Subsidy Briefs, February 7, 2013
1) Poker, North Dakota style. Using a logic that only an industry trade association could understand, the US state of North Dakota has announced plans to close $50m/year in loopholes to oil and gas. Great! End subsidies that make no sense, such as lower taxes on low production "stripper" wells that have been exploited by nearby activities producing at much higher rates. But no reform is free, so the state officials are offering reduced tax rates on oil and gas in return. The rub: the reductions will cost the state an estimated $595m/year in new lost tax revenues, a mere 12x what they expect to get back from subsidy removal. In what world is giving away $12 in state revenues for each $1 you claw back considered good business? And it is not clear that even the 12:1 figure includes losses from new drilling incentives the state plans to put in place. Due to fracking, North Dakota is the country's second largest oil producer, after only Texas. This change is a big deal. For more information on how US states subsidize fossil fuels, go here. (Thanks to Ben Schreiber for the ND article link).
Upate, May 2, 2013: The North Dakota House overwhelmingly rejected this proposed change:
North Dakota's House rejected a measure Wednesday aimed at closing an exemption enjoyed by oil companies in exchange for lower tax rates.
The Republican-sponsored bill - one of the most contentious of the legislative session - also would have given the Three Affiliated Tribes a greater share of the taxes collected from reservation oil production.
Representatives crossed party lines and overwhelmingly defeated the measure 71-21.
Democrats, who are the minority in both chambers, have been especially critical of the measure, saying the proposed tax framework would have cost the state hundreds of millions of dollars in lost revenue over the next few years by lowering taxes on oil companies.
2) NEI thinks US nuclear export rules are too tight; looks to Russia as a model. The Nuclear Energy Institute's review of problems with our country's restrictive nuclear export regime is nothing if not bold. Here's their summary:
Compared to the nuclear export control regimes of Russia, Japan, ROK and France, the U.S. regime is, in many respects, more complex, restrictive and time-consuming to navigate and fulfill. Fundamental aspects of the U.S. export control regime were established over six decades ago – more than three decades prior to the creation of the Nuclear Suppliers Group (NSG).
During this time, the U.S. regime has evolved into a patchwork of requirements with layers of modifications. By comparison, the Russian, Japanese and ROK regimes are relatively modern and, in the case of the Japanese and ROK regimes, were recently amended to address post-9/11 nonproliferation concerns.
Now, I'm all in favor of looking to streamline the way government and business interact, but using Russia as a nuclear export model seems a sketchy strategy even for NEI. After all, Russian nuclear exports have been a bit of an issue for other parts of the US government for quite some time. But maybe that's the brilliance of the approach! Adopt Russian nuclear export rules, boost business for US nuclear suppliers (and NEI's members) by allowing quicker, broader nuclear exports; and force a ramping up of government efforts and funding through the State Department and the IAEA to deal with the political implications of expanding nuclear capabilities abroad. A job creation twofer!
3) Subsidy Cycles, UK style. Worried that your oil and gas operator didn't properly manage their environmental issues and taxpayers will be left paying reclamation costs? No need to be. Watch and learn from the UK - using subsidies to turn prior negligence into present opportunities! A Brownfields Tax Credit "rejuvenates" an "elderly" offshore field, allowing Enquest PLC to buy the Thistle field in the North Sea and for production to go on. No mention of what the government did wrong (poor oversight? inadequate bonding?) that resulted in the field being mismanaged by its prior operator in the first place; or of whether the government is trying to recapture reclamation costs (including the lost revenues due to the Brownfield subsidy) from that operator or its insurers. (Thanks to Ron Steenblik for the article link).
4) State subsidies for job creation: states are losing the bidding war. The Job Creation Shell Game, released in January, is a great review by Good Jobs First (a Washington, DC-based NGO) examining job poaching from one state to another. Not only do states routinely pay tax rebates to move old jobs from one state to another, but they then enter a process where large employers routinely threaten to move, extorting "retention" payments for staying put. Net job gains are small; net tax losses are big. And who do you think is left having to make up the lost tax revenues? Us, of course.
5) Relative scale: fossil fuel subsidies versus spending on international development. An interesting comparison of the scale of fossil fuel subsidies versus fast start climate spending by Oil Change International illustrates that nearly everywhere they looked, the subsidies to increased use of fossil fuels greatly exceeded the spending to start addressing the effects of consuming so many fossil fuels. Yes, some subsidies help the poor, and not all climate spending is efficient. But the gross comparison underscores how important it is for any effort to address climate change to incorporate ending subsidies as a central strategy.