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Running On Empty: How Environmentally Harmful Energy Subsidies Siphon Billions From Taxpayers 2002-01-31 Running_on_Empty.pdf News Release

Executive Summary

As the new home of Illinois PIRG's environmental work, Environment Illinois can be contacted with any questions regarding this report.

In the midst of a very grim budget picture, Congress is preparing to dole out huge new subsidies to the energy industries. Congress and the administration are ready to squander perhaps the greatest fiscal accomplishment of the preceding administration and Congress—a balanced budget.

After four years of budget surplus, it is now projected that this year there could be a $100 billion budget deficit. Created by both parties, the new budget deficit imposes a significant financial burden on our nation. This report takes aim at cutting wasteful energy subsidies which would only increase these budgetary pressures. Instead of blaming each other for the current fiscal situation, Republicans and Democrats must work together to reduce wasteful spending and restore fiscal discipline to the Washington budget process. Running on Empty: How Environmentally Harmful Energy Subsidies Siphon Billion from Taxpayers identifies nearly $62 billion in proposed and existing subsidies that, if eliminated, would protect the environment and protect the budget.

Budget in Crisis
The budget crisis may have begun during the summer of 2001, when the Congressional Budget Office reported a less-than-expected surplus due to a slowing economy. With the beginning of the fall, any surplus was doubtful. The tragic events of September 11 spurred a series of bailouts and emergency spending packages surpassing $100 billion. Congress also grappled with additional money for the insurance industry, as well as an economic stimulus package.

According to Mitch Daniels, Director of the White House Office of Management and Budget, the federal government began running in the red this past fall, with budget deficits projected for at least the next two years. During a speech to the National Press Club, Director Daniels stated, “… it is regrettably my conclusion that we are unlikely to return to balance in the federal accounts before possibly fiscal ’05. That is within the next two years. Things will have to break right for us to do that.”

Energy’s Free Ride
Since the 1920s, the federal government has subsidized the production of oil, gas and coal based energy in the United States. Through the utilization of the tax code, the federal government subsidizes the exploration and development of new oil, gas and coal deposits. If the initial goal for these tax breaks was to render production of these resources profitable, then the government has succeeded many times over. Six of the top 50 companies on the Fortune 500 list are petroleum related companies.

In the 1940s the federal government began subsidizing the commercial nuclear power industry. Taxpayer subsidized research and development programs, as well as the passage of the Price-Anderson Act, led to the government backed rise of commercial nuclear power. There are currently 103 operational nuclear power plants scattered across the country, each of which requires government subsidies to remain financially viable.

The success of federal programs in encouraging the development of oil, gas, coal and nuclear power has come at a tremendous cost to taxpayers and the environment. Scarce federal resources subsidize the nation’s most profitable and most dirty energy sources. Taxpayers contribute between $4 billion and $30 billion annually to the energy sector. 1 Between 1948 and 1998, the federal government spent $111.5 billion on energy research and development programs. Of this amount, 60 percent, or $66 billion, was dedicated to nuclear energy research, and 23 percent, or $26 billion, was directed to fossil fuel research.

Every year, the United States burns more than 900 million tons of coal—releasing 51 tons of mercury and nearly 2 billion tons of carbon dioxide into our air and water. Petroleum production spills 31,000 gallons of oil into U.S. waterways a day, and nuclear power is creating a mountain of deadly waste for which there is no safe disposal option.

A New Administration, An Old Energy Strategy
In his second week in office, President George W. Bush established the National Energy Policy Development (NEPD) Group, directing it to “develop a national energy policy designed to help the private sector, and, as necessary and appropriate, state and local governments, promote dependable, affordable, and environmentally sound production and distribution of energy for the future.” As part of this initiative, the NEPD released its report entitled “Reliable, Affordable and Environmentally Sound Energy for America’s Future.”

Unfortunately, the plan that the NEPD Group produced is neither “affordable” nor “environmentally sound.” The administration’s energy plan threatens the environment in the United States and around the world. At the same time, it proposed new spending subsidies and tax breaks for the coal and nuclear industries. The resurgence of both nuclear power research and development and clean coal technology represent a step back in energy policy.

Congress Acts
In August of 2001, the House of Representatives passed H.R. 4, the Securing America’s Future Energy (SAFE) Act — closely following the Bush Administration’s lead. H.R. 4 would give polluting energy companies an unprecedented $38 billion in many new or expanded taxpayer handouts. Of this total, $29.7 billion will directly benefit the oil, gas, coal and nuclear power industry. The remaining $8.2 billion went to utilities and automobile manufacturers that indirectly subsidize dirty energy. This report does not discuss these subsidies.

While H.R. 4 is a true giveaway to traditional energy interests, the current version of the Senate energy bill (S. 1766) also proposes billions of dollars for polluting industries. At press time, the total amount of these handouts was under consideration.

Adding It All Up
Current energy proposals all represent huge windfalls for the conventional energy industries: oil, gas, coal and nuclear power. While the fossil fuel and nuclear energy industries already receive more than $33 billion in subsidies that Congress passed decades ago, the subsidies in H.R. 4 would add substantially to this total.

If H.R. 4 were enacted, fossil fuel and nuclear power companies would receive more than $28 billion in new and expanded subsidies over the next 10 years. Providing Congress extends the current tax breaks and spending subsidies, fossil fuel and nuclear power companies would receive nearly $62 billion in total. These figures do not include tax provisions proposed in the Senate energy package. As this report went to print final details in the Senate bill were still being developed.

How Were The Savings Estimated?
In general, the savings figures in this report represent the total cost of a project to federal taxpayers over the life of the project. Where such information is not available, the savings figure provided is an estimate of the ten-year savings to taxpayers. This cost was identified by multiplying the current appropriations by a factor of 10, or in the case of tax provisions, extending the Joint Committee on Taxation’s estimates to 10 years. In a few limited instances, where necessary, a distinct and appropriate time period is used. Finally, because of the many variables involved in arriving at a final figure, these numbers are generally intended to be illustrative rather than definitive. The savings given are conservative estimates, and phase-in periods are usually not accounted for unless Congressional Budget Office estimates are used.

A “$N/A” is used for recommendations for which no reliable savings estimate is available.