Nobody expects the Spanish solar inquisition!

Over at Bishop Hill, there’s a story about an inquisition into the Spanish solar power industry, which was so heavily subsidized and the price being paid for solar power feed-in so much more than conventional power, that some unscrupulous opportunists decided to run solar power systems at night, with the help of a diesel generator:

After press reports,  it was established during inspections that several solar power plants were generating current and feeding it into the net at night. To simulate a larger installation capacity, the operators connected diesel generators.

“This is just the tip of the iceberg,” said one industry expert to the newspaper “El Mundo”, which brought the scandal to light. If solar systems apparently produce current in the dark,  will be noticed sooner or later. However, if electricity generators were connected during daytime, the swindle would hardly be noticed.

Now, the results of the inquisition are published, and it’s just what you’d expect:

The chapter analysing the history of the industry in Spain is laugh-a-minute stuff, a tale of incompetent politicians and civil servants bumbling from one disaster to another and fraudulent investors cheating their way to a slice of public funds. We learn how the Spanish government decreed a feed-in-tariff system that guaranteed six times market rates to PV businesses, before a belated realisation that this was going to lead to astonishing surges of investment. They then put in place a series of only partially successful measures in an attempt to stop the expansion, as the whole farrago quickly became unaffordable and ultimately disastrous. We hear about the diesel generators generating “solar power” at night and that at one point the authorities estimated that half of new solar PV connections to the grid were fraudulent.

Bishop Hill has more here, including a comparison of the dismal EROI number.

The preview for the book suggests the authors did a detailed job on the inquisition, which has been out for over a year:

The Energy Return on Energy Invested (EROI or EROEI) is the amount of energy acquired from a particular energy source divided by the energy expended, or invested, in obtaining that energy. EROI is an essential and seemingly simple measure of the usable energy or “energy profit” from the exploitation of an energy source, but it is not so easy to determine all of the energy expenditures that should be included in the calculation. Because EROI values are generally low for renewable energy sources, differences in these estimates can lead to sharply divergent conclusions about the viability of these energy technologies. This book presents the first complete energy analysis of a large-scale, real-world deployment of photovoltaic (PV) collection systems representing 3.5 GW of installed, grid-connected solar plants in Spain.  The analysis includes all of the factors that limit and adjust the real electricity output through one full-year cycle, and all of the fossil fuel inputs required to achieve these results.  The authors’ comprehensive analysis of energy inputs, which assigns energy cost estimates to all financial expenditures, yields EROI values that are less than half of those claimed by other investigators and by the solar industry. Sensitivity analysis is used to test various assumptions in deriving these EROI estimates. The results imply that the EROI of current, large-scale PV systems may be too low to seamlessly support an energy and economic transition away from fossil fuels. Given the pervasiveness of fossil fuel subsidies in the modern economy, a key conclusion is that all components of the system that brings solar power to the consumer, from manufacturing to product maintenance and life cycle, must be improved in terms of energy efficiency. The materials science of solar conversion efficiency is only one such component.

Sunny Spain represented an ideal case study as the country had the highest penetration of solar PV energy at 2.3 percent of total national demand as well as state-of-the-art expertise in solar power including grid management of intermittent, modern renewable systems. This book, written by a uniquely qualified author team consisting of the chief engineer for several major photovoltaic projects in Spain and the world’s leading expert on the concept and application of EROI, provides a comprehensive understanding of the net energy available to society from energy sources in general and from functioning PV installations under real-world conditions in particular. The authors provide critical insight into the capacity of renewable energy sources to fill the foreseeable gap between world energy demand and depletion rates for fossil fuels.

·  Presents the first comprehensive study of the EROI of large-scale solar PV systems in a developed country

·  Uses real-world operational data rather than laboratory approximations and extrapolations

·  Describes the dependence of one alternative energy source on the goods and services of a fossil-fueled economy

·  Has global implications for the potential of renewable energy sources to replace dwindling reserves of fossil fuels

·  Written with the first-hand knowledge of the chief, on-site engineer for many solar installations in Spain together with the leader in the development and application of the concept of EROI

 

And finally, for those that don’t get the joke in the headline, see this.

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73 thoughts on “Nobody expects the Spanish solar inquisition!

  1. During the period of the French in Indochina it is reported that rats became paramount, not in size but in numbers. The French decided to pay for every dead rat. The result wasn’t a reduction of the rat population, but in the Vietnamese breeding rats. Nothing is foolproof. The fools are much too creative…

  2. One of the few true axioms in economics:
    “If you want more of something, subsidize it; if you want less of something, tax it.”

  3. In Moscow during the days of the Soviet Union taxis were paid, not to satisfy passengers wanting to go from A to B, but by the kilometer.
    So the cabbies would park in an ally, jack up the back end, put a weight on the accelerator, and go to the pub or wherever.
    Plus ca change, Dude!

  4. One of the few true axioms in economics:
    “If you want more of something, subsidize it; if you want less of something, tax it.”

    Unless there are write offs for re-investment which then encourages more baseline growth. However in the U.S. the philosophy is instead to reduce the tax base when possible and also allow “tax escape” to other nations. In addition, human nature being what it is, profits will win out over shortcuts, be they unethical or immoral. Corporate structures are treated like individuals, however their human rulers don’t necessarily care as long as they have got theirs (re 2008 meltdown). An obvious attempt at reducing this deficiency and adding a layer of protection is oversight regulation, but we no longer want those either. How inexpensive the cost of living would be if all were honest.

  5. Since the entire universe is made out of energy, we will never run out. Rather, the more people there are, the more Einsteins we will have to find ways of converting formerly useless things to useful energy and resources.

    It is all very well to point out the economic idiocy of wind and solar. But what really matters to me is the effect on the life of the world, human and other. We are carbon-based life forms. Fossil fuels and only fossils increase the weight of the biosphere.

  6. It’s only a matter of time before something comparable befalls the wind industry.
    Perhaps the true cost of those excess payments for non-production of energy during windy spells (!) – or maybe turbines useful lifespans will be revealed as being way less than originally claimed, thus sky-rocketing real costs.
    Either way, there’s an air of inevitability about it.

