by David Turver
Whenever discussing renewables subsidies on the internet, there is a form of Godwin’s Law that means it is inevitable that someone will come along and say: “Ackshually, fossil fuels are subsidised more than renewables,” or words to that effect, as shown in this example. I have often thought the claim to be bogus, but until now had never dug into the detail to prove the case one way or the other.
Energy is one of the elementary foundations of modern society. Almost any activity you can think of requires energy input of some type or other. Factories need energy to make things. Offices need energy for heating, lighting, cooling and running computers, as do our homes. Hospitals need energy to run operating theatres. We need energy to go to work or visit friends and family, whether we travel by car or train. We need energy to do the family shopping, cook, to travel to the gym, cinema, or restaurant. Energy is fundamental to every economic and social interaction, so it would not be surprising if energy were subsidised. Expensive energy is like a tax on our very existence, so taxes on energy act as a drag on society.
It is therefore vital that we get to the bottom of the claimed fossil fuel subsidies in the U.K.
What is a Subsidy?
In simple terms, a subsidy is when the Government pays (or mandates consumers to pay) for an activity to occur that otherwise would not happen if the market were left to its own devices. Examples might include grants to theatre companies or awarding CfD contracts to offshore wind.
A tax is where the Government levies an extra charge on a transaction or activity. For instance there is Value Added Tax, levied at 20% for sales of most goods and services. There are also special taxes such as levies on alcohol and tobacco and of course income tax. Reduced rates of tax are still taxes, quite the opposite of subsidies. No taxes and no subsidies represent a neutral position.
When it comes to oil and gas, the definition of a subsidy becomes a little controversial. The International Energy Agency (IEA) defines fossil fuel subsidies as “measures that reduce the effective price of fossil fuels below world market prices”. It is certainly true that some countries, such as Russia and Iran, do subsidise hydrocarbons according to the IEA’s definition. Interestingly, the Government said in 2021 the “U.K. does not give any subsidies to fossil fuels” and the U.K. does not appear on the IEA’s Top-25 list from 2022 of countries that subsidise fossil fuels (see Figure 1).
However, it should be noted that in the database buried in the IEA’s website it does claim that the U.K. offered fossil fuel subsidies of around £6 billion in 2022, but none in any other year. There must be something about its definition that omits the U.K. from its Top-25 graphic.
Where do the Claims of U.K. Fossil Fuel Subsidies Come From?
Given the Government statement and the U.K. not appearing in the IEA’s list of top subsidisers, we need to look at where these claims of massive subsidies come from. Unfortunately, the idea that the U.K. heavily subsidises fossil fuels has a long history. This 2013 article from the Guardian claims the U.K. is “subsidising its coal, oil and gas industries by $4.2 billion (£2.6 billion) a year”. The Guardian has produced similar articles over the years such as this one from 2019 claiming “the U.K. leads the European Union in giving subsidies to fossil fuels” and this one from 2023 claiming “the U.K. Government has given £20 billion more in support to fossil fuel producers than those of renewables since 2015”. Note that they use the words “support” and “subsidy” almost interchangeably, eliding so called “tax-breaks” with subsidies. The Guardian is not the only publication making this type of claim. Politico also got in on the act in 2021 claiming that Britain “supports the fossil fuel industry through tax breaks and subsidies… to the tune of £10bn a year”.
When digging into the articles, you can see that their definition of subsidy includes consumers or producers paying less tax on fossil fuels than the authors believe appropriate. At the risk of repeating myself, paying less tax still means the activity is taxed, which is the direct opposite of a subsidy. Paying less tax than an arbitrary level is not a subsidy. Even paying zero tax is a neutral position and certainly not a subsidy.
How Big are Fossil Fuel “Subsidies”?
The Politico article linked above refers to data from the OECD to support its £10 billion (for 2020) claim. By digging into a more up to date version the data, we can evaluate the veracity of the claims. Broadly speaking the “subsidies” or support mechanisms are broken into two categories: producer subsidies and consumer subsidies.
Using the data for 2022, the total alleged support for oil and gas producers amounts to £3.1 billion. The largest component of this total is £2.25 billion of tax relief for decommissioning. This arrangement allows companies to claim capital expenditure connected to decommissioning old fields against corporation tax. For oil and gas companies, decommissioning their fields is a normal business expense. In normal company taxation, business expenses are deducted before calculating taxable profits. There is nothing to suggest that deducting decommissioning expenses before calculating taxable profits is anything other than normal business practice and is certainly not a subsidy. A further £0.85 billion of “support” is alleged because companies can treat investment in new fields as a business expense to set against the Supplementary Charge that oil and gas companies are subject to on their profits. Again, this is not very different to the investment allowances made to companies in other industries and does not amount to a subsidy.
