One of the pretenses of right-wing energy policy is that conservatives support a “level playing field,” upon which energy sources can compete without subsidies. Let the market decide!
As I have written many times, this is a juvenile notion. Markets are powerful tools for directing private capital and innovation, useful in the right circumstances. But the idea that there ever has been, or ever can be, an open, unbiased, “free” market for energy sources is a fantasy that should stay in the college library with the Ayn Rand novels. It is analytically inert; it does nothing to illuminate whether current markets are working or help us decide how best to use markets to serve our greater goals.
The fundamental reason the “free market” ideal is unhelpful in energy is that it’s impossible to ever truly settle what is and isn’t a market-distorting subsidy. Some subsidies, like explicit cash grants or tax breaks, are easy enough to identify, but beyond that there is a whole complex world of implicit subsidies.
If an energy source has negative impacts that are not incorporated in its market price (negative “externalities,” in the jargon), that means other people are paying for those impacts. The source is implicitly subsidized.
Here’s the thing: Every energy source and energy industry has both positive and negative externalities. Deciding which ones “distort markets,” which ones count as implicit subsidies (or implicit taxes) virtually always comes down to a subjective judgment.
And the implicit subsidies dwarf the explicit subsidies , so arguing about the latter while unable to agree on the former is uniquely pointless.
In practice, most political disputes over subsidies just end up obscuring values-based arguments about what kind of future we want behind a veil of pseudo-objective economic jargon. One’s own favored energy sources receive commonsense support; the other side’s energy sources are on corporate welfare. And so it goes.
Policy Acts of 2002 and 2005.
This week brought an excellent example, in the form of a new paper from Securing America’s Future Energy (SAFE), a clean-energy advocacy group composed of retired military and business leaders. It attempts to put a number on one of the great, neglected implicit subsidies for oil: the costs to the US military of defending oil supplies, everything from guarding shipping lanes to maintaining troop commitments in key oil-producing nations.
The number, it turns out, is high: $81 billion a year at the low end, which is almost certainly conservative.
But is that a subsidy for oil? It is certainly one way oil dependence has shaped the country, its history, and its institutions — one of countless ways — but does putting a dollar figure on it and calling it a “market distortion” clarify anything or convince anyone?
We will ponder those questions in a moment, but first, a quick look at the study.
The US military spends a minimum of $81 billion a year protecting oil supplies
Given that almost any military procurement or deployment has multiple, overlapping objectives, it is obviously difficult to pick out exactly which ones are devoted to protecting oil supplies. Consequently, the methodology for a study like this is going to be full of assumptions and judgment calls. But SAFE did its best to stay reasonably conservative.
Its research surveyed the literature on the costs of defending oil supplies, eliminated some of the extreme estimates on the high and low ends, settled on six core studies, and then updated the numbers in those studies based on current DOD costs. The idea was to get at least a rough sense of how much the US military currently spends guarding oil.
That’s how SAFE developed the $81-billion-a-year estimate, which represents 16 percent of DOD’s base annual budget. “Spread out over the 19.8 million barrels of oil consumed daily in the U.S. in 2017,” SAFE writes, “the implicit subsidy for all petroleum consumers is approximately $11.25 per barrel of crude oil, or $0.28 per gallon of transportation fuel.”
That’s a lot! But it’s almost certainly too low.
One conservative move in the analysis was to exclude DOD’s Overseas Contingency Operations (OCO) budget, which basically covers the incremental costs, over and above the base DOD budget, of the Afghanistan and Iraq Wars. By excluding OCO, SAFE does not count those wars among the costs of defending oil.
Some of the retired military leaders it interviewed questioned that assumption.
“I would make the case that the OCO spending is related to oil protection,” said former Secretary of the Navy John Lehman. “More than half the Defense budget is for the security of Persian Gulf oil.” His comments were echoed by numerous other ex-military officials.
