PFUND-HEALEY 2011 - What Would Jefferson Do - The Historical Role of Federal Subsidies in Shaping America's Energy Future

What Would Jefferson Do?
The Historical Role of Federal Subsidies

in Shaping Americas Energy Future
by Nancy Pfund and Ben Healey

september 2011
About the Authors:
Nancy Pfund is a Managing Partner of DBL Ben Healey is a joint degree (MBA/MEM) grad-
Investors, a double bottom line venture capital uate student at Yale University, studying at both
firm based in San Francisco, CA. DBLs strategy the School of Management and the School of
is to invest in companies that can deliver top-tier Forestry and Environmental Studies. Prior to grad
venture capital returns while working with its school, Mr. Healey worked as the Staff Director
portfolio companies to enable social, environmen- to the Committee on Environment and Natural
tal and economic improvement in the regions in Resources in the Massachusetts legislature, where
which they operate. Ms. Pfund currently sponsors he served as lead staffer for the Committee in
or sits on the board of directors of a number of helping to pass the Commonwealths Green Jobs
private companies, including Primus Power, Eco- Act. Mr. Healey is also a graduate of Yale College
Logic, SolarCity, Solaria, OPXBIO, and Bright- and a former member of the New Haven Board
source Energy. Ms. Pfund also worked closely of Aldermen. Mr. Healey lives in New Haven, CT
with exited portfolio company Tesla Motors. and can be reached at benjamin.healey@yale.edu.
Previously, Ms. Pfund was a Managing Director
at JPMorgan. Ms. Pfund joined JPMorgan (then
Hambrecht & Quist) in 1984 as a securities ana-
lyst and later joined its venture capital department
as principal and then Managing Director in 1989.
In addition to her private equity responsibilities,
Ms. Pfund also built and directed H&Qs external
affairs and philanthropic programs from 1996 to
2001. Ms. Pfund speaks frequently on subjects re-
lating to environmental investing, environmental
policy, and mission-related investing. Ms. Pfund
received her BA and MA in anthropology from
Stanford University, and her MBA from the Yale
School of Management and can be reached at
nancy@dblinvestors.com.
what would jefferson do? - pfund and healey, september 2011 dbl investors 2
Acknowledgements
The authors wish to thank the following individuals

for giving us access to their research and data, as
well as invaluable guidance throughout the process of
writing this paper. They deserve much credit for our
ability to analyze the historical data effectively, but no
blame for anything weve gotten wrong:
Jordan Diamond, Environmental Law Institute

Marshall Goldberg, MRG Associates
Mona Hymel, University of Arizona James E. Rogers College of Law
Doug Koplow, Earth Track
Molly Sherlock, Congressional Research Service
Eric Toder, Urban Institute-Brookings Institution Tax Policy Center
Table of Contents
i. Executive Summary 6
ii. Introduction 8
iii. Timber & Coal in the 19th Century 11
iv. Categorization of 20th Century Subsidies 15
v. Key Historical Subsidies by Sector 18
vi. Findings and Analysis 26
vii. DiscussionSubsidizing Apple Pie:

Are the Slices Getting Smaller? 31
viii. ConclusionIn Energy We Trust 33
ix. Appendix: Data Sources 35
Some argue that the consumer can purchase warmth or work or mobility at less cost
by means of coal or oil or nuclear energy than by means of sunshine or wind or
biomass. The argument concludes that this fact, in and of itself, relegates renewable
energy resources to a small place in the national energy budget. The argument
would be valid if energy prices were set in perfectly competitive markets. They are
not. The costs of energy production have been underwritten unevenly among
energy resources by the Federal Government.
August 1981 report of the DOE