  7. Reminds me of a story I read recently about bounties paid out to people years ago who turned in the hides of noxious creatures, like rats, poisonous snakes, etc. Eventually people realized that it was worth their while to raise rats on their own (in secret of course) and turn them in for the bounty, as the amount collected from the authorities exceeded the cost of raising these creatures. This had the double effect of draining the treasury while the number of rats increased. The more things change…

  8. “Given the pervasiveness of fossil fuel subsidies in the modern economy”

    BS

    There are very few fossil fuel subsidies in western economies. There are massive consumption subsides in OPEC nations so that local populations get cheap gasoline so they don’t overthrow the government.

  9. Anthony

    I’m surprised, given their understanding of energy efficiency that Greens haven’t seized on the obvious extension of the solar night scam to solve periodic lack of wind…

    Reverse the process, i.e. use nuclear power to drive the turbines and create the missing wind :-)

    Renewable energy seems to me to be several hundred percent better that standing in a shopping bag while trying to pick yourself up by the handles

  10. Edward Richardson:

    You do realize that the lion’s share of those “subsidies” fall under plain old tax deductions, identical or equivalent to every other business out there? They toss those in because without counting those normal, everyday tax code items, the “subsidies” for fossil fuel mostly disappear.

    That paper is especially hilarious because they count the costs of regulation: in other words, they include the price of the Federal employees who watch over the oil industry! They’re not even just counting the costs of the people who actually do the watching: they include the entire budget of the Department of Energy and others.

    This part is good: “Federal regulation costs for renewable energy were negligible.” Yeah, because they paid for those “costs” by rolling the expenses into the Department of Energy – and billing it to the fossil fuel industry.

  11. Edward, the great lie of green companies is to claim tax deductions for oil companies are subsidies … when in fact those same tax deductions are available to many other businesess.

    Second … US citizens pay an anti-subsidy in terms of the Federal Excise Tax on gasoline.

    The NET subsidy in the USA (even using the lies told by your source) is about NEGATIVE 20 billion.

    Your source:

    “Tax policy includes special exemptions, allowances, deductions, credits, etc., related to the federal tax code.  Tax policy has been, by far, the most widely used form of incentive mechanism, accounting for $394 billion (47 percent) of all federal expenditures since 1950.  The oil and gas industries for example, receive percentage depletion and intangible drilling provisions as an incentive for exploration and development.  Federal tax credits and deductions also have been utilized to  encourage the use of renewable energy.”

    My comment: 6.5 billion a year in tax deductions is not a subsidy. It isn’t even very much money.

    Comment 2: “The federal gasoline tax raised $25 billion on gasoline in 2006.”

    So the amount of NEGATIVE subsidy is 4x the rate of your sources claimed subsidy.

    Reality:

    “A tax deduction and a government subsidy aren’t the same. When politicians use the terms interchangeably, it misleads many Americans.
    Oil-company tax deductions aren’t special favors. They are the standard relief afforded manufacturers, mining companies and other businesses to help recognize the costs of operations. Oil companies can deduct their expenses for things like equipment purchases and rig-technicians’ salaries. The point of these deductions — as for any other industry or individual — is to ensure taxes are only levied on income after expenses.
    Oil companies can also deduct expenses related to exploration or development. The idea there is to provide an incentive to take on the often substantial risk of seeking new energy sources. When these efforts succeed, the energy market expands, prices drop and America moves that much closer to energy independence.”

    http://nypost.com/2012/04/16/the-prezs-oil-tax-break-lies/

  12. Total tax at the pump on a gallon of gasoline in California is approximately 85-cents, highest in the nation. A 15-cent per gallon California “carbon tax” is set to be added soon, bringing the total tax per gallon, at the pump, to $1.00. Where do I apply to get this “fossil fuel subsidy” I keep hearing about?

  13. Hmmm. So how many windelec farms (turbine farms) are producing electricity when the wind is calm?? This also reminds me of two reverse scams.

    A pleasure park fitted windelecs, to show how green they were, but they were more often than not powered by electricity (not generating electricity), just to look good.

    And in one of the funniest environmentalist errors of all time, the BBC sent its outside broadcast unit to make the first ever wind-powered outside broadcast (the BBC truck was linked up to a huge windelec). Only one problem – no wind. So the presenter, I kid you not, opened the show by saying something like: “This is a momentous moment, the first outside broadcast powered by the wind. We are actually using diesel generators at present, but this broadcast demonstrates the power of wind turbine technology”.

    Only the BBC, only the BBC…….

    If anyone has this BBC clip on tape, please let me know.

    Ralph

  14. sunshinehours1 says:
    August 17, 2014 at 8:00 am

    “Oil-company tax deductions aren’t special favors. They are the standard relief afforded manufacturers, mining companies and other businesses to help recognize the costs of operations. ”

    So, how does a small manufacturer of windows get an oil depletion allowance?

  15. Edward Richardson:

    Your argument by assertion at August 17, 2014 at 7:35 am is information-free.

    Support for R&D is not a subsidy. It may be considered to be a government investment, but it is not a distortion of a market by industry support.

    I refer you to the discussion of various forms of subsidy discussed by the World Trade Organisation (WTO) in this paper.

    Purchase of R&D is a contract for business when conducted at commercial rates: it is not a subsidy.

    The paper you linked reports government contracts for R&D at commercial rates.

    I refer you to this paragraph in the WTO paper which refers to “money transfers from the government to the recipient”. Clearly, the R&D support which you cite is NOT subsidies.

    In particular, within the first category of subsidies defined above, a significant range of different forms of subsidization can be found. The most direct form of subsidization is cash subsidies referring to money transfers from the government to the recipient. Alternatively, governments can provide subsidies through tax concessions. Indeed, when a government provides a tax exemption, credit, deferral or other forms of preferential tax treatment to an individual or group, its budget is affected in much the same way as if it had spent some of its own money. A third form of subsidization consists in the assumption of contingent liabilities. These occur, for instance, when governments give institutional guarantees or loan guarantees with respect to the loans taken by certain institutions in the market place. Both practices reduce the financial cost of carrying out a certain business and thus constitute subsidies. In the case of a loan guarantee, for instance, the borrower need not pay a risk premium commensurate with its actual default risk, but instead obtains the loan at the risk-free interest rate.12 This results in a subsidy for the borrower, even if the government agency is never requested to step in and repay the loan. Governments can also provide subsidies through procurement policies at administered prices such that a mark-up over free-market prices is afforded to certain producers. Last but not least, subsidies can be provided through equity injections into businesses if this results in maintaining the price of the relevant equities artificially high.

