Just read a bit about the massive subsidies the fossil fuels industry receives in the U.S and I was confused. Aren’t these companies one of the most profitable ones in the U.S?
In: Economics
Why do you think they make so much money?
Most of the subsidies are 1) environmental costs they push on to society and 2) relatively standard deductions that align with economic activity 3) some incentives for domestic production
Its a few things, but first my disclaimer that I don’t know all jurisdictions and tax structures.
1) it’s not really subsidized in the way you think, but talking about subsidies in a general sense is a great way to get people worked up and angry at a target.
2) most actual subsidies are on the consumer end, to make fuel cheaper this does not really affect the fossil fuel industry aside from removing an incentive to find our sources of energy.
3) most articles that talk about the “massive subsidies” are generally talking about two things.
A) royalty breaks until capital costs are paid out.
B) (the really dishonest one) some folks will calculate what they believe the cost of climate change is, then further assume that society is covering that full cost as a subsidy to the fossil fuel industry, this shows absolutely massive subsidies, but it completely neglects the consumer and the actual end user emitters.
In the end actual real subsidies in first world countries are actually quite small when you consider tax incentives are very common for most industries.
It’s so stupidly rich ***therefore*** it must become so heavily subsidized.
Believe it or not, but just like how pure Communism succumbs to the Coruption of Power, so too does pure Capitalism. Here, some industrialists from over 100yrs ago effectively created a novel kind of infrastructure. That wasn’t the bad part. The bad part was when other businesspersons saw the opportunity to corner a critical part of this infrastructure: *Something’s gotta fuel it!* And this “cornering” is the act of creating an *exclusionary market*, a “proto-monopoly” if you will. Now let’s let this closed-market stew for 40yrs and a war, and then they have enough money to dictate however they *think* the market will go and thus the research expenditures, starving out competing fuel sources because there wasn’t enough capital allocated to allow for the next step (believe it or not, but this kind of thing happened also as far back as the Roman Empire)!
Now that we know how to create an infrastructure monopoly, we can now appreciate the damage it has done. There’s a weird, not well understood because it hasn’t been well-researched *phenomenon* that happens in a heavily Capitalistic socialist system: The legislators are compelled to set rules for what defines a “monopoly”, and adept businessmen work as hard as they can to make it look like they’re just above the line. What I mean is, the reason why “The Big Three” in auto exist isn’t because there was only three: it’s because two automotive manufacturers is how a monopoly was defined for that industry! Sure, there are smaller independent ones now, but earlier there wasn’t. Turning to petroleum producers, this is also how Haliburton wound up owning practically *ALL* of it.
Unfortunately, *when* a monopoly (proto- or otherwise) starts, its collapse means that a significant portion of the workforce will become unemployed. No money *flows* through them, so the economy stagnates, yada yada yada. While all of that is true, at this point they have the funds to start lobbying and engaging your politicians. “Oh, we need to bail this out, otherwise I’m gonna have to lay off 400,000 employees.” “Aww, you want me to make these changes to protect the environment, but that’ll cut into my profit margins, devalue our stock, and take a whole lot of cash from retirees investment accounts. You can’t let that happen, can you?” So they use these tactics to *win* the subsidies while we pray that it trickles down.
Admittedly, I AM an entrepreneur. I want to build something useful to everyone that it becomes part of their daily lives, part of their *personal infrastructure*. Not because I want to make a shitload of money and do all of the things I mentioned. Because I think I can *shift* the market in a way that helps everyone with what I build (I’m being purposefully ambiguous; DM me if you want to learn more). ***Venture Capitalists know that creating near-monopolies is a game theoretic optimal strategy and want entrepreneurs to have this desire as well.*** And, sadly, ones like myself who don’t share that desire are shuffled off. Every day I read a new business news article talking about a subsidy going to any business with a single employee (C-suite included) who earns more than $250k/yr makes me sick.
The fossil fuel industry supports many many jobs and these are generally great paying jobs in comparison to other industries.
Easier to see it as an investment, for the US or companies involved. The country as a whole wants the oil company to be “attached” to the country they are operating in as much as possible. Because as you say they are making a lot of money – but they also then pay a lot of tax. So its an investment for the gvt. to “give them” xyz. The gvt. are not stupid, they wouldnt do it if there werent gains.
What subsidies are you referencing? Most I’ve seen listed are standard features of the tax code that apply to every business and not actual subsidies.
Many major corporations used federal PPE money during the pandemic to do stock buybacks. Corporate welfare = good. Individual welfare = bad. I think the correct stat was that the top billionaires could have written a check to all 330 million Americans for around $3,000 and would have still been richer than before the pandemic.
How do you think they got *so rich*?
Everything in the modern world runs on fossil. Farmers need fuel, electricity needs fossil, transportation needs fossil. If oil prices increases, everything does.
In a vacuum, oil is a regressive tax and disportionally affects the poor and working class people.
Secondly, federal subsidy is usually in the form of tax waivers, rather than direct cash assistance. Oil and gas companies can achieve the same subsidy by stop drilling which would drive prices of everything up. It’s easier to just give them the tax benefit.
Latest Answers