This post originally appeared at Treehugger.com on February 7, 2012.
For decades now, fossil fuel company executives and D.C. politicians have worked together to ensure that coal and oil prices stay low enough to keep the American people hooked. In his new book Greedy Bastards, Dylan Ratigan explains how “vampire industries” like oil and coal have forged “an unholy alliance with government based not just on the money that they contribute to political campaigns and spend on lobbying, but on their ability to hypnotize us with false prices.”
Industry gets tax breaks, subsidies, military support in volatile regions, the right to use our air and water like a sewer, and assurance that the government will clean up its environmental messes. Politicians get campaign contributions, a steady flow of dirty energy, and a talking point to brandish about how they kept gas affordable.
But the American public just gets screwed.
We get stuck with a dirty, polluting energy regime; one that enriches a few one percenters while making the public sick and hobbling American innovation. As Ratigan puts it in his book, a handful of greedy bastards are fleecing Americans with a “Very Bad Deal”. Fossil fuels seem cheap and convenient now, but when we get hit with the true costs—of a spoiled environment, of missing out on vital future industries like clean energy, of a mounting public health burden, of possible war—we’ll see we were had.
The Rigged Market for Fossil Fuels
Just how rigged is the fossil fuels market? In a word, overwhelmingly.
Experts believe that oil companies alone receive $10-40 billion in handouts yearly. A conservative study from the Environmental Law Institute found that from 2002-2008, oil companies received $72 billion of taxpayer’s hard-earned cash. Another report from Management Information Systems, Inc found that between 1950 and 2010, $594 billion was spent directly subsidizing fossil fuels—and the lion’s share of that, almost two thirds, went to the oil industry. Coal, too, receives billions of dollars in annual federal handouts.
Clearly, government assistance distorts the price of fossil fuels, making them artificially cheaper. But those direct subsidies are nothing compared to the enormous costs the public indirectly pays for fossil fuels.
For one, our taxpayer dollars fund the cleanup of the industry’s accidents and disasters. In an interview, Dylan Ratigan told me that greedy bastards in the energy world are “masters” of transferring the long tail risk in their businesses to the public:
“They transfer that two tenths of a percent chance that the nuke melts down or the oil spill happens, or whatever the abomination is, to the state. The state takes that risk, and allows the limited regulation and all of the profits from the extraction of the energy resources to go to the energy companies, because they fund the politicians.”
Mining, transporting, and burning oil, gas, and coal also inflicts major damage to the environment and public health—and we pick up the tab. A 2009 report from the National Research Council showed that fossil fuels impose $120 billion of annual costs on the public every year. Air pollution takes a massive toll on public health—it causes respiratory problems, widespread illness and death, and leads to a huge number of missed work days. The prognosis from a Harvard study, the first to analyze the full life-cycle impact of coal, is even bleaker.
That report’s lead author, the late Dr. Paul Epstein, told me in an interview that “Between the land disturbance, the mountaintop removal, the processing … and the combustion, we estimate that this is costing the American public somewhere between a third to half a trillion dollars in health costs and deaths.”
Yes, that’s ‘trillion’ with a ‘T’. Every year.
In fact, coal is so economically disastrous that the mainstream journal American Economics Review found that the electricity generated from coal actually does more damage to the economy than the electricity is worth. Grist’s David Roberts notes that “Coal-fired power is a net value-subtracting industry. A parasite, you might say. A gigantic, blood-sucking parasite that’s enriching a few executives and shareholders at the public’s expense.”
Finally, taxpayer-funded military expeditions have played a crucial role in securing fossil fuel supplies and transport routes—a cost to the public registered not just in billions of dollars but in American lives.
According to Ratigan’s calculations, the price of gasoline is around $10 too cheap per gallon when all unaccounted-for costs are included. Other projections put the figure even larger. And there are a wide range of estimates of the “true” cost of coal: Depending on how you factor in the costs of climate change, it could be between a few additional cents per kWh to a whopping ¢26.89 extra per kilowatt hour—the high-end estimate from the Harvard study. By way of comparison, the average American paid ¢11.54 per kWh on their residential electric bills last year. In other words, if prices accurately reflected all of the actual costs of burning coal, coal-fired power plants would be dead in the water.
Using the example of oil, Ratigan writes that such distortion results in a situation where “the free market can’t help [us] decide if it’s worth switching from gas to another fuel, because the market isn’t free, it’s rigged.” Similarly, investors, homeowners, and utilities can’t decide whether it will pay off to invest in clean energy and efficiency when the price of burning coal, which still supplies nearly half the nation with electricity, is so cheap.
Which is why we’ve got to restore price integrity to commodities like oil and coal—we’ve got to prevent fossil fuel companies from dumping their costs on us, level the playing field for clean energy technologies, and give Americans the choice they deserve over what powers their lives. Which means we’ve got to increase the price of gasoline and coal-fired electricity.