Battelle Pacific Northwest National Laboratory
Executive Summary
This paper frames the ongoing debate about the - As a percentage of inflation-adjusted federal
appropriate size and scope of federal subsidies spending (eliminating increases in new pro-
to the energy sector within the rich historical grammatic spending since the introduction of
context of U.S. energy transitions, in order to help early oil and gas subsidies in 1918), nuclear
illuminate how current energy subsidies compare subsidies comprised more than 10% of this
to past government support for the sector. From normalized federal budget over their first 15
land grants for timber and coal in the 1800s to years, and oil and gas subsidies constituted 5%
tax expenditures for oil and gas in the early 20th percent of the total budget. Measured on a
century, from federal investment in hydroelectric similar scale, renewables constituted only about
power to research and development funding for one percent. That is to say, in an apples-to-
nuclear energy and todays incentives for alterna- apples comparison, the federal commitment to
tive energy sources, Americas support for energy O&G was five times greater than the federal
innovation has helped drive our countrys growth commitment to renewables during the first 15
for more than 200 years. years of each subsidies life, and it was more
than 10 times greater for nuclear.
Using data culled from the academic literature,
government documents, and NGO sources, in this - In inflation-adjusted dollars, nuclear spending
paper we examine the extent of federal support (as averaged $3.3 billion over the first 15 years of
well as support from the various states in pre-Civ- subsidy life, and O&G subsidies averaged $1.8
il War America) for emerging energy technolo- billion, while renewables averaged less than
gies in their early days. We then analyze discrete $0.4 billion.
periods in history when the federal government
enacted specific subsidies. While other scholars The charts below clearly demonstrate that federal
have suggested that the scope of earlier subsidies incentives for early fossil fuel production and the
was quite large, we areas far as we knowthe nascent nuclear industry were much more robust
first to quantify exactly how the current federal than the support provided to renewables today.
commitment to renewables compares to support
for earlier energy transitions. Our findings suggest
that current renewable energy subsidies do not
constitute an over-subsidized outlier when com-
pared to the historical norm for emerging sources
of energy. For example:
what would jefferson do? - pfund and healey, september 2011 dbl investors executive summary 6
during the first 15 years of each subsidies life, and it was more than 10 times greater for nuclear.
- In inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy
life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.
The charts below clearly demonstrate that federal incentives for early fossil fuel production and the
nascent nuclear industry were much more robust than the support provided to renewables today.
Historical Average of Annual Energy Subsidies:
Historical
A Century of Federal Average of Annual Energy Subsidies:
Support
A Century of Federal Support
6
2010$,
3
billions
$4.86
2
$3.50
$1.08
$0.37
0
O&G, 1918-2009 Nuclear, 1947-1999 Biofuels, 1980-2009 Renewables, 1994-2009
Executive Summary
6
What Would Jefferson Do - Pfund and Healey, August 2011
Comparative Energy Subsidy Trends
7
4
2010$,
billions
3
1
Renewables trendline based on
first 15 years of subsidy life
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Year of Subsidy Life
Energy Subsidies as Percentage of Federal Budget

0.25
0.20
0.15
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

0.25
0.20
0.15
O&G
Nuclear
0.10 Biofuels
Renewables
0.05
0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Years of Susbsidy Life (Year 1 equivalent to inflation-adjusted 1918 Federal Budget)
7
Introduction
Over the course of decades, contentious debates In 1950 and 1951, Congress increased a number
have raged in Washington, DC about the ap- of taxes to pay for the United States entry into
Introduction
propriate size and scope of federal subsidies to the Korean War. With prevailing 1951 mar-
the energy
Over sector,ofincluding
the course decades,support for both
contentious ginal income
debates have raged tax rates DC
in Washington, ranging
aboutuptheto appropriate
a high of 91
traditional fossil fuel industries and the emerging percent and capital gains tax
size and scope of federal subsidies to the energy sector, including support for both traditional rates at 25 fossil
percentfuel
renewable energy sector. Certainly, a quick survey regardless of income, the reclassification
industries and the emerging renewable energy sector. Certainly, a quick survey of existing subsidies was
of existing subsidies
demonstrates demonstrates
that critics thatof
have plenty critics have reasons
legitimate primarily adoptedTake
to complain. to insulate certain
the capital owners of
gains
treatment of royalties on coal as an example.
plenty of legitimate reasons to complain. Take the This subsidy allows owners of coal mining rights
coal mining rights from high marginal income to
reclassify income
capital gains traditionally
treatment subject
of royalties to the
on coal income taxtax
as an as rates
royalty
payments, therebyadditional
thus encouraging allowing produc-
owners
to pay a reduced tax rate:
example. This subsidy allows owners of coal min- tion. Since then, both income and capital gains tax
ing rights to reclassify income traditionally subject rates for individuals have fallen, and the capital
In 1950 and 1951, Congress increased a number of taxes to pay for the United States entry into
to the income tax asWar.
the Korean royalty
Withpayments, thereby
prevailing 1951 gains
marginal income taxtax rateranging
rates for individual owners
up to a high of 91currently
allowingpercent
ownersandto pay a reduced tax rate: stands at 15 percent. However, the credit
capital gains tax rates at 25 percent regardless of income, the reclassification was is still
primarily adopted to insulate certain owners of coalavailable
mining rights from highofmarginal
to members the coalincome tax1
industry.
rates thus encouraging additional production. Since then, both income and capital gains tax
rates for individuals have fallen, and the capital gains tax rate for individual owners currently
1
stands at 15 percent. However, the credit is still available to members of the coal industry.
This subsidy totaled well over $1.3 billion in government tax expenditures from 2000 2009:
This subsidy totaled well over $1.3 billion in government tax expenditures from 2000 2009:
Cumulative Capital Gains Treatment of Royalties on Coal, 2000 2009
(2010$, billions) Cumulative Capital Gains Treatment of Royalties on Coal, 2000 - 2009
(2010$, billions)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Joint Committee on Taxation