    Richard

  16. Edward Richardson says:
    August 17, 2014 at 7:27 am

    Re your post.

    Thanks for the link to the report. But it hardly demonstrates your case.

    For instance, when examining the claimed $125 bn in “regulation” subsidies, and looking at the examples cited on page 8 of the report we find three:

    1. exemption from price controls (during their existence) of oil produced from “stripper wells” 

    So, the government put price controls on oil, but realized that would make production from stripper wells uneconomic, and decided it was more prudent to not shut down a source of production with an idiotic law. Some “subsidy.”

    2. the two‐tier price control system, which was enacted as an incentive for the production of “new”
    oil

    See comment to 1) above. Same conclusion.

    3. the higher‐than‐average rate of return allowed on oil pipelines.

    Here, the government regulated the allowed profit on pipelines, treating them like utilities. In other words, they suppressed the profits that would have otherwise occurred. To the extent that they didn’t suppress the profits on particular oil pipelines, these get counted as subsidies. Again, some “subsidy.” It would make much more sense to calculate the cost to the oil industry of each of the above three “subsidies” since each example cut into what otherwise would have been higher oil industry profits that politicians denied the industry overtly.

    It must be frustrating to be managing in an industry, see the government try to damn near regulate you out of existence from time to time, finally succeed in getting the politicians to allow you to make a market-determined profit once again, and then find that all the previous exceptions to former regulations (i.e., former losses in profits) to then get counted as subsidies that you supposedly benefited from, no?

    This sort of nonsense “subsidy” accounted for $125 bn of the $369 bn total for the oil industry. Another $194 bn was attributed to tax policy, for which similar arguments could be made. In fact, the oil industry has had to fight tooth and nail to expand in the U.S., as has nuclear and gas, but none of those regulatory penalties (reverse subsidies?) make it into the calculation. (Well, actually they do, as I pointed out above, but perversely, as subsidies for not being penalized in specific cases.)

    Meanwhile, we pour true subsidies (actual taxpayer cash, directly paid to the intended recipient) for both the producers and consumers of various forms of green energy and its associated products.

  17. Edward: “So, how does a small manufacturer of windows get an oil depletion allowance?”

    Do window manufacturers get to write off the loss of value of their stock of windows if it is no longer saleable? Yes.

    Do window consumers pay a massive Federal Excise Tax on Windows? No.

    The NET :subsidy” is in fact negative after taking into account the consumption penalty imposed by the federal government on gasoline.

    Depletion write-offs aren’t just for fossil fuels.

    “Depletion is an accounting concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves. Depletion is similar to depreciation in that, it is a cost recovery system for accounting and tax reporting. For tax purposes, there are two types of depletion; cost depletion and percentage depletion.
    For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion.[1]
    According to the IRS Newswire,[2] over 50 percent of oil and gas extraction businesses use cost depletion to figure their depletion deduction. Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). ”

    “A depletion allowance is analogous to depreciation and is appropriate when the quantity of the potential resource is unknown, such as the amount of recoverable oil from a well. Independent oil and gas producers use a depletion allowance to recover capital investments over time. This is also available to producers involved in mining, timber, geothermal steam, and other natural deposits. “

  18. few fossil fuel subsidies
    ==============
    Tax reduction is not a subsidy. If someone is hitting you over the head with a hammer, and they reduce the rate at which they are hitting you, have they done you a favor?

    The problem with renewables is Feed In Tariffs (FITs), where renewables are guaranteed a price regardless of supply and demand. This distorts the energy market for all producers.

    Power isn’t something you can turn on and off like a light switch. It is more like a huge flowing river, with the potential to do great damage if there is too little or too much water. As with many things, we use a market mechanism to regulate the flow of power.

    When supply is low, the wholesale price of electricity is high. When there is too much power available, the wholesale price is low. If supply is high enough, the wholesale price even goes negative. You get paid to take power, and penalized if you produce it. Otherwise the grid would brownout or burnout.

    However, solar and wind installations with guaranteed FITs are immune to this. When there is too much power for the grid, they will keep on producing anyways because they still get paid. On cloudy, windless days they cannot produce, no matter how high the price.

    This has the effect of destabilizing the grid, which is ultimately not sustainable, except at great cost to the consumer. And ultimately, any great cost to the consumer is unsustainable. Sooner or later heads will roll.

    So the ultimate irony is that in trying to build a sustainable electrical grid via renewables, the politicians have produce an unsustainable electrical grid.

  19. I have, for several years, been commenting on this issue, namely, that diesel generators were being used, at night, to collect subsidies when the sun does not shine. It sounds so fanciful that I expect that many readers did not take my comments seriously. But it is true

    At one time Spain had very generous subsidies for those going ‘green’ but the backlash, from these scams, has been substantial. Now many households, who bought into solar (some going off the grid completely, others stayed connected but sold their surplus to the grid), are now being forced to pay tax on what would have been their energy bill if they had not installed solar. The government is so strapped for cash, that it is seeking to recover the lost sales tax (in Spain called IVA, in the UK called VAT) that it would have levied had people been purchasing all their electrical energy needs from the usual energy supplers.

    Spain is very sunny (I think yesterday was only the 4th day this year when, on the South coast, it has rained) and usually there is not a cloud in the sky, but even in those conditions, it is doubtful that solar (voltanic) can, without subsidy, pay its way. And in this regard, Europe has recently levied additional tax/import duties on cheap Chinese solar voltanic panels, because they were undercutting the Germans. This has forced up the cost of fitting solar voltanic by about 20%, thereby discouraging people from fitting what are already expensive and dubiously cost effective systems. This clearly demonstrates that Europe is not truly concerned that energy should be ‘green’ energy and CO2 emissions reduced, but rather it is all about economic concerns, and keeping the industrial power house of Europe happy.

    On the other hand solar hot water systems are very cost effective. You can pick these up for about Euro 600, and within 2 years they will pay for themselves. With a good system (more expensive) they can provide all the domestic hot water a house may need, even in winter (although most systems have an electric heater fitted to cover cloudy winter days). I think that all new builds are required to have solar water heating fitted, and I consider that a good idea.