Using 2022 data again, there is about £12.9 billion of claimed routine consumer support for fossil fuels. £7.8 billion of the total comes from consumers being charged 5% VAT on their domestic energy bills and not the normal 20% rate. It should go without saying that 5% VAT is still a tax, quite the opposite of a subsidy. A further £3.5 billion of the alleged support comes from fuel duty relief where some types of fuel pay less fuel duty for some uses than others. Again, some fuel duty applies, just not the full rate. This is not a subsidy; it is just paying less tax. Another £1.4 billion of “support” comes from reductions in the Climate Change Levy. Ironically, much of this support is granted to organisations with Climate Change Agreements to reduce energy use or CO2 emissions. In the crazy world of climate activists, paying a lower Climate Change Levy by agreeing to reduce emissions amounts to a fossil fuel subsidy. Finally, a further £0.2 billion of consumer support comes through the Warm Home Discount. This is a reduction in energy bills for older pensioners and other vulnerable people and it is probably justified to term this a subsidy, although it applies to gas and electricity from all sources including renewables, not just fossil fuels. Out of a total £16 billion of supposed subsidies, only £0.2 billion could be reasonably termed a subsidy and an indirect one at that.
However, there is a ‘but’ and it is quite a big but because we also need to consider one-off consumer support schemes. There was £19.4 billion on the Energy Price Guarantee for domestic consumers, £2.6 billion on the Energy Bill Relief Scheme for non-domestic consumers and a further £2.6 billion on the Energy Bill Support Scheme. These schemes amount to a total of £24.6 billion and there is a case to classify this money as some sort of subsidy. However, these schemes should probably be referred to as indirect subsidies because they covered all forms of generation, not just fossil fuels. Note that as Figure 1 shows, this support did not meet the IEA definition of a subsidy, or the U.K. would have appeared in about 12th place. We should also bear in mind these schemes were one-off responses to a crisis and are no longer in operation.
Taxes on Fossil Fuels
If we are to get a complete picture we should also consider the taxes the U.K. levies on fossil fuels. These can be split into two categories: producer taxes and consumer taxes.
Oil and gas producer taxes comprise ring fence corporation tax, the supplementary charge (extra corporation tax), petroleum revenue tax and the energy profits levy (also known as the windfall tax). According to the OBR, the total receipts for these taxes rose sharply from £2.6 billion in 2021-22 to £9.8 billion in 2022-23 (the most comparable year to calendar 2022). Those who claim we subsidise fossil fuels are effectively saying we should increase these taxes by the £3.1 billion “support” identified by the OECD above. Once again, paying less tax than some arbitrarily defined level is not a subsidy.
The ONS publishes the cost of environmental taxes, many of which can be characterised as consumer taxes on fossil fuels. These include direct taxes on fossil fuels that raised the following amounts in 2022:
- Fuel duty, £24.8 billion. Those who say we subsidise fossil fuels would add the £3.5 billion of fuel duty relief identified by the OECD to this already massive tax, making it much more expensive to move around.
- Emissions Trading Scheme which raised £4.6 billion including U.K. and EU schemes.
- Climate Change Levy (CCL), £2.1 billion. Those claiming massive fossil fuel subsidies would add the £1.4 billion CCL reductions identified above to this already significant tax, effectively cutting incentives to reduce emissions.
In addition, there are indirect taxes on fossil fuels that raised even more money in 2022:
- Road Fund Licence, £5.2 billion (remember this tax does not apply to electric vehicles yet).
- Air Passenger Duty, £3 billion.
- The Plastic Packaging Tax brought in £0.3 billion. Plastic is made from fossil fuels, so this is effectively another tax on fossil fuels.
This gives a total of £31.5 billion of direct taxes and a further £8.5 billion of indirect consumer taxes on fossil fuels.
Finally, VAT is levied on domestic energy, petrol and diesel which is another direct tax that falls on fossil fuels. However, I cannot find a reliable data source that gives an analysis of VAT receipts arising from hydrocarbons so we should simply note VAT raises about £160 billion in total each year and fossil fuels will contribute a significant portion of that total.
Conclusions
This analysis is summarised in Figure 2 below.
First, we can dismiss the so-called subsidies for producers as normal business expenses deducted from taxable profits. We can also dismiss all but the £0.2 billion Warm Home Discount ongoing consumer “subsidies” as simply lower taxes for some uses of fuel. Tax is still tax and lower tax is not a subsidy. If we are generous to those who claim we subsidise fossil fuels, we could note that in 2022 there was about £24.6 billion of one-off indirect subsidies. However, these schemes are now no longer in operation.