Source: Joint Committee on Taxation
True, this Korean War-era tax break seems grossly out of place in the 21st century, but not all subsidies
are created equal. Historically, policymakers have justified intervention in energy markets 1) to
promote a new technology during the early developmental stages and 2) to pay the difference between
1D
the value of an activity to the private sector and its value to the public sector.2 Thus,
avid Sher, Environmental and Energy Study Institute, Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and
it is worth
Societal Costs (June 2011).
evaluating our current energy subsidies through a longer historical lens, so that we can better
understand how current incentives compare to past government support for the energy sector.
1
what would
David Sher,jefferson do? - pfund
Environmental andEnergy
and healey,Study
september 2011 dbl
Institute, investors
Fossil Fuel Subsidies: Breaks, Special 9
A Closer Look at Tax introduction
Accounting, and Societal Costs (June 2011).
2
Mona Hymel, Arizona Legal Studies Discussion Paper No. 06-15, Americans and Their Wheels: A Tax Policy for
True, this Korean War-era tax break seems grossly between the value of an activity to the private
out of place in the 21st century, but not all subsi- sector and its value to the public sector.2 Thus, it
dies are created equal. Historically, policymakers is worth evaluating our current energy subsidies
have justified intervention in energy markets 1) through a longer historical lens, so that we can
to promote a new technology during the early better understand how current incentives compare
developmental stages and 2) to pay the difference to past government support for the energy sector.
U.S. Growth and Historical Energy Transitions

Primary U.S. Energy Consumption
45
40
35
Petroleum
30 Natural Gas
Coal
25 Nuclear
Quadrillion
BTUs Hydro
20 Wood
Biofuels
15
Geothermal
Solar
10
Wind
0
1897
1996
1645
1654
1663
1672
1681
1690
1699
1708
1717
1726
1735
1744
1753
1762
1771
1780
1789
1798
1807
1816
1825
1834
1843
1852
1861
1870
1879
1888
1906
1915
1924
1933
1942
1951
1960
1969
1978
1987
2005
Source: Energy Information Administration

We can read the history of the United Statesour countrys geographic and economic expansion
through the history of our energy production and consumption. Through war and peace, through
westward expansion and our rise to economic and military superpower status, we find that energy
transitions fueled it all. Wood and small hydro powered our countrys early, rural days. As cities
expanded, railroads crisscrossed the nation, and the Industrial Revolution took hold, coal dominated.
With the invention and improvement of the internal combustion engine, oil catapulted into our
preeminent fuel. Large hydro became a reality thanks to Depression-era initiatives that have continued
to drive economic development programs across the country decades later, followed by nuclear power
on the heels of World War II. And today, in pursuit of greater energy security, enhanced environmental
quality and economic growth on a globalized playing field, renewable energy sources are transitioning
from the margins to the mainstream. As the chart below starkly illuminates, our wealth and our energy
usage are intimately intertwined.
2 Mona Hymel, Arizona Legal Studies Discussion Paper No. 06-15, Americans and Their Wheels: A Tax Policy for Sustainable Mobility (February 2006).
Primary U.S. Energy Consumption vs. GDP