    Whether the systems are cost effective in more northern latitudes, particularly cloudy countries (such as the UK, the low countries and Germany) is a different matter, but I suspect that even in those countries they would be cost effective over a 10 to 15 year period. My next door neighbour has a system (400 litres) which is now about 25 years old, and is still working well, so these systems are low maintenance and have a long life expectancy.

  20. Imagine for a moment that the government created FIT’s for gasoline instead of electricity. That some suppliers of gasoline would be guaranteed $25/gallon for gasoline, regardless of the wholesale prices. What effect would this have on wholesale prices for other suppliers? What effect would it have on the retail price of gasoline to consumers? Who would be the big winners in all of this?

    If you were a supplier of gasoline, what incentive would you have to wine and dine politicians to try and get them to pass laws giving you a FIT for gasoline? How much would you be willing to “invest” in the election of politicians that promised to pass FIT laws once elected? How much would this distort and corrupt the political process?

  21. ferdberple says:
    August 17, 2014 at 8:28 am

    “Tax reduction is not a subsidy.”

    I guess that is the reason there is no political support for ending the deduction for mortgage interest in America.

  22. A Polish colleague once told me that TVs produced in Poland in communist times were extremely heavy. This was because the basic steel frame contained much more steel than was actually needed. That in its turn was because then the steel production had a market so that the 5 year plan targets could be met.

  23. Home Depot, Lowes, Harbor Freight, Northern Equipment. Take your pick. 10,000 watt, 200 watt. Take it home, plug it in, fire it up. Natural gas, propane, gasoline, diesel. Yank that meter out, off the grid. But now the maintenance, the fuel, the power outages, the noise, the pollution, are all your problem. A former coworker of mine lived on the eastern Colorado plains for two years with a single cylinder diesel generator before rural electric finally reached his place. The real solution is to replace all the whining about what somebody else is supposed to do, what the government is supposed to do, get off your fat, lazy, butt and do it yourself. In the meantime, SHUT UP!

  24. Edward, the IRS says: “Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber.”

    So you may claim it is an “oil depletion” allowance. But it is not just for oil.

    So you are a troll.

  25. When two parties feel the need to use different accounting methods, it is likely one of them is trying to hide something. If you believe that a reduction in the rate of proposed increase results in a “savings”, you are probably fine with the economic feasibility of green energy. This may be malicious, or may just be a religious faith that it will all work out in the end and a determination not to let short term factors like P&L get in the way of one’s goals. Which, come to think of it, may be malicious. Sometimes the only difference between a vile schemer and a true believer is the one has a smile as they stick the knife in, whilst the other has a smirk. Sometimes hard to tell the difference. Then there is insanity, sometime exhibited in the state department.

    The true crime is that there is a large and real market for solar! I have a solar watch, I have an emergency “hurricane” radio with a solar panel. I have a couple of panels for battery charge maintenance. I had a turbine wind turbine on a sailboat. We had a remote cabin in New Mexico that still has a windmill. Some of the reporting buoys in the bay have both wind and solar battery charge. Popular magazines have had reports of research into waves and tides and more exotic research for years.

    So we have government sponsored alternative power that looks a lot like a criminal enterprise, and an industry outside of this pushing the ball forward a lilttle bit at a time.

    I vote to get the government out of it altogether.

  26. Here’s a related thread by Willis on sustainability:

    http://wattsupwiththat.com/2014/07/03/the-price-tag-of-renewables-part-2/

    Here are some posts from the past (on WUWT) wrt subsidies:
    ================

    http://wattsupwiththat.com/2013/04/08/weekly-climate-and-energy-news-roundup-86/

    Fossil Fuel Subsidies: Connie Hedegaard, the EU Commissioner for Climate Action, has an essay demanding that countries stop subsidizing fossil fuels. She states: “According to the IEA, fossil-fuel subsidies rose by almost 30%, to $523 billion, in 2011. Meanwhile, the UN Environment Program reports that global investment in renewable energy totaled only $257 billion in 2011.”

    Ms Hedegaard fails to state that the IEA study she cites shows the vast bulk of fossil fuel subsidies occur in developing countries, not in developed Western nations. In descending order, the five countries with the greatest fossil fuel subsidies are: Iran, Saudi Arabia, Russia, India and China. The omission is all too typical among Western green bureaucrats and Ms. Hedegaard’s logic is far from daunting. Should a western country subsidize expensive, unreliable wind and solar because Iran subsidies gasoline? Please see Article #3 and link under Communicating Better to the Public – Exaggerate, or be Vague?

    HaroldW says: June 22, 2010 at 10:33 am
    there are some subsidies, but they are actually really small.

    1: royalties paid to foreign countries and states are credited for tax purposes…. as it should be.

    if you paid for raw material, it has be considered as expense.

    2: research credit that is available to ALL INDUSTRIES is available to oil&gas. there is nothing special here.

    3: govt pays poor people for heat. that is welfare. not a subsidy to oil&gas. That money can be used for electric heat, even if it is hydro electric or other “renewable” source.

    4: investment credits available to everyone is available to oil&gas. where is the subsidy there?
    ——————

    Jeremy says: September 26, 2011 at 12:00 pm
    U.S. Sen. Charles Schumer, D-N.Y., is proposing to end what he says are $4 billion a year in tax subsidies to the biggest oil companies.”

    Firstly, all Oil Companies pay taxes on earnings just like any corporation. According to data found in the Standard & Poor’s Compustat North American Database, the industry’s 2009 net income tax expenses — essentially their effective marginal income tax rate — averaged 41 percent, compared to 26 percent for the S&P Industrial companies. The Energy Information Administration (EIA) concludes that, as an additional part of their tax obligation, the major energy-producing companies paid or incurred over $280 billion of income tax expenses between 2006 and 2008.

    http://dailycaller.com/2011/04/25/the-truth-about-americas-oil-gas-companies-part-i/ .

    Secondly, according to the ONRR, annual revenues from federal onshore and offshore (OCS) mineral leases are one of the federal government’s largest sources of non-tax revenue. In 2010, Royalty Revenue amounted to around $8 Billion

    http://www.onrr.gov/

    ————–

    Luke says: September 26, 2011 at 10:44 am
    Most of those $4.0 billion in “subsidies” are not specific to the oil & gas industry.