On the tax side of the ledger, we have £9.8 billion in producer taxes, £31.5 billion of direct consumer taxes and a further £8.5 billion in indirect consumer taxes, plus an unknown amount of VAT. Even in an exceptional year when the various energy bill support schemes were in place, taxes exceeded the alleged subsidies by a wide margin.
Now the energy crisis has subsided we are left with just £200 million of indirect subsidy to help the elderly and most vulnerable with their energy bills offset by close to £50 billion of direct and indirect taxes as shown in Figure 3.
However, we should note it is likely the fossil fuel tax take will fall with lower oil and gas prices. Production will likely decline due to a lack of investment driven by the 78% marginal tax rate on profits, leading to a bigger fall in producer taxes. On the other hand, it is rumoured that the Chancellor will increase Fuel Duty in the Budget. High taxes mean high prices which in turn function as a tax on the rest of the economy leading to steady, inexorable decline. If we want a thriving economy, we should be cutting taxes on energy, not increasing them. Note again, lowering taxes is not a subsidy. Zero tax is not a subsidy, it is a neutral position. Remember this when some activist claims we subsidise fossil fuels.
David Turver writes the Eigen Values Substack, where this article first appeared.
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The nutters are desperate the UK needs a change of government now
So who do you suggest? I don’t think there is one to mend another.
We are more than willing to send K.H. over to run (erm, ruin) things for you.
They seem to be ruining things very well on their own.
The direct comparison with renewables should be power generation. And there there is one huge subsidy. The government (CEGB) built the coal power stations, at least, with taxpayer funds. Plus of course the transmission networks and other infrastructure.
On the fuels, the basic deal is that the people owned a resource, as bed of coal or a gas field. Someone was licensed to take this away and sell it (and keep the money). The people no longer have that asset. This is supposed to be compensated by royalties. But the royalties are way too low to be real compensation for the asset. That is a major subsidy.
“The direct comparison with renewables should be power generation.”
Wind and solar only exist because of massive subsidy and mandate.
They DESTROY the environment with zero recompense.
They pay ZERO in tax, and are only a erratic parasitic imposition onto the grid.
Your stilted understanding of “subsidy” is as erratic as wind power and as meaningful as solar energy at night.
Wind & solar indeed only survive – just – due to massive global government funding. Even WITH the government handouts renewables are just not economically viable. But observe that grid scale renewables only exist in the first place due to the war on Co2.
It is quite unbelievable to think that the entire green boondoggle, the countless billions of dollars wasted, the increase in mining, the environmental destruction on a massive scale to accommodate wind and solar factories and transmission, the adverse economic and social impacts as energy costs soar, businesses close and jobs are lost. All of it, premised & justified on a ‘scientific’ hypothesis relating to the earth’s climate.
It is good to see the increasing momentum and push-back against the false ‘climate’ agenda.
Check your Premise… Ayn Rand
Yes we should compare direct subsidies….
Here’s some for 2007, 2010 and 2013. And subsidies for wind and solar on keep climbing.
So you’re counting coal plants that no longer exist as a huge current subsidy of fossil fuel energy? Okaaaay, then. The UK shut down the last coal plant last month. The government-owned CEGB built and operated power plants from 1958 until the 1990’s when they finally got a clue about economics and privatized the industry. The 1990’s was, lemme see… 30 years ago. The lifetime of coal plants is about 40 years. So what fossil fuel plants has the UK “subsidized” in the last 3 or 4 decades, after they transitioned from socialism—yes! what do you think “1984” and “Animal Farm” were about?—to free markets? So you’re lumping in power plants built under long-defunct English socialism (Ingsoc). Funny.
Watch it, Winston…
So that means the units at Drax burning wood chips (counted as “renewable”) are receiving a subsidy because CEGB built them?
How much coal is currently being dug out of the ground in the UK, Nick? And how much gas and oil from onshore sources compared with offshore? How much ‘government’ money does the average nuclear or gas power station receive annually to not supply electricity when it isn’t needed, or when they can’t supply electricity? And by the way, historically landowners – of whom there weren’t that many as a proportion of the population – did rather well out of coal royalties.
OK, Nick. Let’s do that. Give us a per-kWh cost analysis of fossil fuels vs. “renewables,” excluding hydropower. Remember to include spinning reserve backup and all pre-generation costs.
In all honesty you shouldn’t include the Transmission Network and associated infrastructure as both Solar and Wind must make use of those same assets and are benefited by any subsidies included therein.
