as capital gains (they aren’t?), and partial expensing of mine safety equipment. These total $0.3B. None sound like a subsidy.

My favorite fossil fuel subsidy is the “Alternative fuel mixture credit” of $0.4B. This applies to natural gas and hydrogen fueled vehicles. I guess it could be called a subsidy and part of it, probably the largest part, is for natural gas. This provision expired at the end of 2013.

In 2013 there was a temporary tax deduction still in effect that allowed 50% expensing of some refining equipment. That amounted to $0.6B. It expired at the end of 2013.

The tax provisions that are called coal subsidies are all related to deductions for installing pollution control equipment or enhancing mine safety. These add up to $0.8B. These are not provisions I would call subsidies, they are reasonable cost recovery for following government regulations.

The largest so-called fossil fuel “subsidy” is the Low-Income Home Energy Assistance (LIHEAP) welfare program. Obviously, in the northern United States winters energy is a life and death matter. When it is 40 degrees below zero outside you need heat to survive. If you live in the north, on the next windless cold night, think about that. I’m sure you will be in favor of fossil fuels then. This is worth $5.4B, more than all of the “subsidies” listed above. The EIA correctly did not call it a fossil-fuel subsidy, but many do. LIHEAP applies to all sources of energy, including renewables.


It’s sad when a major news publication writes an article containing “media myths” that are so easily proven wrong. Unfortunately, this is occurring with increasing frequency. Googling “climate change and extreme weather” on my computer resulted in 4,630,000 hits. Glancing through these shows that many of them state something imprecise, unfalsifiable and non-quantitative like “some extreme events seem to be increasing and this might be due to climate change.” Or, like the EPA, “climate change is increasing the odds…” Quantitative studies like Roger Pielke Jr’s, show that there is no data to support the idea that extreme weather has increased in frequency or severity. As he says, this media-myth of a connection between extreme weather and climate change is “Zombie science.

These subsidy claims are actually an indictment against our tax laws. They have become so complex that they can be twisted to support any conclusion. This is the real problem and the tax laws are way overdue for reform. The bottom line is that fossil fuel companies (at least the oil and gas companies) pay more in taxes than the average S&P 500 company and they are getting few, if any, special tax breaks. The fossil fuel companies get no government loans, loan guarantees, guaranteed prices, or special tax breaks for any of their products. The only energy companies that get targeted subsidies are wind, solar, biofuel and other renewable energy companies.


4 thoughts on “The Economist, Fossil Fuel Subsidies and ‘Climate Disaster’

  1. It always astounds me that people will make up their minds first, and then cherry pick facts as hard as they can rather than be open to data.

    I don’t want to “believe in Climate Change”. It’s not good for me for it to be true.

    But the data is so undeniably overwhelming, that to pretend otherwise, is to lie to oneself.

    Why lie to oneself?

    On all such propositions, it is useful to first ask yourself “what would it take to convince me my position is wrong”. Set a fair threshold for your ability to be convinced. That can break up ones inherent biases. (Neuro-cognition being what it is, humans are hard to get to change their minds.)

    If one admits that “nothing can change my mind” or “only overwhelming evidence that is unlikely to exist can change my mind” – you aren’t being good to yourself, and there is no conversation to be had.

    But good decisions come from best available data, and best available options. In this case, the best available data are very strong.

    It also amuses me that Conservatives, who often rely upon the wisdom of markets and the cumulative cunning of business, are so happily ignoring that most businesses are moving to green power, energy efficiency, and business-proofing against climate change.

    If most businesses are willing to actually bet today’s money against tomorrow’s potential climate change, what should that do to inform Conservatives about the wisdom of the market?


  2. Mark, you have it backwards here. The evidence in no way proves that Catastrophic Anthropogenic Global Warming is occurring (just as it doesn’t prove it is not occurring).

    There are many reasons that the case is not proven, and I’ll touch on only a few here.

    * The data insufficient, unfit for the purpose, and manipulated.
    …. Insufficient The US is the only country with anything like a comprehensive measurement history. Most countries have spotty or short historical data – 3rd world countries have had bigger fish to fry than setting up satisfactory stations nationwide. There are no stationary weather stations covering the 3/4 of earth’s surface that is water. Stations have been deleted from the official climate record with no reason being given, so that now there are only 1221 stations to cover the US’s 4 million square miles – much lower coverage elsewhere. Satellite & radiosonde routinely is disregarded since it doesn’t support the party line on CAGW.
    ….unfit for the purpose Over 90% of official US stations flunk the government’s own requirement for station siting (see The stations at airports never were designed for climate, only to give the local conditions for pilots. As airports have gotten busier (more planes & tarmac), temperatures of course are higher than before without CAGW. Similarly, towns and cities have grown mightily oveer the years, and the concrete, etc warms the cities’ temperatures without CAGW – this is the well documented UHI Effect. (BTW, records show that high temperatures in the cities are almost unchanged but the lows have risen due to UHI.) Comparisons of rural, suburban, and city tends show that rural trends are significantly lower, suburban in the middle, and city trends are rising the fastest. UHI is real but ignored by Alarmists. Missing data points are infilled with homogenization using other stations as far away as 1200 km (like filling in Kansas from New Orleans data). Also, keep in mind that the precision of the weather stations do not allow the precision derived from the data – this goes to a basic understanding of significant digits in math.
    ….manipulated: Data needs to undergo QA. Once that’s done, adjustments should be few and far between, and a reasonable person would expect post QA adjustments to be both trend increasing and decreasing. The GISS adjustments, including adjusting 1930s data, always seem to raise the trend – recent temps go up while older temps go down. The recent Pause-Buster adjustment of ocean temps raised higher quality recent Argo readings to conform to older, lower quality buoy and ship bucket readings. The proxy data also is manipulated, as for example both Mann’s and Briffa’s Hockey Sticks, dependent on single magical trees, hockey stick generating algorithms, and splicing station measurements where a continuation of the proxy would have shown a reversal of the trend.