    They break down as follows:

    $1.7 billion in Domestic Manufacturing Credits: Applies to all production companies equally. A reward for creating/leaving the jobs in the US economy. You can argue whether or not they can move this production from the US, since the oil is located here, but it is clear that they can move the exploration equipment to anywhere in the world and ship the oil in. There is no requirement that oil used domestically must be produced in the US. So given that, what other industries should we strip this credit from?

    $1.0 billion in % depletion allowance: Applies specifically to the oil and gas industry as a mechanism for capital recovery. It takes the place of depreciating the assets in the ground. Of course we don’t like to talk about the dark side of this one, which is when oil prices are lower for a sustained period of time, it acts like an anti-subsidy, so this one can cut both ways and at time has. Easy solution is to use capital base instead of income. Over the long haul though, I doubt this equals $1.0 billion a year. Just $1.0 billion a year in the current price environment.

    $0.9 billion in foreign tax credit: This one again, applies equally to all. The dodgy part with this is classification of royalty payments as income taxes. Some foreign governments have converted royalty payments to income taxes, allowing for greater deductibility under US tax law. This, however, is not unique to the oil industry. So again, who else would you like to strip this one from?

    $0.8 billion in intangible drilling costs: This one is specific to the oil and gas industry. This however is not a subsidy. Period. Exclamation Point! At best, this is a shifting of tax payments to later years. It allows the oil company to deduct their exploration expenses immediately. When this rule was enacted, it actually made sense because 90% of those expenses were written off in the first year anyway because of the abysmal hit rate for new wells, as opposed to the alternative which is adding it to the depreciation base for a new well. Now that the hit rate is much better, maybe it’s time to rethink the break, but it will not provide an $0.8 billion dollar annual windfall. It might provided a short term difference, but after 4-5 years under the new rules, you’d be pretty much back to the same annual number for “tax breaks” resulting from intangible drilling costs.
    —————–

    chris y says: September 26, 2011 at 9:31 am
    “U.S. Sen. Charles Schumer, D-N.Y., is proposing to end what he says are $4 billion a year in tax subsidies to the biggest oil companies.”

    That $4B amounts to 1.6 cents per gallon of gasoline.

    Did Schumer also propose an end to Federal, state and local gasoline taxes to ‘even the playing field’?

    Did Schumer also propose an equivalent tax on solar and wind energy to ‘even the playing field?’
    —————

    Catcracking says: December 3, 2011 at 7:20 am
    One favorites of Pelosi is the reduction in royalities that was set up during the Clinton Administration to give companies an incentive to drill in deep water offshore in the Gulf when oil prices were low. Royalities are still paid but circa 20 % less. It was a good business deal for both sides at the time and improved for the drillers as oil prices rose. So now many of the tax and spend crowd want to change the contract and threaten those who refuse to comply with blackballing them from biding on new leases. How else can they make renewable energy sources look competitive?

    Another item frequently referenced is the accelerated write off of capital expenses to encourage investment and boost the economy that is offered to every other business.

    A third item is the foreign tax credits offered to all companies that bring foreign earnings back to the US.
    —————

    Janice says: December 3, 2011 at 7:36 am
    There is a hidden subsidy for both solar and wind power, one that could easily be avoided, but never will be because it is not politically expedient. The subsidy is the amount of money it takes to remove solar and wind farms once the parent company abandons them. It usually winds up being public money that is used, since the parent companies usually go bankrupt and are dissolved. It could easily be avoided if the parent companies were forced to post a bond equal to the amount it would take to remove the equipment, and restore the area. And that is a subsidy which coal and oil do not enjoy, because they are forced to remediate their mining and drilling sites.

    Roy UK says: December 5, 2012 at 8:33 am
    @Alexandre 7.47am
    Statement before the Senate Finance Committee

    Subcommittee on Energy, Natural Resources, and Infrastructure March 27, 2012
    FY2010 Electricity Production Subsidies and Support per megawatt-hour
    (year 2010 dollars)

    Natural Gas, Petroleum Liquids 0.63
    Coal (pulverized) 0.64
    Hydroelectric 0.84
    Biomass 2.00
    Nuclear 3.10
    Geothermal 12.50
    Wind 52.48
    Solar 968.00

    So subsidies per MWh to Wind and Solar are 100 – 1500 times the cost of subsidies to the Big oil. You didn’t really think your question through did you?

    Steve Keohane says: December 5, 2012 at 8:38 am
    Alexandre says:December 5, 2012 at 7:47 am
    I’d like to know where the Heartland Institute stands in the issue of fossil fuel subsidies. You know, being non-Big Oil and all…


    According to the link you provided $58B was paid globally in so called oil subsidies. In 2004, according to energy.gov, we in the USA used 140 billion gallons of gasoline, for which $70B in taxes at the pump was collected. And don’t for get the corporate tax on the wholesale sales, and the taxes paid by the oil employees to make the gasoline, etc. So where is the subsidy? Your so-called oil subsidies are smoke and mirrors, nothing more.

    John M says: December 5, 2012 at 9:11 am
    Steve Keohane says: December 5, 2012 at 8:38 am
    Regarding the whining about fossil fuel “subsidies”, it would be interesting to see Alexendre’s opinion on these “subsidies” listed in his source:

    Low-Income Home Energy Assistance Program (Petroleum) : 336 Million
    Fuel-Tax Exemptions for Farmers: 1 Billion (that’s a B)
    Strategic Petroleum Reserves: 1 Billion (Hell, the way that one’s been used, it should be charged back to the DNC as a campaign contribution)
    Low-Income Home Energy Assistance Program (Nat Gas): 1.7 Billion (that’s a B too)
    Credit for Investment in Clean-Coal Facilities: 370 Million
    Amortisation of Certain Pollution-Control Facilities: 200 Million

    Jeez, maybe they ought to count food stamps as a fossil fuel subsidy too, since they are used to buy food produced by those farmers who get those huge Fossil Fuel tax exemptions, or allow poor people to spend more to fill their tanks.

    ralfellis says: March 6, 2014 at 11:09 pm
    Another Geologist’s Take says: March 6, 2014 at 11:31 am
    The analysis to be fair needs also to consider the generous subsidies that the oil, natural gas and coal industries get from our governments. They are substantial and have been around for decades.

