US as leading subsidizer of fossil fuels? Do estimates matter?
| September 17, 2013
If you want to know the true costs of fossil fuel subsidies in the US, you might think you can just have a look at the U.S. budget and that's it. No, sorry, it's not that easy, because major organizations like the IMF, OECD or the IEA have not agreed upon a uniform methodology to measure subsidies yet, nor on a definition of subsidies. And nowhere might this be better shown in the case of the U.S., where the estimation of the costs of fossil fuel subsidies currently ranges from no subsidies at all (according to the IEA) to $6 billion (estimated by the OECD) and a stunning $502 billion (estimated by the IMF).
Understandably you will ask yourself about how such great differences could emerge. And to get right to the core of the problem, you have to ask yourself a basic question first: What are fossil fuel subsidies? At the most basic level, they are any form of government action that lowers the consumer price or increases the producer price of fossil fuel products. But digging deeper into the intricacies of what these actions are, the true problem arises.
In fact, subsidies can include an incredible amount of tools, ranging from tax breaks to loans on the producer side to price controls on the consumer side. The OECD lists about 550 of such mechanisms — of which about 90 are used in the U.S. — in its latest research alone and measures the level of subsidies by looking at budget costs of each of these mechanisms from a local to a federal level.
On the other hand, some subsidy estimates also include tax differentials and negative externalities. And that's were estimates about fuel subsidies in the U.S. have taken off recently. For instance, the IMF hast just released the results of its newest effort to estimate fossil fuel subsidies across the globe.
In its methodology, IMF estimates the costs of "post-tax subsidies" (this is what the IMF calls the cost of subsidies) by first estimating "pre-tax subsidies," the amount by which fuel prices differ from their true costs and adds tax subsidies on top of that. These include negative externalities (particularly implicit cost estimates on the climate, the health of citizens of a country and congestion) and the costs of taxing fuel prices not as any other good or what you call "efficiently."
The amount of tax subsidies in the U.S. estimated by the IMF is truly astonishing, and this might make the whole issue about subsidy estimates so important. While pre-tax subsidies are based on the OECD estimate and make up about 0.5 percent of U.S. GDP, tax subsidies extrapolate this amount to about 3 percent of GDP, a difference of nearly $496 billion in real terms, making the U.S. the leading subsidizer worldwide.
From this one might conclude that estimates matter, because different estimations weigh the importance of subsidies and their reform differently. Of course, one could just say that figures don't matter as statistics are questionable, and that subsidies are not only costs but also a real benefit for the U.S. economy and its citizens.
For instance, the end subsidies might guarantee that producers as Exxon Mobile stay in the country, create jobs and don't flee to tax heavens. Equally, subsidies make fuel cheaper for U.S. citizens who might have an entitlement to a share of rising oil profits in their country. But changing the U.S. from no subsidizers (as according to the IEA) to the main subsidizer worldwide undeniably sets a political symbol about the importance of a subsidy reform by one of the leading international financial institutions, the IMF. And in this case, it might not matter on whether subsidies pose an economic, social or environmental burden to the U.S. in real terms or not.
- Express your gratitude with unique trucker gifts!
- The ultimate office holiday gift guide
- Holiday gift ideas for educators
- The ultimate gift guide for health care workers