By William S. Becker
Rep. Alexandria Ocasio-Cortez has been in Congress just a few days, but she’s already looking like the Robin Hood of the climate-action movement. She and her merry band of progressives in the House of Representatives are the kind of heroes we need right now. But Ocasio-Cortez has aimed her first arrow at the wrong target.
Ocasio-Cortez is a champion of the Green New Deal, a plan to combat climate change by producing 100% of the nation’s electricity with renewable resources within 10 years. While so much progress in so little time may seem unrealistic, America has done great things even faster. The shift to zero-carbon energy is the right idea and Congress should be aiming high.
The Green New Deal has a social justice dimension, too, so Ocasio-Cortez has proposed that it be financed by raising the marginal tax rate to 70% for people making more than $10 million annually. That would kill two big birds at once. It would reduce income inequality as well as carbon emissions. Some of her progressive Democratic colleagues in the House agree with that approach and some do not.
But there is another potential source of funding that hits directly into the bullseye of the clean energy transition. It is the long-overdue phase-out of taxpayer subsidies for fossil fuels. It makes no sense for the government to help eliminate carbon pollution at the same time it is forcing taxpayers to subsidize it.
Oil and gas companies have received government subsidies since 1916. Some of tax breaks have been on the books so long that wealthy energy companies regard them as entitlements. Their current value is conservatively estimated to be in the range of $25 billion to $30 billion. The amount is considerably higher, though, if we count things like government research, loans and loan guarantees, military patrols in the Persian Gulf and maintenance of the Strategic Petroleum Reserve. Public subsidies are astronomically higher if we count childhood asthma and lung diseases from air pollution, environmental damages from extraction, and most costly of all, current and future disasters due to climate change.
The fossil fuel industries argue that taking away their subsidies is a tax increase. Actually, it would be tax recovery. The subsidies fall into the category of “deferred revenues”, money the government would collect if the tax breaks did not exist.
Recapturing these lost revenues would not generate a dollar-for-dollar increase in federal funds, but it could provide a significant boost to the research and innovation we need for a clean energy economy as well as help for the workers in the carbon economy to make the transition.
There has never been a better time to do this. It’s only fair for Congress to phase out tax breaks for fossil fuels now that it has decided to phase out subsidies for renewable energy. Although climate scientists tell us nations must leave most of their fossil fuel reserves in the ground, the United States has become the world’s largest producer of crude oil. Fracking technology has opened up vast new reserves of oil and gas that can be extracted at relatively low cost. And like other corporations, oil and gas companies are benefiting from the 2017 tax-cut bill that lowered the corporate tax rate from 35% to 21%. In fact, an analysis by the award-winning magazine Pacific Standard concludes that oil and gas companies are among the biggest and longest-lasting beneficiaries of the tax bill. The magazine says:
Just 17 American oil and gas companies reported a combined total of $25 billion in direct one-time benefits from the 2017 Tax Cuts and Jobs Act. Many of the companies will also receive millions of dollars in income tax refunds this year. Looking forward, the Tax Act then reduces all corporate annual tax bills by a minimum of 40% every year in perpetuity, while adding new benefits that function as government subsidies for the oil and gas industry. The companies’ activities in the United States are made less expensive, thereby encouraging a further expansion of oil and gas operations.
The lobbying and campaign donations of the fossil fuel industries have sustained their tax breaks all these years. However, only one Democrat in the House, Rep. Henry Cuellar of Texas, was among the top 20 candidates who received oil and gas money during the 2018 campaign. And maybe the fiscal conservatives who cry that the government should not be picking winners can be persuaded to break their silence on tax breaks for oil, gas and coal.
The clean energy transition could also be accelerated with a portion of revenues from a carbon fee. A price on carbon is gaining support from Republicans as well as Democrats, although most proposals would send all of the revenues back to households. That is a conversation for another time.
For now, it is likely that phasing out tax breaks for fossil fuels, as well as the Green New Deal itself, is tilting at windmills. President Trump is the Sheriff of Nottingham when it comes to fossil fuels. He apparently cannot see or he does not care how important it is for the government to support the things that make us stronger, and not the things that make us weaker. But in the political-momentum business, it is not too early to begin aiming high at the right targets.