    _______________________________________
    Absolute tosh. In fact, that is tosh of the century.

    Those are not subsidies for the oil industry, they are investments.

    In reality, UK government finances depend in a great part on the huge taxes that they levy on oil and gas products. Thus they know that if they INVEST a little money to open a new and difficult oil/gas field, they will get their money back in spades when the product comes on-stream.

    With renewables, the government subsidises the infrastructure, and then CONTINUES TO SUBSIDISE the end product (electricity) through the Renewable Obligation Certificates – which are a shadow taxation scheme levied on your electric bills.

    In summary, the oil and gas industrues get no net subsidy, because their production pays back taxes that are greater than the subsidy BY SEVERAL ORDERS OF MAGNITUDE. They are net contributors to the government purse. In fact, many governments around the world would be bankrupt within the year, were it not for the huge profits from oil and gas.

    Steve from Rockwood says: March 7, 2014 at 6:07 am
    The IMF introduces the concept of “corrective taxes” for such things as CO2 emissions ($25/ton). These are a major part of their subsidy estimates. In fairness to the IMF they appear to lay these subsidies at the foot of government while you place them at the door of the oil companies.

    Mario Lento says: December 6, 2012 at 3:17 pm
    I found this goldmine of information on total subsidies. Does anyone have any comments on the validity of it? I could not connect to some of the links to the source references.


    http://www.instituteforenergyresearch.org/hardfacts-uploads/NJI_IER_HardFacts_ALLpages_20120423_v8.pdf

    (hard-headed, anti-green, 73 pages, not much on subsidies per se)

  27. @ Edward Richardson:

    You’re arguing for the sakes of it. Give over.

    The renewables industry has enjoyed multiple market-rigging subsidies. Arguing against reason diminishes your credibility. Fossil fuels (to my knowledge) enjoy no such blatant market-rigging benefits.

    Can fossil-fuel companies offset R&D and other costs? Yes. Just like thousands of other businesses then. Nothing unusual there. Do some enjoy tax breaks? Yes. Again, helping certain businesses with lower tax can be positive. But even a tax-break is not an outright subsidy, because it requires the product to be delivered to market in a viable, profitable manner before any reduced tax rate is applied.

    Not a single wind or solar farm would get off the drawing board if subject to similar demands.

    ‘Renewables’? Well, (in the UK) they get FIT’s guaranteeing rates of income, they get ROC’s obligating retail energy suppliers to buy FIT-supported overpriced renewable energy, and for good measure they get government policy legislating that certain minimum % rates of national output have to be from ‘renewable’ energy.

    In short, they get a lottery-style check list of unique market-rigging subsidies and benefits that without government intervention would NOT be there. Those are ALL market-rigging devices, giving an entirely contrived, artificial boost in the form of financial subsidies and legislation.

    Pick another battle, because you have lost this one.

  28. So what you ware saying in effect is that the small window manufacturer is unable to take advantage of the oil depletion allowance.
    ===========
    not true. the oil depletion allowance reduces the cost of producing oil, which in a competitive environment reduces the selling price. This lowers the cost of doing business for those people producing glass, aluminum and vinyl, which lowers the cost of producing windows in the US.

    By making windows cheaper to produce in the US this benefits consumers, it also creates jobs in the US which increases the tax base, and it provides an export opportunity which help balance the trade deficit. If windows can be produced cheaply enough in the US they will not be imported from China, and the jobs will stay in the US rather than being exported to China.

  29. Edward … lets discuss the tax credits available to Window Consumers that benefit Window manufacturers.

    Federal Tax Credits for Consumer Energy Efficiency

    “Tax Credit Amount: 10% of the cost, up to $500, but windows are capped at $200.”

    Is that a Window “subsidy”?

  30. The biggest problem with the tax system is that it is an “income tax” rather than a “sales tax”.

    Governments love income taxes, because they get to see the income of every person and company. And largely as a result of money laundering laws and anti-terrorism laws, foreign governments now share this same information. Your private financial data is now being shared on a worldwide basis.

    Sales taxes on the other hand protect your private information. In the US for example, some 80-90% of all retail sales is done by the largest 200 companies. As a result, the US could shift its entire tax base to a sales tax on these 200 companies, and eliminate income taxes.

    Small business would be exempt for sales taxes, providing them competitive advantage against the economies of scale of the largest businesses. Large portions of the economic overhead of the IRS, accountants and lawyers could be eliminated and instead given over to productive activities.

    Importantly, by eliminating income taxes, this would lower the cost of production in the US, providing significant export advantage over those countries that change income taxes, leading to jobs growth. Something desperately needed.

    And most importantly, as was observed earlier:
    “If you want more of something, subsidize it; if you want less of something, tax it.”

    By taxing income we are encouraging people to have lower incomes, which is a bad thing, because taxes are currently tied to incomes. Over time massive deficits must result, which is the effect we are seeing.

    By taxing sales rather than income we are encouraging people to save more and spend less. Which is a good thing, because it encourages investment, leading to increased production and increased income, which ultimately leads to increased sales and increased tax revenues.

  31. Non Nomen:

    “Nothing is foolproof. The fools are much too creative…”

    You’ve got the equation backwards. The fools are not the ones responding naturally to perverse incentives. The fools are the ones who believe that their brilliant plans will overcome human nature.

  32. Edward Richardson says:
    August 17, 2014 at 8:08 am
    “So, how does a small manufacturer of windows get an oil depletion allowance?”

    Become an oil company. Apples is apples. Oranges is oranges.

  33. Edward the cold reality is fossil fuels ‘net’ western governments tens of billions , not cost ‘NET’
    On the other hand ‘renewable’ only has cost to the government and they enjoy the same ‘tax breaks’ you called subsidy when the fossil fuel industry gets it.

  34. Rogerknights…why u wasting bandwidth with stuff easily found on the tool bar at the top of the page?

  35. What hurts me the most is driving along the spanish driveways and seeing how those solar panels have replaced fruit trees in some places. All in the name of ecology.

  36. In 2013, Exxon paid $91 Billion in total taxes and duties on before-tax/duties-net-income of $121 Billion. (some subsidy program -$91 Billion).