120 $16,000
what would jefferson do? - pfund and healey, september 2011 dbl investors $14,000
introduction 10
100
$12,000
80

We can read the history of the United States
45
field, renewable energy sources are transitioning
our countrys geographic
40 and economic expan- from the margins to the mainstream. As the chart
sionthrough 35the history of our energy produc- below starkly illuminates, our wealth and our
tion and consumption. Through war and peace, energy usage are intimately intertwined.
Petroleum
Natural Gas
30
through westward expansion and our rise to Coal
economicQuadrillion
and military superpower status, we find
25
Energy innovation has drivenNuclear Americas growth
Hydro
BTUs
that energy transitions fueled it all. Wood and
20 since before the 13 colonies came Wood together to
small hydro powered 15 our countrys early, rural form the United States, and government
Biofuels
Geothermal
support
days. As cities expanded,
10
railroads crisscrossed has driven that innovation forSolar nearly as long. In
the nation, and the Industrial Revolution took this paper, we identify specific government inter-
Wind
5
hold, coal dominated. With the invention and ventions in the energy sector during moments of
improvement of0 the internal combustion engine, transition, and we attempt to quantify that sup-
1897
1996
1645
1654
1663
1672
1681
1690
1699
1708
1717
1726
1735
1744
1753
1762
1771
1780
1789
1798
1807
1816
1825
1834
1843
1852
1861
1870
1879
1888
1906
1915
1924
1933
1942
1951
1960
1969
1978
1987
2005
oil catapulted into our preeminent fuel. Large port in order to compare it to current support for
hydro became a reality thanks to Depression-era emerging renewable sources of energy. Although
We initiatives
can read thethathistory
have continued to drive
of the United economiccountrys
Statesour most of our quantitative
geographic and economic analysis focuses on
expansion
development
through the history programs across the
of our energy country decades
production federalThrough
and consumption. support,war
it isand
important to note that states
peace, through
westward expansion
later, followed and ourpower
by nuclear rise toon
economic
the heelsandof military have
superpower status, we
also contributed to find that energy
the American energy
transitions fueled it all. Wood and small
World War II. And today, in pursuit of greater hydro powered our countrys early, rural days. As cities
narrative throughout our history, from the sup-
expanded, railroads crisscrossed the nation,
energy security, enhanced environmental quality and the Industrial
portRevolution took
of coal in the hold,
19th coal dominated.
century to incentives for
With the invention and improvement
and economic growth on a globalized playing of the internal combustion
renewable energy production into
engine, oil catapulted 200 our years later, and
preeminent fuel. Large hydro became a reality thanks to Depression-era initiatives that have continued
we will not ignore the role of the various states in
to drive economic development programs across the country decades later, followed by nuclear power
on the heels of World War II. And today, in pursuit of greater theenergy
discussion that follows.
security, enhanced environmental
quality and economic growth on a globalized playing field, renewable energy sources are transitioning
from the margins to the mainstream. As the chart below starkly illuminates, our wealth and our energy
usage are intimately intertwined.
120 $16,000
$14,000
100
$12,000
80
$10,000
Quadrillion
60 $8,000
BTUs
$6,000
40
$4,000
20
$2,000
0 $0
1690
1753
1852
1645
1654
1663
1672
1681
1699
1708
1717
1726
1735
1744
1762
1771
1780
1789
1798
1807
1816
1825
1834
1843
1861
1870
1879
1888
1897
1906
1915
1924
1933
1942
1951
1960
1969
1978
1987
1996
2005
Total Energy Consumption Real GDP (2010 $B)
Source: Energy Information Administration and MeasuringWorth

Source: Energy Information Administration and MeasuringWorth
9
what would jefferson do? - pfund and healey, september 2011 dbl investors introduction 11
Overall, what we find, in contrast to much of todays headline-grabbing rhetoric, is that todays govern-
ment incentives for renewable energy pale in comparison to the kind of support afforded emerging fuels
during previous energy transitions.
Look back to the 1700s: From Battelle National Lab The first
recorded commercial coal transaction in the
United States was a 32-ton shipment from
the James River district in Virginia to New
York in 1758.3
Into the 1800s: From Stanfords Center for International Se-

curity and Cooperation As a pamphleteer
wrote in 1860, a year after Uncle Billy Smith
struck oil at Oil Creek in Titusville, Penn-
sylvania, Rock oil emits a dainty light, the
brightest and yet the cheapest in the world;
a light fit for Kings and Royalists and not
unsuitable for Republicans and Democrats.4
From the Renewable Energy Policy Project