A dam is a great visual for the power grid. Water is one of those never-ending renewable energy sources that we often forget about. If you want to teach kids about the electricity grid, visit a dam. It’s a huge visual representation of a battery that illustrates the energy the world needs. The lake formed by the dam is, essentially, the battery storage. When energy demand is high, water tumbles through the dam into the small river below. When demand is low, water is pumped back up into the dam, creating more energy reserves. Take a tour if you can.
If the OCO costs, or some portion of them, are included in the tally, the subsidy number obviously rises, “to over $13 per barrel or $0.31 per gallon.”
And that’s still only direct military costs, which are just one piece of the puzzle. The economists Linda Bilmes and Joseph Stiglitz have done extraordinary work attempting to tally up the full costs of the wars, including higher oil prices, debt service, obligations to returning veterans, lost wages, lost lives, and much else. They estimated the total at somewhere between $4 and $6 trillion.
If you take the midpoint estimate of $5 trillion, “a conservative estimate of the per gallon cost for these wars easily exceeds $30 per barrel (over $0.70 per gallon) over a 20-year period.” And that’s separate from the other $0.28 per gallon SAFE calculated from DOD’s base annual budget.
Add all that up, and it’s close to a $1 subsidy for a gallon of gas. That roughly translates to a subsidy of $100 per ton of carbon dioxide emissions. That’s a lot to pay to destroy the atmosphere!
In cost-benefit analysis, US government agencies value the cost of defending oil at zero dollars
Now, of course, people of good faith can disagree about the right estimate, whether $81 billion or something higher. Like I said, there are plenty of judgment calls about what to include in the tally.
But no one can justify the current practice of US government agencies, which is to put the cost of defending global oil supplies at zero dollars.
Yes, zero. When assessing policies meant to reduce oil consumption, agencies give no weight at all to the benefits of reduced military spending. SAFE puts it this way, in its striking opening sentence: “According to the calculations of the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), the cost to the United States of defending the global oil supply is zero.”
Why do they do this? It has to do with the way DOD is budgeted. To make a long story short, the assumption is that if the money wasn’t spent defending oil, it would go to some other military objective. DOD budgets would not decline, and thus there would be no savings to taxpayers. Thus: $0.
Obviously that’s silly. Just because the money would be budgeted to something else doesn’t mean it’s imaginary. The whole point is that reducing reliance on oil would free up that money to do other things.
In 2016, Portugal made history by running on renewable energy alone for 107 hours.
“If we can reduce our dependence on oil, we could reduce our presence in the Gulf and use the funds for other critical military priorities, like cybersecurity or hypersonic weapons,” said General Duncan McNabb, former commander of the US Transportation Command. “We would make different choices that would make us safer and more secure.”
These are the perpetually overlooked “opportunity costs” of oil — all the other stuff we could be doing if we weren’t hunched over the globe, guarding our black gold.
Federal agencies shouldn’t ignore those costs. Policies that reduce oil dependence should be credited in some way for also reducing the costs of oil protection. In that sense, it very much makes sense to frame oil-protection costs as subsidies for oil.
The language of “subsidies” often obscures an essentially moral argument
But I wonder whether the language of “subsidies” is really the right way to understand what’s going on here. (I have no idea if it’s effective messaging that can sway policymakers or the public; maybe so! That’s a separate question.)
We defend oil because we depend on it, and so does everybody else. It’s the lifeblood of the global economy; controlling it makes us powerful. As Vice President Dick Cheney said in 2004: “Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy. The Gulf War was a reflection of that reality.”
Everything is a reflection of that reality. Because oil is fundamental to our economy and our ability to project power, it shapes our foreign policy in myriad direct and indirect ways. Securing oil supply is not always the proximate or primary cause of what we do — it’s too simple to say we “fought wars for oil” — but it always sets the conditions and limits of our engagement. It’s always a baseline. We simply cannot afford to do things that might seriously threaten our control over the energy that runs our economy and our military.