Solar and wind are likely to be built further away from where the energy is used than coal and gas power plants so they need extra transmission and associated infrastructure.
Oh dear, Nick.
Stop all fossil fuel production and usage in the UK today*, and the entire government would be almost instantly bankrupt. The UK government, like all developed country governments, is almost entirely dependent upon taxing fossil fuels, probably the most taxed products in the world.
(*ignoring the slightly inconvenient fact, at least for some, that 90% of the population would die within a week.)
stokes the nutter.
People get PAID to mine coal and extract the oil and gas.
Many of these salaries were extremely high and employment was long term.
Almost nobody gets paid for installing wind farms and solar panels and the life of them is under a decade.On top of that the waste is toxic, almost impossible to recycle and both the destruction and production of them is subcontracted to either the PRC and/or the poverty stricken areas of Asia*….
(*just like the dismantling of our asbestos ridden old ships btw…)
I understand the grammar logic behind saying a reduced tax is not a subsidy, but to most people, it definitely is.
If there’s a head tax of $1000 per person, and half the population only pay $500 for no particular reason but cronyism, then the “proper” average tax should be $750, and you can bet those $1000 payers will feel they are subsidizing the cronies.If governments mandate that apartment buildings include 10% “affordable” apartments at less than market rates, everyone knows the landlord isn’t subsidizing the poors; the other tenants are.When manufacturers sell new products at a loss to attract wary consumers, everyone knows their old line products subsidized the development and initial marketing.Ford lost $57K on every EV they sold. Everyone who buys Ford ICVs know they are subsidizing those EVs.When governments and businesses set taxes and prices and budgets, everything has to balance out one way or another. Tax breaks and reduced prices have to be made up somewhere, and while economists and lawyers may not want to call hose subsidies, laymen know that they pay more when others pay less.
If two people carry a sofa and one can’t lift his full share, the strong one subsidizes the weak one.
If there’s a pile of lumber or bricks to relocate, the strong worker who carries twice as much per trip knows he is subsidizing the weaker one.
Economists and lawyers and grammar nazis can quibble about that all they want. They are still economists and lawyers and grammar nazis, and I am tired of subsidizing their babble.
ETA that all my examples include paying something more than zero, yet still being subsidized by those paying more.
Are you implying that fossil fuel-based power generation is not “carrying its fair share of bricks”, thus penalizing renewables, i.e. if the former were taxed more then renewables would be cheaper? Higher taxes on mandatory FF backup to further subsidize renewables? Like adding water to a bucket with a big hole in it.
-15? Tough crowd here this morning!
-31 now. Pretty poor turnout. More insults than rebuttals. And the rebuttals didn’t address my core point. I tried to make it clear with the rental example. All in all, I think I ruffled the right feathers.
It looks like you described a third party transfer tax. Rather than directly tax the landlord and send check back to qualified tenets designates landlord as the government transfer agent.
As to the sofa and bricks there will only be one sofa moved and one pile of bricks moved or the owner will need to hire more people because the stronger workers will over time only carry same amount as weaker unless compensated for with higher pay.
Bastiat and Friedman always prevail.
A Subsidy is Money the Government pays to a business for doing nothing and producing nothing of value.
A Tax Break is money the Business doesn’t have to pay the Government for goods and services provided…after the fact.
Subsidy … Paid by the Government to businesses for doing nothing
Tax Break … Money business doesn’t have to pay TO the Government after doing something
How about this for an example? Successful hedge fund managers have high incomes but pay taxes at a much lower rate than those earning ‘ordinary’ income. (The so-called carried interest loophole). They’re paying taxes, but are they being subsidized or just benefiting from cronyism?
How about addressing my example of subsidized non-zero rent for “affordable” apartments? I’ll simplify it for you.
10 unit condo building. Upkeep is $1000 a month. By law, two “affordable” housing units pay none of that. The other 8 now pay $125 a month. How is that not a subsidy?
Very different from a government subsidy for wind and solar.
That’s nice. The article wasn’t only about wind and solar subsidies, and my example wasn’t either.
Aside from the fact that there is an extra 0, or a missing 0, in what way is that housing subsidy essentially different frp, wind & solar subsidies?
wind and solar get an upfront direct subsidy payment…
… as well as preferential payment mandates etc.
If it were a true Government Subsidy the 8 condos would still only pay $100 (instead of $125) and the Government would pay the remaining $200. Agree that it is a subsidy just one PAID by the other residents.
Taking advantage of the tax code. And that has to do with what regarding what subsidies are?