Restoring Price Integrity: Fee and Dividend
Lower your pitchforks for a second, hold back with the tar and feathers. What if there was a way to make fossil fuels companies pay their fair share—while putting extra cash in American pockets?
It’s called ‘Fee and Dividend’. The plan is simple: charge oil, gas and coal companies a small, annually increasing fee on fossil fuels sales—then collect the fees and evenly distribute them amongst the American people. The idea has the support of not just environmentalists, but scientists, politicians, and free-market conservatives.
Jim DiPeso, the Republicans for Environmental Protection’s Vice President for Policy and Communications, sings its praises: “Transparent. Market-based. Does not enlarge government. Leaves energy decisions to individual choices … Sounds like a conservative climate plan.”
NASA’s Dr. James Hansen, one of the world’s top climate scientists, also advocates this approach. Hansen describes it as a “flat, across-the-board rising fee on carbon emissions” that would be levied on fossil fuels at a domestic mine or port of entry. Hansen wrote to me to explain the impact fee and dividend would have:
“The price of fossil fuel energy will rise, but with today’s fossil fuel uses, over 60 percent of the people will get more in their dividend than they pay in increased energy prices. People who have several houses or fly around the world all the time will have costs that increase more than their dividend. People will tend to make consumer and lifestyle choices that minimize their carbon emissions—this will happen naturally via the prices that they see.”
That way, when fuel prices rise to reflect their true costs, the public will have a buffer—in fact, the majority of Americans will earn money from the policy. And they’ll earn even more if they use less fossil fuels. A public website could be created to track the fees collected on fossil fuels, and Americans could see exactly how much they stand to earn.
As DiPeso explains, “Those who wish to use carbon-based energy with abandon would be free to do so – knowing up front that they would pay the environmental and other costs of using lots of carbon-based energy rather than shift those costs onto their fellow citizens.”
It’s a win-win. Not just for individual Americans, but our economy at large: Nonpolluting industries will benefit from a leveled playing field, American innovation will be unleashed, and jobs will grow in the clean energy sector.
“The carbon fee should rise over time to a level that covers the full cost of fossil fuels to society—by the time it gets there we will have generated better energy technologies and improved energy efficiency,” Hansen says.
Now, it’s not a perfect solution—farmers and folks who live in rural areas would be hit harder than those in urban areas, who already rely less on fossil fuels. A fair way to help cover those costs—perhaps tax breaks for energy efficient machinery upgrades—must be worked out with citizens in fossil fuel-dependent regions and occupations.
From Securing Oil to Securing Our Future
We also need to eliminate the massive fossil fuel subsides for coal, oil, and gas companies. This too has widespread bipartisan support. Obama calls to repeal oil subsidies just about every year, and Republicans, Independents, and Democrats alike support ending the handouts—but the unholy alliance between industry execs and the politicians they finance keeps them in place.
And, of course, we’d have to tackle what’s perhaps the biggest oil subsidy of all: U.S. military assistance to fossil fuel companies. This is a deeply entrenched system, and no single piece of legislation could likely disrupt the long-standing symbiosis between Big Oil and the military.
But we could start by launching a jobs program designed to help vets get work in the energy efficiency and clean energy sector. A group called Operation Free is already fighting a battle along those lines: Founded by veterans, it helps other vets organize to fight for clean energy policies that will lead to true energy independence, to ensure that their children won’t have to fight the same oil-tinged wars that they did.
In many European nations, where the oil industry doesn’t have as powerful a grip on politics, gasoline routinely costs two or three times as much. Governments levy gas taxes that better reflect the true cost of oil, which then spurs industry to develop cleaner, more efficient cars. This leads to less pollution, healthier communities, job transference to more productive industries, and a more competitive economy. We could do the same in the United States—in fact, we’ve got to.
Now, plenty of skeptics will insist that these ideas aren’t “politically feasible”. The plan is too ambitious, it will never pass the dysfunctional Congress, it’s too … yawn. Over the last year, we’ve watched as brand new spaces for novel approaches to politics have been blown wide open—Occupy Wall Street suddenly brought the nation face to face with its own income inequality and the safe-housing of corporate greed. The same could happen for energy and pollution. In a recent discussion, former US Energy Secretary Bill Richardson told me we need an “Arab Spring for the environment”. Indeed, across the nation, concerned citizens are beginning to rally against the cushy alliance between D.C. and the fossil fuels industry. Who can blame them?
Americans are paying through the nose on their tax returns and health bills to help Big Oil and the political elite maintain the illusion that cheap, dirty energy is a bargain. But enough is enough, and time is of the essence. We’re paying for wars, pollution and handouts to massive multinationals—instead of allowing the free market to reward the innovators and industries that will lead us to energy security. To stop the vicious cycle, we must unravel and reset the rigged market for oil and coal, revealing their true costs once and for all. We must loose the nation from the stranglehold of its aging, fossil-fueled energy regime.
As Ratigan says, “There’s no greater path to freedom than energy independence.”
Auction 2012: The Hidden Costs of Energy (1/31/12)