  37. ferdberple says:
    August 17, 2014 at 9:05 am

    “So what you ware saying in effect is that the small window manufacturer is unable to take advantage of the oil depletion allowance.

    not true. the oil depletion allowance reduces the cost of producing oil, which in a competitive environment reduces the selling price. This lowers the cost of doing business for those people producing glass, aluminum and vinyl, which lowers the cost of producing windows in the US.”

    This is one of the most misunderstood tax deductions (misconstrued on purpose by ide-o#log)ues. Even the company mining the raw materials gets a depletion allowance – yes the aluminum, copper, iron, etc. These companies can’t just ring up their supplier and order another truckload of raw material when reserves run down. They have to make huge investments to find, develop and maintain reserves. They even have to invest huge sums in prospects that end up having to be abandoned. They have several layers of risk that the window maker doesn’t have – he can get his glass from someone who has already produced it. On top of the risky side of the business (the bottom dropping out of commodity prices, a major accident like the Gulf oill ‘spill’ of BP, etc. they have large investments required by regulation. In the mining sector, when a reserve is exhausted, the land has to be reclaimed and returned to as natural conditions as possible. Because all these non-renewable resources are essential to society, a tax deduction of this kind recognizes the risk to society as well of a shortfall in non-renewable resources – downstream industry, employment from raw material producers and downstream employment…..

    And, on the government side, they have enormous revenues from the oil industry in income taxes of the company and its employees and on retail of fuels. In Canada government take is 29% of the pump price. In Montreal it is 35% of the retail price. I’m sure this makes the government the biggest profiteer in the business. Moreover, the government also sells (or auctions) blocks of prospective ground for exploration with no guarantees you will find oil or gas. They also tax oil exploration supplies and take corporate income tax and employee income tax. Government is the biggest stakeholder in this bonanza – no wonder they invest to keep it going.

    http://www.taxpayer.com/media/2013-GTHD-Report-CTF.pdf

  38. Edward Richardson/Grouse says:

    So, how does a small manufacturer of windows get an oil depletion allowance?

    Either grow the company, or get together with other small companies. Strength in numbers get you your tax break.

  39. So, how does a small manufacturer of windows get an oil depletion allowance?

    They don’t. Anymore than an oil company gets an inventory write down on bad inventory, like, for example Microsoft recently did when they wrote off most of the inventory cost of a model of Surface tablets that wasn’t selling. The question is a red herring.

  40. Energy Return on Energy Invested only makes sense as a measure when the energy in and the energy out are roughly the same value.

    Money Return on Money Invested is what drives technology, so putting cheap energy in to get valuable energy out is worthwhile even if there is lavish waste of the input energy.

    If we could use solar energy to produce gasoline, for example, it makes no difference that 80% or more of the solar energy be wasted.

  41. GlynnMhor:

    At August 17, 2014 at 11:31 am you write

    Energy Return on Energy Invested only makes sense as a measure when the energy in and the energy out are roughly the same value.

    Money Return on Money Invested is what drives technology, so putting cheap energy in to get valuable energy out is worthwhile even if there is lavish waste of the input energy.

    If we could use solar energy to produce gasoline, for example, it makes no difference that 80% or more of the solar energy be wasted.

    Yes! Well said!
    The clearest example is a power station. Fuels is used to generate electricity, and most of the energy in the fuel is lost doing this.

    Richard

  42. Justthinkin says:
    August 17, 2014 at 9:54 am

    Rogerknights…why u wasting bandwidth with stuff easily found on the tool bar at the top of the page?

    “The search bar at the top of the page” searches only thru the “top post,” not the comments that follow. Those are what I quoted. And I winnowed out the best of them over many years here.

  43. …And finally, for those that don’t get the joke in the headline…

    NOBODY doesn’t get the Spanish Inquisition joke!! …

  44. sunshinehours1 says:
    August 17, 2014 at 8:55 am

    Edward, the IRS says: “Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber.”

    So you may claim it is an “oil depletion” allowance. But it is not just for oil.

    So you are a troll.
    ====================================================================
    Sunshine you are being kind in your description of the man.

  45. I am sure any Australian “greenut” government can top any level of fiscal stupidity that Spain can squander.
    .BUT all grrenuts can cease to worry , after all every drop of diesel owes its existence to the Sun so it is all “Solar Power” anyway – effing fools!

  46. The problem with current “sustainable”energy is that it isn’t sustainable. And come to think of it why is ENRON accounting is criminal but identical government accounting is called a budget?

  47. Now if only one could connect the mains electricity to the solar metre.

    Daily Mail – 12 May 2013
    Remember his idea of covering the entire roof with solar panels and selling any excess electricity to the Government? A friend told me that he had done exactly that. In the summer, he has surplus electricity which the Government does indeed buy off him.

    But the price they pay is over twice what he has to pay his electricity supplier for theirs. You don’t need to be an economist to see that this is a policy — buy double, sell half — best described as short-term and explains why the country borrowed £120 billion in the last financial year.

    http://www.dailymail.co.uk/debate/article-2323564/Dont-fall-solar-panel-flannel-COLIN-DUNNE-did-realised-5-000-carbuncle-roof-save-money-lives-154.html

  48. Edward Richardson,
    Here is the ‘subsidy’ on UK petrol. Petrol is so cheap that the Fuel Price Escalator, which was introduced in 1993 was abandoned after the disruptive fuel tax protests of 2000. UK government revenue in 2009 from fuel tax was £25.894 billion. This is in fact a subsidy.

    Can you spot this massive subsidy?

    3 Mar 2014
    British fuel tax highest in Europe
    British drivers are more heavily taxed at the pump than any other motorists in Europe, a study has found

    British drivers pay a higher rate of tax on fuel than any other motorists in the European Union

    , according to a new study.

    For every litre of unleaded petrol bought in the UK, 61 per cent of the pump price goes to the government as fuel duty and VAT along with 59 per cent of every litre of diesel.

    http://www.telegraph.co.uk/news/uknews/road-and-rail-transport/10668970/British-fuel-tax-highest-in-Europe.html

    You need to look at oil rich middle eastern nations. There you will find subsidies.