The tax code doesn’t write itself – someone ‘lobbied’ the government to obtain a lower rate for income denoted as ‘carried interest’. As to its relevance to ‘subsidies’, the author of this article stipulates that the payment of any tax means that an activity isn’t subsidized. I’m just pointing out that a subsidy can take the form of subjecting an activity to a lower rate of taxation, a lower level of regulation, etc.
Maybe a better description of subsidy is the government using taxpayer money or its authority to “encourage,” in the case of use of taxpayer money, or *force,* in the case of use of its authority, the use of certain “favored” (by the government) products or services.
Normal business tax deductions for depreciation, etc. are not “subsidies,” nor are royalties that ‘Nick Stokes’ thinks are “too small” (while he conveniently ignores the risks of oil and gas exploration which are absorbed by the producers).
Probably a good “acid test” for what constitutes “subsidy” vs. not would be “Would the production of the product or service be pursued without government interference in a free and open market?”
The answer for coal, oil and gas exploration is an overwhelming YES if you expect to have modern civilization.
The answer for grid connected wind and solar power is an overwhelming NO.
Did you get your business degree from the Karl Marx Institute?
I got mine from a better brand of corn flakes than you got your certificate of non-sequitor.
Cute, but meaningless. The point is you don’t understand business and finance.
Most of these so-called subsidies are one of the following:
Tax allowances for capital expenditure that would normally be deductible, but only via depreciation over time. This mechanism is not applicable logically to many capital costs, so are allowed to be deducted when spent. This is in absolutely no way a subsidy, because the tax is always paid, but might be deferred for a few years.
A relief on the duty paid for fuels for mining equipment. Since this duty is designed to be for road infrastructure maintenance, and said equipment doesn’t use the roads at all (most won’t even fit), then it is not appropriate to charge this duty for their fuel. The same is allowed for agricultural equipment.
So not actually subsidies at all. To use your analogy, it’s like claiming that the guy walking down the opposite side of the road, who has nothing whatsoever to do with the sofa, nor the people carrying it, is being subsidised in some way by the people carrying the sofa. That sounds like communism.
If there is a tax or duty or whatever it may be called on some economic sector but there are special rules or considerations for a government favored part of that sector to pay less tax or no tax compared to the other parts, that tax reduction definitely is a subsidy.
I don’t think so. “Heating oil” vs. diesel fuel is a fine example. Heating oil is taxed at a lower rate because the higher tax on diesel is levied to fund road repairs. Heating oil doesn’t power vehicles using the roads and therefore shouldn’t pay road maintenance based taxes. Ditto for diesel dedicated to farm vehicle use, since farm equipment is being used on farms not to drive on the Interstate.
Those are not “subsidies,” just recognition of different uses that don’t all justify the road maintenance based taxes.
To my mind, it’s how the treatment of fossil fuels differs from the treatment of other industries that counts. If a fossil fuel operation is taxed less than a comparable non fossil fuel operation, then it is legitimate to rank that as a fossil fuel subsidy or if taxed more as a fossil fuel tax. On that basis, some of the subsidy claims dismissed in the article I think should be classified as subsidy. However, things like royalties should then be counted as extra taxes. It gets tricky when a tax or subsidy applies to fossil fuels and to some other industries but not all other industries. Perhaps the best approach is to compare the fossil fuel industry taxes and subsidies (and things like government-supplied infrastructure) with those for the renewables industry. Even there it gets tricky because of renewables mandates. I doubt there is a single clear answer, but in any case net fossil fuel subsidies are surely going to be way below those for renewables.
The UK Government doesn’t apply VAT on children’s clothes and shoes. Is that a subsidy on people with children or small feet? There is no VAT on printed matter, books and newspapers, is that a subsidy on people who read books and newspapers? Should the Guardian be complaining about that?
VAT on domestic is 5% is that a subsidy on people who charge an EV at home?
My view is that governments have two main criteria for taxes. First tax at rates they think will maximise income so vary taxes accordingly. Second they don’t tax certain things at the maximum possible rates for political reasons for example children’s clothes and domestic electricity.
The UK Labour government may be about to test the first criteria above on certain taxes. We’ll find out shortly.
Its about GAAP, Generally Accepted Accounting Principles. A common activist argument is that the companies pay too little tax because they are allowed to deduct depreciation of assets due to extraction from taxable income. The difference is then argued to be a subsidy.
In fact if as management you did not deduct depreciation from taxable income you would be liable to prosecution and would be convicted of fraudulent accounting – overstating earnings. Easy case to make: you pretended this oil field would last for ever. In fact it had a finite life and you had to provide for its replacement to give a correct picture of the state of your business. Do not pass Go, do not collect $200….
