Politics & Policy

Warren’s Low-Wattage Understanding of Energy Policy

The playing field is not “rigged” in favor of Big Oil.

In last night’s Massachusetts Senate debate, Elizabeth Warren and Scott Brown tangled over the question of energy policy, and Warren had a particularly curious argument. After Brown emphasized an “all of the above” energy policy, and criticized Democratic policies that subsidize renewable-energy production, Warren responded: “Well, so, Senator Brown says he’s about a balanced approach; he’s not. He’s about a rigged playing field. Our clean-energy industry . . . has to fight uphill against the oil subsidies.”

She didn’t just say this once; she repeated the argument several times. It may seem to some prima facie laughable that the “playing field” of energy production is best leveled by raising subsidies for certain producers, but there are even bigger flaws in her argument: First, in gross terms, the subsidies allocated to green-energy producers are much larger than those given to fossil-fuel production, and second, the former are usually straightforward subsidies, credits, loans, and grants, while the latter are almost exclusively typical business deductions and don’t “rig” the playing field in the same way that green-energy support does.

#ad#Even if we assume that all subsidies and tax exemptions to these industries are indeed alike — in whose favor is the game rigged? Clean energy, and it’s not even close.

A Texas Comptroller’s study in 2006 found that federal clean-energy subsidies amounted to 4.5 percent of total consumer spending on those sources, while oil-and-gas and coal subsidies clocked in at just 0.83 percent. That makes renewables more than five times more subsidized than nonrenewable sources. The single largest recipient of subsidies when the study was conducted was not the gargantuan oil-and-gas industry but that swing-state sop, ethanol. The nominal costs of renewable subsidies totaled 83 percent of the dollars allowed to fossil-fuel companies, despite the latter industry being magnitudes larger than the former.

And that was before both oilman President Bush and President Obama dramatically expanded the subsidies available to renewable-energy producers. Now, the programs that Warren wants to expand in order to “level the playing field” dominate federal energy subsidies. This is where our federal energy subsidies now go:

Even without calculating the subsidies as a share of the different industries, this much is obvious: The federal government is basically now in the business of fueling on its own the renewable-energy sector, while it barely coats the gears of the fossil-fuel industry.

By the nonpartisan Congressional Budget Office’s reckoning, there are only three major exemptions granted to fossil-fuel producers: the “expensing of exploration and development costs for oil and natural gas” ($800 million), the “option to expense 50 percent of qualified property used to refine liquid fuels” ($800 million), and the “option to expense investment costs on the basis of gross income rather than on production” ($900 million). (There are also $600 million, by their calculation, of other miscellaneous subsidies.) You’ll notice that these hardly sound like giveaways: The first provides incentives for oil-and-gas exploration by allowing companies to deduct it as if it were a capital expense, while the latter two allow the companies to take deductions on expenses and investments sooner, but not in greater amounts, than they would otherwise.

While these particular provisions are restricted to activities in which oil-and-gas companies engage, they’re not really unique to that industry: Exxon Mobil is allowed to deduct its exploration costs via one loophole, while Xerox gets to expense its R&D costs via another. Pretty much all American industries benefit from such policies, and “Big Oil” is no special case.

This fact is not lost on the president and Democratic congressmen, however, who don’t insist on the same conceit as Professor Warren: They don’t pretend the government currently tilts the playing field in favor of Big Oil; they just want to take Exxon Mobil’s lunch money. The Democrats typically offer one justification for taking away oil-and-gas tax preferences: Their record profits. In one Rose Garden press conference describing his plans to raise revenue from these companies, President Obama whinged that Exxon Mobil “pocketed nearly $1.7 million every hour,” as if this has any relevance to energy policy.

The president’s 2013 budget takes a more expansive view than the CBO of what constitutes an “oil-and-gas company tax preference,” and proposes basically a bill of attainder on these companies by stripping them of their “domestic manufacturer” status, increasing their taxes with no plausible justification whatsoever. On the same subsidies, the Democratic Senate caucus Warren wants to join is even more shameless: This year they proposed S. 2204, which would arbitrarily remove certain deductions for “companies with annual gross receipts over $1 billion and an average daily worldwide production of crude oil of at least 500,000 barrels.” That, apparently, is Senator Warren’s idea of a level playing field.

#page#Some liberals might support clean-energy subsidies for their environmental benefits alone, but Warren attempted to offer an economic justification, too. In response to Senator Brown’s mention of the Keystone pipeline, she said, “Look, that’s not going to produce nearly as many jobs as if we invested that same money in clean energy.”

Of course, the Keystone pipeline is a private endeavor, not a U.S. government one, so it’s sadly impossible for Warren as senator to “invest that same money,” TransCanada’s capital, elsewhere.#ad#

But let’s just say she did have the $5.4 billion dollars that will be spent on building the Keystone XL extension, which the Obama administration has blocked, and spent it on trying to create green jobs. How many jobs would that create? That’s pretty easy to estimate, since the Department of Energy’s Section 1603 program provides cash grants to green-energy companies to create jobs. This program has resulted in, according to the DOE, 27,000 direct job-years created, at a cost of $10 billion — that’s a cost of $370,000 per job-year. By far the most parsimonious analysis of the Keystone pipeline’s jobs impact finds that during its construction period (similar to the 1603 period measured), its $5.4 billion will result in 59,000 job-years created, at a cost of about $90,000 per job-year, making it four times more efficient at creating jobs than the DOE program (while, you know, not costing the U.S. government anything).

One might be tempted to cut Warren a little slack for her huge misconceptions about the energy industry — who the real winners are, and the U.S. government’s role in it — since she’s supposed to be more of a financial expert. Sadly, though, her understanding of that industry isn’t much less muddled. Repeatedly, the professor who wants to go to Washington has shown far more interest in her own ideological fixations than in the facts.

— Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.

Patrick Brennan — Patrick Brennan is a writer and policy analyst based in Washington, D.C. He was Director of Digital Content for Marco Rubio's presidential campaign, writing op-eds, policy content, and leading the ...

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