Washington governor and Democratic presidential candidate Jay Inslee plans to make climate change the primary focus of his campaign. When asked if transitioning to all renewable energy would require raising taxes, Inslee replied "not necessarily."
He claims one source of funding is to "remove the giant subsidies from the oil and gas companies."
The oil and gas "subsidies" Inslee refers to are small compared to the renewable energy industry. In addition, most of them are widely claimed tax deductions available to many other industries.
The Congressional Research Service (CRS) released an updated report in March estimating the cost, or "lost revenue," of the tax breaks available to all types of energy generation (i.e., electricity production).
According to the CRS:
"In 2017, the value of federal tax-related support for the energy sector was estimated to be $17.8 billion. Of this, $4.6 billion (25.8%) can be attributed to tax incentives supporting fossil fuels. Tax-related support for renewables was an estimated $11.6 billion in 2017 (or 65.2% of total tax-related support for energy)."
But there's more to the story, because fossil fuels deliver vastly more energy return than renewables. "In 2017, fossil fuels accounted for 77.7% of U.S. primary energy production. The remaining primary energy production is attributable to renewable energy and nuclear electric resources, with shares of 12.8% and 9.5%, respectively," according to CRS. Wind and solar power only accounted for 3.6 percentage points of the renewables.
In other words, fossil fuels provide more than three-quarters of U.S. energy generation for one-quarter of the identified tax spending. Renewables provide about 13% of energy generation but absorb two-thirds of the tax spending.
CRS refers to these tax breaks as lost revenue, an extremely important point that may have been lost on Mr. Inslee.
A tax break is simply income a company (or a household) doesn't have to pay taxes on. Oil and gas companies are not receiving a government check that can be diverted to subsidize renewable energy production.
If renewable energy sources were to replace fossil fuels, which is Inslee's and most environmentalists' stated goal, the current tax deductions the fossil fuel-producing companies now receive would largely vanish.
Yes, the value of those tax subsidies could be transferred to the renewables producers, but it wouldn't be nearly enough.
The tax subsidies going to renewable-energy producers would have to increase by a factor of six, or about $70 billion -- in addition to the $11.6 billion renewable energy companies currently receive -- just to offset the lost production from the fossil fuel industry.
And that doesn't include the lost corporate income taxes paid by the fossil fuel industry.
In short, Inslee's claim that repurposing the tax subsidies enjoyed by oil and gas producing companies to help pay the cost of renewable energy expansion is not just unrealistic, it's flat wrong.
Moreover, as CRS points out, many of the estimated $4.6 billion in tax incentives claimed by the oil and gas industry are widely available to other industries.
Of course, CRS is only tracking federal lost revenue. Many state and local governments also provide both direct and indirect (i.e., tax) subsidies to the renewable-energy industry.
So, yes, the fossil fuel industry can claim tax deductions, most of which are the same breaks made available to many industries. If Democrats want a piggy bank for their green new deal, they'll have to look elsewhere.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas. Follow him on Twitter @MerrillMatthews. This piece originally ran in The Hill.