Nick makes a different argument above: that the terms on which exploitation of the coal or oil or gas fields was licensed is too generous, and this excess generosity should be counted as a subsidy. Governments, he seems to be arguing, should have charged more for licenses.
Not at all sure of that. He may be referring to particular Australian circumstances. Generally however the license fee or royalties are the result of an open market tender, so its hard to argue the winning bidder was somehow subsidized. Its what the market would bear. And in many cases the extracting companies are the owners of the mine or oil field, so there is no subsidy in their activities to exploit being permitted. Any more than there is in a farmer being allowed to grow crops on the field he owns or leases.
The real subsidy for renewables is that intermittent electricity supply is by fiat priced the same as dispatchable.
‘The real subsidy for renewables is that intermittent electricity supply is by fiat priced the same as dispatchable.’
Probably saying the same thing, but my beef with renewables is that they are given preferential treatment over conventional energy sources in the determination of dispatch order, e.g., they don’t have to bid into advance auction(s) and/or they are not penalized when they don’t ‘show up’.
Nick’s expertise is in climate modeling fantasy. He obviously knows nothing about business or accounting.
coming: a tax on the cow, a tax on the sheep, a tax on the chicken, a tax on the fertilizer. etc.
If you have no shoes I’ll tax your feet – Taxman!
“If a fossil fuel operation is taxed less than a comparable non fossil fuel operation, then it is legitimate to rank that as a fossil fuel subsidy or if taxed more as a fossil fuel tax.”
No. Less tax is not a subsidy. The government is not paying the business.
It’s not taxed less. The tax is allowed to be deducted immediately instead of over years through depreciation. This is sensible and appropriate. The tax is always paid, it’s merely the timing of the payments that changes.
So, you believe that the non-tax for building Wind and solar is going to be paid someday? Where did you get that idea? It has certainly never been mentioned in any of the very many articles about W&S preferable treatments.
This theory sounds much like the one made by the person who has to have not been paying attention. He claimed that a mention in the article to which he was commenting of
buy the electricity from a wind or solar generator, or said generator gets paid for the theoretical amount of electricity that could have been sold if the utility had someplace to put it
must be a very special one-off situation not applicable to the industry in general when, in fact, it is the norm.
It’s not taxed less. The tax is allowed to be deducted immediately instead of over years through depreciation. This is sensible and appropriate. The tax is always paid, it’s merely the timing of the payments that changes.
Anything to back up this strange idea that you are presenting?
I think you meant “the amount of depreciation of the assets” is allowed to be deducted (from taxable income) immediately.
Correction. A tax is where the Government steals money from its citizens using the threat of forced incarceration. Also known as extortion.
A “give-away budget” (a phrase loved by the BBC) is where the government steals less from its citizens.
Oil depletion allowance is a subsidy
The same kind of allowance
applies to all wasting assets. It is general, not a fossil fuel subsidy.
Wrong. Depletion is the same as depreciation, available to either business, fossil fuel or beer distributor (depreciation on the truck).
Yes, this was my point about GAAP above. You are reducing an asset by extraction. If you report earnings on that activity without taking account of the reduction of the asset, it is false accounting. You are misrepresenting the real profitability of the business, stating it as higher than it is. But if you reduce earnings by taking an allowance for the reduction, the result will be to lower taxable earnings and thus lower taxes. Ron and Mike are right to say this is somewhat similar to depreciation of any limited life asset.
People with no experience of business often don’t understand that earnings statements, and thus the profits on which taxes are levied, are not simple cash in – cash out. The earnings of a company are based on all kinds of non-cash items. Revenues, for instance are not cash-in. Often revenue is booked well before payment. And negative items on the income statement are often not cash out. When you take a provision, for instance, for bad debt (which you had previously booked as revenue). Correct business accounting consists of taking charges and taking revenue in a way which reflects the real position of the business as an ongoing concern, which will be different from its current temporary cash position.
This is why a profitable company can, all the same, have cash flow and liquidity problems. It may be profitable in its accounts, but this doesn’t stop it from running out of cash in hand. Similarly by selling off assets you can have lots of cash coming in, but you may be unprofitable because the asset base is reduced and the strategy is unsustainable.
The view that depletion allowances are subsidies rests on not understanding, or not correctly representing, business accounting as practiced all over the world, and as reflected in GAAP (Generally Accepted Accounting Principles).
I am a CPA with a specialization in federal and state taxation in the US with a lot of exposure in the oil and gas exploration space.
