Super Committee Target # 1: Energy Subsidies

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The super committee created by Congress in its latest act of creative genius is charged with coming up with at least $1.3 trillion in spending cuts over the next ten years—or else, across the board cuts hit every category in ways both wonderful and ugly.

As you can imagine the advocates are lined up around the block offering advice or warnings about what can be cut and what had better not be cut. K Street lobbyists are pouring money into the campaign war chests of the super committee members like there is no tomorrow—and there may not be for some of them.  So special interest group are pumping out press releases daily rallying their supporters to lobby the committee.

What we know—and what all these groups fear most—is that it will be necessary to “whack” something from every subsidy and discretionary spending category in the Federal Budget.  And even that may not be enough to restore confidence, unleash hoarded cash and create jobs to get the economy back on track anytime soon.

What about energy subsidies?

The Huffington Post had a recent story entitled “Green Groups Call On Super Committee To Ax Energy Subsidies And Tax Breaks” and, as you suspect, it was a direct hit on subsidies for oil and gas companies as a primary target for the super committee.  The Natural Resources Defense Council made clear where the green groups saw low hanging fruit for the supercommittee by urging the super committee to increase taxes on energy companies—but not ALL energy companies just the “black” energy companies not the “green” energy companies.

Question: Instead of picking winners and losers in this continuous zero sum energy industrial policy game what happens if we cut ALL energy subsidies and tax gimmicks?

Answer: $58 billion over ten years. The sum of all energy subsidies and tax breaks add up to around $58 billion over ten years, $37.2 billion from energy subsidies and $21 billion from oil and gas tax credits.

That $58 billion is rounding error in the $1.3 trillion spending cut target for the super committee. But consider that the $37 billion energy subsidy cost is $19 billion more than was spent in 2007, a 50% increase in spending. Of that $19 billion, subsidies for renewables are $9 billion, a 186 percent increase. Total subsidies for renewable energy now are $14.7 billion. Wind energy subsidies for 2010 total about $5 billion in subsidies up by 10X since 2007. Solar energy subsidies increased 6X since 2007, from $179 million to $1.13 billion in 2010. Biofuels including ethanol grew from $4 billion to $6.6 billion since 2007.

Instead of just going after the subsidies for the black fuels why not stop the cycle of exponential growth in all subsidies by whacking out ALL of them and returning to a level playing field where each technology and each fuel must compete head to head for a place in the energy supply stack?

If the super committee would sharpen its scalpel and do this same thing across every category of Federal spending and subsidies getting to their $1.3 trillion target will be closer but not yet sufficient.

The only way to achieve the spending savings is to stop the growth.  One look at the spectacular growth in energy subsidy spending from 2007 to 2010 tells you how out of control the entire Federal spending mess really is.  We are not going to solve this with half measures or political gimmicks.

We need to redefine the spending terms so that a “cut” is an actual reduction of spending from one FY to the next instead of a slowing of the rate of growth in formulaic spending. But an even better way to redefine a cut is to ‘cut it out’—all of it and focus on reducing the overall tax rates, unleashing the hoarding of cash, simplify the tax code to encourage repatriation of earnings and provide certainty for business and individuals.

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