    * Correlation is not proof of causation. There used to be a tongue in cheek stock market theory based on the correlation between stock indices and women’s hemlines. just because temps & CO2 are going up at present doesn’t mean that CO2 causes higher temps (there is much evidence that higher temps cause more CO2 and the historical record shows CO2 following temps). Yes, there is the (misnamed) greenhouse effect of CO2 et al, but that’s only with “All else being equal.” There is much reason to believe that the earth has natural means by which it keeps global temps within a narrow band (see

    * The CAGW case is based entirely on the Models. Put simply the models, which are just the embodiment of how the modelers think things work are… crap. They do a lousy ob of hindcasting, and the data following their future forecasts is dismal. Actual data compared to models’ predictions are outside the 2 standard deviation bands (data lower than models). The “Pathways” chosen by the IPCC also are jokes, from the inappropriate algorithm for choosing the sensitivity to CO to the near impossibility of the higher pathway figures. Again, there is a lot more.

    * If the Alarmists are right, then why do they have to lie? Why do they have to suppress the opposing view (ClimateGate anyone)? Why do they attack the people finding opposing results rather than addressing the actual data?

    * The data show that so far, and likely for several more decades, higher CO2 has benefited mankind. Why are the benefits never considered by the Alarmists – like greater food production and fewer people freezing to death? Why do they blame CAGW for the first Major Hurricane in 11 years to almost hit the US mainland? Why do they ignore that loss of life and inflation adjusted property damage from tornadoes & hurricanes are down? If we can expect our grandkids (and later) to be richer than we are, then what’s the rush to devastate our Economy by outlawing fossil fuels rather than letting richer future generations, with better technology, adjust to any ill effects why may or may not actually occur?

    There is so much more to say, but this already is too long. Suffice it to say that the Alarmists have NOT made their case. What it would take for me to change my mind is for them to make the case so that I can decide.


    • “Le mieux est l’ennemi du bien. (The perfect is the enemy of the good.)” — Voltaire

      The question is not whether the data collection is perfect, or the collection sites are perfect. The issue is best available data, and whether that data has a systematic bias. (I grant that causation and correlation are not the same thing – but so what, if we know the difference?)

      Fortunately, those who ignore the best available information and science are in the minority in the world, and in the increasingly minority political party in the US. 🙂

      I do not like what the data is showing me. On the other hand, even if the data and the resulting conclusions are incorrect, I don’t see an overall downside. If we can power our economy with renewable energy and without damaging the environment, that’s OK.

      It’s a massive change to elements of our economy, and I don’t underestimate that. Largely to coal (at this point). But fracking and additional oil exploration are going to undermine coal anyway. (Did you see what I did there?)

      Our manufacturing sector will still need and benefit from petrochemicals for manufacturing, but the balance shift will not hurt more than some sectors of the American economy. And that sort of creative destruction is simply part of a dynamic economy.

      (Whether we help or abandon the participants in those sectors of the economy, depends greatly on whether the next President and Congress are predominantly Democrats or Republicans. If the former, their hardships may be more effectively addressed.)


  3. Data is data. Models are not data. Opinions are not data. Official proclamations are not data. A say so of somebody in authority is not data. Only data is data.

    I’ve seen analysis of actual data. What have you seen that you believe is data?

    As for insufficient data, the term speaks for itself. Insufficient data is … insufficient. That it’s the best data available is beside the point.

    But let’s play the game. Please explain why the temperature rise from the mid 70s to around 2000 was caused by CO2 while the roughly equal trend rise from 1910 to 1940 was not – the CO2 rise only became significant around 1950.

    From the none so blind department, California, much of Europe, Southern Australia offer major examples of the economic damage stemming from switching from reliable, dispatchable fossil fuels (and Green-hated nuclear) to unreliable, non-dispatchable Wind and Solar, which by the way require fossil backup to prevent blackouts. How can you switch to unreliable energy sources – at double the price and more – and not disrupt the Economy big time?

    Please stop blindly accepting the Party Line and actually think about the ramifications of this lunatic policy.


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