The first attempt to transport natural gas on
a large scale was in Rochester, New York in
1870. A 25-mile line was constructed of hol-
lowed pine logs. It was a failure.5
Through the 1900s: From Greenpeace In December, 1953,

President Eisenhower inaugurated an Atoms
for Peace [nuclear energy] program that
would ultimately swallow the lions share of
federal dollars for energy research.6
3 R.J. Cole, et. al., DOE Battelle Pacific Northwest Laboratory, An Analysis of Federal Incentives Used to Stimulate Energy Consumption (August 1981).
4 Richard Rhodes, Stanford University Center for International Security and Cooperation, Energy Transitions: A Curious History
(September 19, 2007). Rhodes is a Pulitzer Prize-winning journalist and historian.
5 Marshall Goldberg, Renewable Energy Policy Project, Federal Energy Subsidies: Not All Technologies are Created Equal (July 2000).
6 Komanoff Energy Associates, Greenpeace, Fiscal Fission: The Economic Failure of Nuclear Power (December 1992).
what would jefferson do? - pfund and healey, september 2011 dbl investors introduction 12
Timber and Coal
in the 19th Century
Although we think of todays subsidies in terms land grants subsidized the use of timber, and that
of tax policy, government research and develop- only half of that amount was actually for energy
ment initiatives, or direct spending on behalf of an purposes, still it would amount to about a 25
industry, the 19th century had its own vehicle of billion-dollar a year energy subsidy, as an equiva-
public support: land. From the Preemption Act of lent percentage of todays federal budgets. This
1841 to the Homestead Act of 1862 to the Tim- estimate does not even include indirect support
ber and Stone Act of 1878, it was official policy for the timber industry though land grants to the
of the early U.S. government to make land grants railroads: As early as the mid-nineteenth century,
to its citizens at below-market prices in order to logging operations were highly capital intensive,
encourage settlement, expansion, and economic requiring spur railroad lines and other equipment
development. Rather than actual land, though, to handle the huge logs of the virgin forests. 8
government policy took the form of distribut-
ing warrants for land ownership, which industry
representatives often purchased at a discount. Ac- A Native American Approach to Subsidies:
cording to one historian:
Indeed, the notion of awarding special control over
he land, including natural resources, constituted an
T key natural resources to those considered best
enormous stock of assets available for transfer. As positioned to develop them was not true solely of
a rough estimate of the order of magnitude, the land western expansionists: several Native American
transfers were tantamount to an annual deficit of traditions restrict tribal access to key plants and
about 30 percent of the latter 19th century annual trees used in basket-making to selected apprentices
federal budgets. [In total,] over 13.5 million acres of and allow only certain elders and other respected
timber land was alienated, amounting to four-fifths of elites to actually make the baskets. One might con-
the forest domain.7 sider this role the oil refining of this particular
natural supply chain.9
Of course, it would be inappropriate to consider
these land grants as subsidies solely to the tim-
ber industry in and of itself. If we conservatively
estimate, however, that only 5% of these massive
7 Fred E. Foldvary, Southern Economic Association Meetings, Ground Rent Seeking in U.S. Economic History (November 21, 1997).
Foldvary is a lecturer in economics at Santa Clara University.
8 Gary D. Libecap and Ronald N. Johnson, The Journal of Economic History Vol. 39, No. 1, Property Rights, Nineteenth-Century Federal Timber Policy, and the
Conservation Movement (March 1979).
9 Lois Conner (Yokuts basketmaker) and Ruby Pomona (Mono Elder) presentation on June 7, 2011 at the Trails of Fire: Signatures of Cultural and Environmental
Transformations on the American and Australian Frontiers, conference at Stanford University held June 6-9, 2011.
what would jefferson do? - pfund and healey, september 2011 dbl investors timber and coal in the 19th century 13
al level, in the late 1700s, Congress enacted a protective tariff, one of a number of early
onomic legislation that has left an import/export tension embedded in American economic
s day: Early support for coal did not lag far behind timber: Pennsylvania, State officials exempted anthracite
from taxation, provided incentives for smelters
is extremely bulky,Each
making it expensive to transport. In the colonial