You can draw a line around some part of that geopolitical and military maneuvering and call it a “subsidy” — for oil producers? for oil consumers? for the military itself? — but where you draw that line will always come down to subjective judgment. Oil powers everything, so everything is, in some way or another, about oil.
To call this maintenance of global status a “subsidy” is to translate the language of security, power, and moral tradeoffs into the language of economics. But does that help us understand it any better? Does it convince anyone?
The global appetite for ethanol is growing. Breaking the previous record of 1.2 billion gallons set in 2011, the United States exported 1.4 billion gallons of fuel ethanol in 2017, according to the U.S. Energy Information Administration. The majority of demand came from Brazil, where ethanol exports increased for the fourth consecutive year, reaching 450 million gallons in 2017 and accounting for approximately one-third of all U.S. fuel ethanol exports.
People these days seem to think the language of economics has a kind of magical power, as though money, in the end, is all people really care about — as though all other concerns must be translated to dollar values to have any weight.
I’m skeptical about that. (I think it has more to do with the outsized influence of economics on American elites than it does with real-world sociology.) I can’t imagine anyone who currently supports the fossil fuel-based global order being convinced to oppose it by the realization that it knocks the equivalent $1.74 off their monthly paycheck.
People come to their political opinions based on stories and narratives, based on identity affiliation and sorting, not based on nickel-and-dime calculations regarding their own household budgets. We are social creatures, not the calculating self-interest maximizers of economic lore.
If I wanted to convince someone that US oil dependence is bad, I wouldn’t focus first, or at all, on the few cents it adds to their daily expenses. I would begin with a moral argument.
To wit: The world’s countries have long been trapped in a corrupt struggle for finite resources that has carried untold colonialist oppression and ecological ruin in its wake. Oil has sullied everything it touches, very much including the US government. It has led us to ally with evil regimes, to empower autocrats, to bully vulnerable populations, to start unjust and pointless wars, to foul our land, water, and air, and to bloat the size of our military beyond all reason — all while we neglect the needs of US citizens at home.
Perhaps at one time it could have been argued that the benefits outweigh the costs. But climate change has settled that argument, as has the plunging cost of energy alternatives. We now understand that the costs oil dependence are potentially existential and that the costs of freeing ourselves from oil are manageable.
A Green New Deal could free us from oil at last
Oil used to be seen, rightly, as inescapable. But not any longer.
We know very well how to begin reducing our consumption of oil, through incremental policy steps including the one SAFE has relentlessly supported, fuel economy standards — the very ones the Trump administration is attempting to freeze.
Renewables 101 for Oil and Gas Majors
We know of plenty of other steps we could take to get started, from increasing the cost of gasoline to increasing urban density and building out multimodal transportation systems.
And we know how, eventually, to squeeze oil almost entirely out of the economy. It won’t be simple. There’s no one-to-one trade between oil and renewable energy. We will need to electrify the economy, especially the transportation sector, and get current fossil fuel applications hooked up to an increasingly cleaner grid, so that all sectors have a path to zero carbon.
percent of all energy used nationally.
But we know how to do it. We know how to get started and we know how to keep going. And we know, as the SAFE report lays out in painful detail, the incredible costs of persisting with the status quo. Every step we take down the path of reducing our reliance on oil is a step we take toward releasing ourselves from the debauched and exploitative power dynamic the world’s countries have been locked in for centuries.
A crash course in oil independence — something like the Green New Deal everyone’s talking about — would do more than quiet our cities, clean our air, stimulate our economy, and help slow climate change. It would free us to engage with the world with our best foot forward, unchained at last from the violence, oppression, and moral compromises our dependence on oil has forced upon us.
That freedom is, dare I say, priceless. We can put a dollar value on the costs of the status quo, and call those dollars “subsidies” — such language can be useful in certain contexts, especially when conservatives are waxing poetic about free markets — but we should not lose sight of what is fundamentally a moral argument.
We have been in a deal with the devil for a long time. Now we know how to get out. So we should.