To clarify jim Walters point, percentage depletion in excess of basis is a tax subsidy. That is the only tax subsidy the oil and gas industry receives. further, percentage depletion is limited to independent producers with less than 1,000 bbls of production per day. None of the majors receive that deduction. The other so called subsidies such as direct expensing of IDC is only a timing issue and it is only available for IDC incurred in the US.
Omitted from the “tax subsidy” computation by the advocates is the severance taxes paid to the state and federal government. Severance taxes are paid on the “gross” revenue, not the net income. The rate varies by state and by the federal government from 2% to 7% or 8%.
By all methods of accounting and/or economic analysis – the severance tax paid vastly exceeds any real subsidy and phantom subsidy received by the oil and gas industry.
“tax subsidy”, that just screams oxymoron.
It’s not taxed less. The tax is allowed to be deducted immediately instead of over years through depreciation. This is sensible and appropriate. The tax is always paid, it’s merely the timing of the payments that changes.
Look you people, lay off…
Helping scientists cope in a climate of fear
Climate experts need psychological support to help them deal with the work they do and attacks against them
https://apple.news/AIYrRgqAuRvGg8TKPrbq9Hw
They need a kick up the derriere
Climate ‘experts’. I’ll put them in the same basket as the COVID ‘experts’ – the rubbish basket.
From the article — Climate scientists are frontline emergency workers in need of support. That statement is a slap in the face to real first responders, it is a disgraceful comment.
Apparently, there is an emotional toll that scientists experience working on climate, huh? I guess so, it must be terribly depressing staring at computer models every day and predicting another ‘tipping point’ leading to certain human extinction…..that never happens.
Expert: someone who doesn’t know their fundament from their elbow. (Dunning Kruger)
I think it has more to do with the fact that they know they are lying to the public to get their paycheck. That has to take an emotional toll on anybody but a narcissist or psychopath.
The day climate scientists are called out on a snowy January evening to search for two kids lost on a mountain is the day I will recognize them as frontline emergency workers.
Emergency. LMFAO.
When the Earth’s temperature begins its descent into the next glaciation, THEN they can talk about an “emergency.” Not that they will be able to do anything about THAT, either.
A warming climate during an INTERGLACIAL period DURING AN ICE AGE is *not* an “emergency.” It is GOOD NEWS.
Could that be termed “physiological support”?
And a rolling pin across the head and a pie in the face. Repeated ad infinitum.
Life needs energy and the climate change nutters clearly use up as much as anyone else what with their propaganda, hypocrisy, and lunacy. It would be a major job unraveling all the damage the nutters have done and are doing, especially wind and solar, but it’s clear the tide is starting to turn. .
There is nothing wrong with subsidies.
If we leave everything to the market there will be no investment that returns general benefits to the wider community, above those directly investing.
You can wave goodbye to all but the most populist of arts too. Only porn and social media make a profit. At least one of which is bad.
There is nothing wrong with taxation.
If we leave everything to the market there will be no no long-term investment in infrastructure and no general goods. Why pay for the healthcare an education of someone else’s child just because they will one day pay for your pension and cure cancer?
The whole premise of this article is silly. We do support industry because industry is good.
We do support heating people’s homes because deaths from cold is bad.
And that’s all good. It’s what democracies do. People vote for a stronger society. People vote for subsidies and taxation to build a stronger nation.
And that’s all good.
My thoughts, exactly!
/sarc
If our taxes were being administered by honest people and only being used to build necessary roads, hospitals, parks, and schools, I would agree with you. None of that is the case, though, is it?
Note that before universal taxation, we still had arts, free education, and social care. How?
Well, you’re an avowed Communist so we expect you to have that opinion. I Think you will find that we do have schools and investment even though we have a market economy. And there are people who pay for the privilege of experiencing art. It may just not be the same art you would like to experience.
My fellow Courtney: I saw the headline and thought, “Oh, goodie, another exercise in semantics regarding the “s” word”. But the author began by defining the “s” word, a good start. Most comments, starting with Mr. Stokes, use a different definition without acknowledging it, a useless discussion.
I agree that there’s nothing objectively wrong with “subsidies” or “taxes” (and if there were, I don’t wanna be right as the old song goes), but the premise of the article for me is valid, it’s a reply to activists who want their program subsidized. Activists have learned that ordinary folks think subsidy = bad, so they won’t admit to the subsidies they get while complaining that others get subsidized. To me, it’s all palavar- people want roads and electric grids, so we paid for them.
You can wave goodbye to all but the most populist of arts too
There was a time when art wasn’t subsidized by government, but was commissioned or underwritten by wealthy patrons. Our most enduring works of art (including music) come from that time.