  49. Cirby,
    You wrote: “This part is good: ‘Federal regulation costs for renewable energy were negligible.’ Yeah, because they paid for those costs by rolling the expenses into the Department of Energy – and billing it to the fossil fuel industry.”

    That Catch 22 accounting method reminds me of the “Hunger in America” statistics. Supposedly 1 in 5 is “hungry in America”. What is the evidence? 1 in 5 uses Food Stamps. What is the solution to hunger in America? More Food Stamps!

  50. Non Nomen says:
    August 17, 2014 at 6:17 am

    During the period of the French in Indochina it is reported that rats became paramount, not in size but in numbers. The French decided to pay for every dead rat. The result wasn’t a reduction of the rat population, but in the Vietnamese breeding rats. Nothing is foolproof. The fools are much too creative…

    I assume you are referring to the French and not the Vietnamese when you reference “creative fools”.

  51. It is hilarious! But beyond the stick of solar power, it also demonstrates that when government gets involved in the private markets, it is never good. Most of the fault lies with the government in trying to pick winners, and unscrupulous people (do we really need a debate on their existance?) taking advantage of pencil pushers who have no stake in the game.

  52. Well that is no surprise, the Spanish have few excuses. One of the fat ladies (now passed) said in her book, that in the mountains in Spain. It was cheaper to replace a turbine than fix it. Two were placed near each other, one working one still.. No wonder they are in financial troubles.

  53. The late Mark Oliphant (Manhatten project) and also science adviser to the liberal governments.
    Suggested that solar thermal could be very valuable to Australia with all our desert regions and we could sell it to overseas. Once they know how to store it of course. Now Richard C did write about solar thermal I have his brief he presented in 2006 on alternative electricity sources. I think Richard you warned there could be dangers attached to solar thermal operations and I can’t remember exactly what this was?

  54. The left is much vexed by the widening gap in wealth, yet continues to promote one policy after another which steals from the poor to give to the rich and build a mythical “greentopia”. Such as:

    Cash for clunkers – destroyed a decade or so of cheap transportation for the working poor

    High corporate tax rates – which tax the wealthy, middle class and poor at the same rate, drive away jobs needed for upwardly mobility

    Crazy Tort Laws – “tax” the poor at HIGHER rates than the wealthy, plus indirectly impact the working class more then the wealthy by driving away industry and economic activity (how does product liability tax the poor at a higher rate? The rich and poor pay the same premium hidden within a product, yet in the case of loss the wealthy are more likely to recover damages and more likely to receive larger awards, thus the wealthy receive far more coverage for the same premium)

    Historically thwarted exploitation of plentiful and cheap energy sources – nuclear, gas and oil, coal

    And now support absurd subsidies for PVC installations – Transfer wealth from the poor to the wealthiest who can afford to buy PVC installations… often with borrowed money, which also raises the cost of borrowing for the less fortunate and for businesses which might provide jobs…. in wealth-creating industries as opposed to wealth-destroying “green” industries dependent upon subsidies.

  55. When I left UK in 1965, petrol was twice as expensive as in Australia. 5 shilling and sixpence a gallon then, and 2 shillings a gallon in Australia.(Sydney). Now in our regional area of NSW, the cost is about $1.63 a liter. 4 and a half liters to the imperial gallon. Not cheap eh. I don’t know how the Brits can afford to run a Rolls or Bentley or some of these yank tanks.

  56. bushbunny:

    In your post at August 17, 2014 at 7:41 pm you write

    I think Richard you warned there could be dangers attached to solar thermal operations and I can’t remember exactly what this was?

    I think you are probably referring to Section 14.7 (on pages 16 & 17) of this this item.

    I am not sure about “dangers” from existing solar technologies but I have provided a link so you can see what I did say.

    I hope this helps.

    Richard

    • Thank you Richard I have a copy of the paper somewhere, I sent a copy to Tony Windsor for his perusal as he was on the board of the Climate change commission. I don’t think he read it. Anyway today there is news the two solar farms are quitting because of market uncertainty. Good.
      Also it seems if birds fly to close they get burned. My god, bird choppers now bird burners.

  57. BFL says:
    August 17, 2014 at 6:50 am
    One of the few true axioms in economics:
    “If you want more of something, subsidize it; if you want less of something, tax it.”

    Unless there are write offs for re-investment which then encourages more baseline growth. However in the U.S. the philosophy is instead to reduce the tax base when possible and also allow “tax escape” to other nations. In addition, human nature being what it is, profits will win out over shortcuts, be they unethical or immoral. Corporate structures are treated like individuals, however their human rulers don’t necessarily care as long as they have got theirs (re 2008 meltdown). An obvious attempt at reducing this deficiency and adding a layer of protection is oversight regulation, but we no longer want those either. How inexpensive the cost of living would be if all were honest.

    Did you intend to call for more of the same that is causing business and jobs to flee the USA? The actual solution is a low, simple tax system that encourages investment. Regulation has the same effect as taxation in that it increases the costs of doing business.

    And have you been in a coma for the last 5-1/2 years. We aren’t reducing our tax base, we aren’t reducing tax rates and we are throwing more and more regulations into the mix everyday.

  58. EROEI of 2.45 .
    That’s not so bad. It is also on the order of what I expected.
    We can maintain a civilisation starting at 3 so we’re nearly at survival levels. (given a sunny climate like Spain’s or California’s).
    As some process improvements in the fabrication have happened since the Spanish Solar Bubble, I wouldn’t be surprised if we would already manage a 3 right now.

  59. Edward: “So, how does a small manufacturer of windows get an oil depletion allowance?”

    Producers, spotting any window of opportunity in the tax regime, are quick to louver their way through it. In fact many tax breaks are the result of applying louverage skilfully to politicians. The oily industry is the grease that lays the golden handshakes. Losing incumbents, often old cranks in pane, turn to oily industrialists to bail them out of their financial jambs. I can see clearly now the abuse of the tax code will only end when the enablers argon and we insulate society from their influence.

    Soda glass is half full or half empty?

    Q: What is an E-certified window maker’s favourite song?

    A: “Down by the bay, where the watermelons grow, slack to my bones, I dare not glow, ’cause if I do-o, my mother would say, “Did you ever see some glass with a sunburnt sash? Down by the bay…”

    Methinks the window industry is equally stained.

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