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Congratulations on your decision to run for President of the United States. I was at home writing at the time of your announcement. As a professional speaker and someone who has spent more than thirty years training speakers, I felt your presentation was stellar—especially considering that you delivered it without a note. I even posted the following on my Facebook page: “I have work to do but am captivated listening to Ben Carson”—which garnered many “likes” and favorable comments.
I say that to emphasize that I like you. I am glad that you’ve joined the voices that will be utilizing the platforms afforded to them as candidates to educate the public as they expound on important issues facing America today. In fact, the libertarian leaning Reason Magazineapplauded you for this exact reason: “To my happy surprise, he spent a good chunk of his announcement speech hinting at a Ross Perot-style crusade against the massive national debt and its drag on the economic growth.” Matt Welch, Reason’s editor in chief continues: “I would be happy if he made such talk the centerpiece of his campaign, particularly at a time when the new GOP congressional majority is already going wobbly on spending. If the guy’s gonna be sucking up oxygen in the race, he might as well be focusing monomaniacally on the giant sucking sound of debt service.”
I know you are not a politician and agree that is an asset for your candidacy. You speak, refreshingly, off the cuff and from the heart, rather than from a poll-tested script. As such, you’ll likely say a thing or two—especially in the early days of your campaign—for you which you’ll later have to apologize (at worst) or dial back on (at best).
I hope such is the case with your energy-themed comments during your first speech in Iowa since your declaration as a candidate, where you quoted President Obama’s deceptive “$4 billion a year in oil subsidies” line. It is disappointing to hear you parroting the president, but especially since it is essentially wrong.
When you use the term “subsidy,” the public automatically thinks a handout of government cash. President Obama chose to use it specifically to give his audience in New Hampshire a negative attitude toward “the oil industry.” Yet, as Forbes columnist Larry Bell found in his analysis of Obama’s attack on “fossil fuel subsidies,” the so-called subsidies are far from cash handouts and some of it doesn’t even go to the industry. I’ll explain.
Bell points out a broad definition for “subsidy” as used by Oil Change International: “any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by consumers.” Though different from public perception, this allows tax deductions—akin to those used by most industries—to be relabeled.
Three such tax deductions presently allowed by the IRS are: (The Heritage Foundation offers an excellent primer.)
- Oil depletion allowance: Applied to small, independent producers (large integrated corporations haven’t been eligible for this since the mid-1970s), this deduction allows producers to pass depletion deductions (similar to benefits available to all mineral extraction, timber, etc.) on to individual investors.
- Expensing drilling costs: Producers can write off expenses in the year occurred rather than capitalizing them and taking the deductions over several years.
- Credit for taxes to foreign nations: Provides an offset for international companies that paid foreign taxes so that the companies are not taxed twice on the same income.
While oil-and-gas producers are allowed typical cost-of-doing-business tax deductions, they are singled out to receive fewer tax breaks than other industries. For example, Bell highlights Section 199 of the “American Job Creation Act of 2004”—which was intended “to provide a competitive advantage to domestic companies engaged in product manufacturing, sales, leasing or licensing, and production-related software activities.” Most businesses engaged in “qualified production activities” receive a 9 percent deduction from net income. Yet oil and gas can claim only 6 percent.
Using the broad definition of “subsidies,” there are some large dollar figures that warrant review. A summary of the data from a 2010 OECD-IEA report titled: “Fossil Fuel Subsidies and Other Support,” concludes a total of $4.5 billion for oil-related subsidies in the U.S. in 2010—which may be where the $4 billion talking point comes from. But that, too, is deceptive.
The single largest expenditure is just over $1 billion for the Strategic Petroleum Reserve, which is designed to protect the U.S. from oil shortages. The second largest category is just under $1 billion in tax exemptions for farm fuel. The justification for that tax exemption is that fuel taxes pay for roads, and the farm equipment that benefits from the tax exemption is technically not supposed to be using the roads. The third largest category? $570 million for the Low-Income Home Energy Assistance Program. (This program is classified as a petroleum subsidy because it artificially reduces the price of fuel, which helps oil companies sell more of it). Those three programs account for $2.5 billion a year in “oil subsidies.”
As you can see, understanding the whole fossil-fuel subsidy argument is complicated, but it is clearly not the cash give-away the anti-petroleum crowd wants people to believe. And I haven’t addressed all the tax and royalty revenue that comes in from the oil-and-gas industry.
I know you were in Iowa and you must have felt that you needed to offer some nod to corn-based ethanol, but your suggestion that oil subsidies should, instead, be used to build ethanol-fueling stations, indicates that you are ill-informed on renewable energy as well.
We could take apart your comment about ethanol being 50-80 cents a gallon less than gasoline and being better for the environment—there is plenty to work with there. But for brevity, I am going to stick with the subsidy theme and expand it to include renewables.
Because energy subsidies are complicated, I think the easiest way to look at them is using an energy-received-for-dollar-spent model—which is a good indicator of how federal dollars are being used and the value the nation is getting from them.
The Energy Information Administration (EIA), at the request of Congress, recently updated a study it did in 2010 that evaluated the amount of subsidies the federal government provides energy producers for fiscal year 2013. In short, it found, as reported by the Institute for Energy Research (IER): “The largest increases in federal energy subsidies were in electricity-related renewable energy, which increased 54 percent over the 3-year period, from $8.6 billion to $13.2 billion. Total fossil fuel subsidies declined by 15 percent, from $4.0 billion to $3.4 billion.”
IER took the numbers from the EIA study and calculated the federal subsidies and support per unit of electricity produced. It concluded: “On a per dollar basis, government policies have led to solar generation being subsidized by over 345 times more than coal and oil and natural gas electricity production, and wind is being subsidized over 52 times more than the more conventional fossil fuels on a unit of production basis.”
The Independent Petroleum Association of America did a similar analysis based on the EIA’s 2008 numbers. At the time, it found: “On this basis, the highest figure by far is for ethanol and biofuels, at $5.72 per million BTU for 2007, with oil and gas coming in at just 3 cents per million BTU.”
Dr. Carson, while supporting renewable energy, like ethanol, may seem vogue, because you are running for the highest office in the land, I encourage you—and all presidential candidates—to learn from the recent elections in the UK.
Consider this: Climate Change Secretary Ed Davey became the first cabinet minister to lose a seat in almost twenty years. Davey, according to the UK’s Mirror, “claimed credit for leading the bid to secure a ‘massive increase’ in renewable electricity in the UK and …he led negotiations for the UK on the world stage at UN climate talks in Qatar, Poland and Peru.” By comparison, Prime Minister David Cameron, who while campaigning in Montgomeryshire, promised if he was re-elected: “We’ll scrap funds for wind farms.” Regarding the unpopular project, Cameron said: “I will seek a further careful consideration of this wind farms/power lines project. It’s financial and environmental madness. It should be abandoned.” Though not predicted, Cameron won “the sweetest victory,” while “Labour was virtually wiped out in Scotland and the Liberal Democrat vote collapsed,” reported The Daily Telegraph.
Dr. Carson, I know you are smart, very smart, but you know medicine. You need very smart people to advise you on energy policy now, before you address the topic any further. I have a cadre of energy experts that I could make available to you—and any candidate who wants smart energy policy.
Call me, maybe?