All the subsidies for wind and solar are helping build a stronger nation?
The top 25 are command economies, where resources are allocated by an oligarchic or fascistic state. UK is a welfare state, where wealth is endlessly taxed and reallocated amongst the loudest of the population and “leaders” skim off the top. The UN disapproves of the former and is, or wants to be, a part of the latter.
I think if you look close enough- almost everyone and every entity is in some way subsidized. So, any subsidy going to fossil fuels must be seen in that context. I think most of these subsidies should be terminated as I’ve become a libertarian in my geezer hood.
Read michel’s explanation above. If you want an orderly accounting of assets/liabilities and profits/losses you have to account for the procurement and usage of assets.
Mr. Nice: Unless you all work with the same definition of “subsidy”, it’s not a useful discussion. Here, the author tried to lay that down, but the discussion veers off into semantics. I find the whole subject to be silly, we “subsidize” roads for reasons so obvious, nobody raised the issue until greens (awash in subsidy cash) tried to justify green corruption with a ridiculous “tu quoque” argument.
I just think arguing about a topic when you have limited knowledge is useless. Michel gave a nice explanation how and why assets are accounted for and I thought it might help Mr. Zorzin. I think Mr. Zorzin is a great contributor to this blog and he not only can give us great information based on his expertise, but he can also learn from others.
Sir, I find this, “ we “subsidize” roads” from your post curious. I pay gasoline tax, county road tax, bridge tolls, toll fees on certain roads, excise tax on tires, license fees to drive on the roads, and the bond payments over time to cover full cost. Then pass some of the full cost on to fixture generations as roads last decades.
Where do you see the subsidy for roads coming in?
There are privately financed roads in the US, but they charge to drive on them and people voluntarily pay.
Without oil and cement there are no modern road systems. Cannot end fossil fuels.
But..
“Globally, fossil fuel subsidies were $7 trillion or 7.1 percent of GDP in 2022”
According to the IMF subsidies were 6times higher as compared to the IEA figures of “just” 1.2 trillion. Because..
“subsidy reflects undercharging for supply costs (explicit subsidies) and 82 percent for undercharging for environmental costs and forgone consumption taxes”
At current prices the world oil market amounts to ~$2.3 trillion, and all fossil fuels likely <$4 trillion. So, logically, any amount of fossil fuel burnt is a net economic loss. We could be much richer if we gave it up right away.. 😉
It’s considerably simpler here in the US.
The government does not pay oil and gas producers to explore and develop oil and gas fields.
The government does not pay oil and gas producers to transport oil and gas to where it can be processed and refined.
The government does not pay oil and gas marketers to deliver oil and gas to end use customers.
The government DOEs charge taxes on oil and gas producers and marketers who produce fuels from government owned lands, including lease fees, royalties and severance taxes, plus the usual business taxes.
The government DOES charge fuel taxes on fuels to end use customers, including road use taxes plus in addition, in at least one state (CA) sales taxes.
Ipso facto, there is no government subsidies for oil and gas in the USA. That type of policy does in fact vary nation to nation.
As contrasted to the massive subsidies provided to producers of wind and sola (but not nuclear or hydro), as well as subsidies paid to customers who purchase solar systems, electric vehicles, etc.
The government subsidises conmen like Elon Musk to make electric cars which only the wealthy can afford, then in 10 years will attempt to scrap them using recycling subsidies whcih have yet to exist.
Musk’s billions come from printing zillions of USD and ever increasing US debt
+
subsidising the miserable and dirty extraction of the minerals needed to power these motors charged mostly from nuclear power (in France).
US billionaires?
Just follow the money trail.
Most of it is just hyped up pump and dump as per usual.
However.
If you want to follow proper subsidy pump and dump dosh, just take a look at PRC and their housing+export markets.
Economies in the west are just ham amateurs compared with the PRC.
Don’t forget, VAT is levied on the cost of the fuel, plus all the duty added to that cost. A ‘tax on a tax’ in other words.
And most “capital gains” on investments and, especially, real estate consist in large part of inflation, so you get taxed on “the hidden tax.”
If there is a tax or duty or whatever it may be called on some economic sector but there are special rules or considerations for a government favored part of that sector to pay less tax or no tax compared to the other parts, that tax reduction definitely is a subsidy.
In the US oil and gas companies also pay “royalties” on oil and gas production to the government. “Royalties” is spelled T-A-X as well (no pun intended).
😁
My routine response to the fraudulent ‘subsidy’ claim, is to offer to subsidise them ten million dollars the way fossil fuels are subsidised, if they’ll subsidise me one million dollars the way renewables are subsidised.