Pay for a Green New Deal by removing “fossil fuel subsidies”? Can anyone possibly be that financially illiterate?

Recently, while wandering through the often-wondrous but sometimes-brainless world wide web, I came across an article about how to pay for a Canadian Green New Deal. Normally, except for Harry Potter, I am not much interested in fantasy literature, but this one caught my eye because it dredged up an old chestnut that I hadn’t seen for a while –  that green social schemes could be paid for by eliminating fossil fuel subsidies. “IMF economists calculate that Canada pumps a shocking $58 billion per year into propping up coal, oil and gas companies,” the article fumed.

Little work has been done in unplugging that philosophical toilet lately, so let’s revisit the “fossil fuel subsidy” landscape. The article relies heavily, almost exclusively, on an IMF Working Paper that tries to make scientific an argument not unlike who is stronger, the Hulk or Hercules. In the interest of fairness, I plowed through the paper for as long as I could endure in order to see if my assumptions about the vapid concept would stand up to the juggernaut of financial acumen that a group of IMF economists can muster. They did not let me down. Oh lord, what an academic slough the document is.

I wasn’t able to make it through the whole thing for fear of developing some sort of tumour, but here is an analysis of the fundamentals underpinning the work.

Firstly, the analysis starts with an example of what the group calls a subsidy – the difference between what oil/gas is sold for relative to what it would get in the export market. As the mock-scientists put it, “For products traded across regions, such as gasoline and diesel, this can be measured by the international reference price as reflected in the cost faced by importers or the revenue foregone by domestically consuming rather than exporting the product.”

Now it gets really funny. Consider that in the Dogwood article above the author rages at the subsidies the Canadian industry receives. Included in this “subsidy” then, by their definition, is the difference in value between what Canadian oil and gas fetches compared to what it would receive if sold on the export market (they call open-market values “efficient pricing”). Please take a second to think of the complete and utter obtuseness of that rationale. Activist lunatics destroy market access for Canadian oil and gas, then have the effrontery to include this lost value in the “fossil fuel subsidy” bucket. You know when you buy something like a meat grinder and it comes with a warning sticker that says “do not insert fingers in the meat grinder”? Those stickers are for these people. (Yes, I do promote civil dialogue – with those who want it. For those who devote their professional lives to disinformation…next.)

Then the economists tackle climate change by applying a “social cost of carbon” (SCC) to fossil fuels, declaring that to be a subsidy. The value of this social cost is calculated as the average of 3 measures: a cost derived from an estimate of what it would cost to keep global warming under 2 degrees (which is unknown and unknowable but through the miracle of modelling deemed to be $40-80/ton); an “assessed” value consistent with countries’ mitigation pledges, which are 100% unrelated to reality (because pledges are voluntary, quasi-measurable, and mostly theatre), but nevertheless deemed to be $35/ton; and a third measure defined as, and I quote, “some recent assessments suggest an SCC of around $35 per ton for 2015 emissions (in U.S. $2015), though estimates are contentious.” Based on this rock granite mountain of evidence, the grant-harvesters announce that “Based on this summary, the estimates discussed below assume, common across all countries, an illustrative value of $40 per ton.” Sure, why not, because who could possibly see any difference between Cameroon and Monaco and India and Canada? I know it’s meant to be an average, but is it meaningful to add, by country, the number of dogs to the number of apples to the number of prostitutes, and create economic policy based on the average country score? In the hallowed halls of academia, they solemnly nod yes, it is. 

This number is then applied to all fossil fuels consumed, and deemed a “subsidy”, despite the fact that life as we know it would cease to exist without these fossil fuels. By this measure, food is a “subsidy” to your life. If you insist on piling this fictitious cost on fossil fuel consumption, then it is a tax. But it is not a subsidy.

I could not take much more of this garbage, but I will leave you with one final dumpster of tortured logic. The last sentence under the section “Definition of fossil fuel subsidies” notes that “Subsidies for non-fossil fuels are excluded from our calculations” and this is footnoted. Given that the whole point of the article is to smear fossil fuels, it would make sense that the authors excluded this, but the reason given in the footnote is something else: “Renewables subsidies in power generation, for example, were $140 billion worldwide in 2016 according to IEA (2017). Note, however, that efficient fuel pricing would remove one of the key motivations for renewable energy subsidies.”

In other words, the phrase “efficient pricing”, a concept (as used in this paper) that is so daft that only economists utter it, is used to calculate “subsidies” for oil and gas that are not allowed to reach markets in Canada, and are excluded from the calculation of renewable subsidies because to use the same yardstick would discourage adoption of renewable energy. You cannot make this sh_t up.

On the Canadian front, if we step away from the loaded diaper that is this report, we find the Dogwood people thundering at Canadian-specific subsidies that include purchase of the TransMountain pipeline and accelerated write-offs of oil and gas investments. This is even more depressing; the IMF economists at least try to hide behind a veil of academic superiority; the Canadian bashers simply don’t understand what they’re talking about, like simpletons mocking a judge for wearing funny clothes.

Buying the TransMountain pipeline was not a subsidy for anything. It changed nothing for the energy business; the exact same volume flows down it every day (and it is an exquisitely perfect amount; a single barrel less and BC will sue Alberta; a single barrel more requires an unacceptable expansion. Saving the planet is an extremely precise science.)

Accelerated write-offs of capital expenditures are universal across every industry, as opposed to straight line methodology. If the zealots who want to remove fossil fuel subsidies want to tackle this one, they need to explain what the appropriate write off rate should be, because every business gets to write off its expenses. That is how business works.

However, understanding how business works is clearly not something the Dogwood crowd is interested in. As a final capitulation to brainlessness, the author declares that the money used on fossil fuel subsidies could pay for the Green New Deal. But even this cursory inspection of the components of “fossil fuel subsidies” shows that the “money” is actually an illusion, mostly a bunch of theoretical penalties that would not exist if applied because the ground would change underneath. A missing “social cost of carbon” is not a stuffed bank account. In other words, there is no pot to raid to pay for the Green New Deal here. The whole Dogwood argument is a vapid pile of hateful nothingness.

Having said that, given the sway that environmental advocates have over society via the fear hammer, there is a reasonable chance that some sort of disastrous policy like a Green New Deal could be enacted in some doomed country. If/when that happens, do try to catch the spectacle. These fools will make Venezuela look like Switzerland.

About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.