state had its own energy policywhich, taken era, British to promote its use, and publicized its advantages
merchants
transported coal totogether,
Americancreated
ports free-of-charge as ballastand
a highly fragmented for some-
ships. The first federal
withintariff
and outside the state. Even more impor-
mported coal dated from 1789 *and until 1842] the tariff remained at least 10 percent the
what than
e of foreign coalmore chaotic regulatory
enough to giveregime that
domestic encouraged
producers tant than
a major cost advantage.
11 the industrys exemption from taxation
the production and consumption of vast quantities was the states use of corporate charters to encour-
tection was critical in the coal industrys early days, but
of coal. Nature made coal abundant; public policy the real action age
was at new production:
the state level.
scovery of anthracite
madeinitPennsylvania,
cheap. 10 State officials exempted anthracite from taxation,
centives for smelters to promote its use, and publicized its advantages within and outside the
The Pennsylvania legislature carefully regulated the
more important than the industrys exemption from taxation was the states use of
At the federal level, in the late 1700s, Congress granting of corporate charters. To promote corpo-
harters to encourage new production:
enacted a protective tariff, one of a number of rate mining the legislature permitted incorpora-
early pieces of economic legislation that has left
Pennsylvania legislature carefully regulated the granting of corporate charters. To tion only in coalfields in which the industry had yet
promote
orate mining thean legislature permitted
import/export incorporation
tension embedded onlyininAmerican
coalfields in whichtothebecome well established, designating the territory
stry had yet to become well established, designating
economic policy to this day: the territory in which they could
in which they could operate and the amount of capi-
12
rate and the amount of capital they could raise.
tal they could raise.12
n in Pennsylvania Coal is extremely
quickly spread: bulky, making it expensive to trans-
port. In the colonial era, British merchants had trans- What began in Pennsylvania quickly spread:
r time, states competed ever more vigorously to promote the
ported coal to American ports free-of-charge asproduction and consumption of
perpetuating a tradition of rivalistic state mercantilism that had been a pillar of state-
ballast for ships. The first federal tariff on imported Over time, states competed ever more vigorously
nsored public works programs in the early republic. For states that had yet to develop a coal
stry, one commonand often effectivelegislative stratagem was to sponsor a to
coal dated from 1789 [and until 1842] the tariff promote the production and consumption of
geological
ey. In 1823, North remained at least
Carolina hired 10 percent
a geologist the price
to catalog of foreign
the states coalperpetuating
mineral resources; by 1837 a tradition of rivalistic state mer-
teen states had followed North Carolinas lead. State geological
coalmore than enough to give domestic producers surveys were at once
cantilism that had been a pillar of state-sponsored
ntific and economic: by inventorying the states 11 mineral resources, they would, or so
a major cost advantage. public works programs in the early republic. For
latures hoped, identify rich deposits of precious metalsincluding coal. In Pennsylvania and
states that had yet to develop a coal industry, one
ois, the legislature went so far as to instruct geologists to map the coalfields. [These]
ished survey reportsFederal protection
contained valuablewas
datacritical in the coallowered
that substantially indus- the costcommonand
of often effectivelegislative stratagem
13
oration. trys early days, but the real action was at the state was to sponsor a geological survey. In 1823, North
Early American anthracite miners
level. After the discovery of anthracite in Carolina hired a geologist to catalog the states
mineral resources; by 1837 fourteen states had
followed North Carolinas lead. State geological
surveys were at once scientific and economic: by in-
ventorying the states mineral resources, they would,
or so legislatures hoped, identify rich deposits of
precious metalsincluding coal. In Pennsylvania and
Illinois, the legislature went so far as to instruct ge-
ologists to map the coalfields. [These] published
survey reports contained valuable data that substan-
Early American anthracite miners 14
Source: U. of Toledo Professor Gregory Millers Great Americans series
14
Source: U. of Toledo Professor Gregory Millers Great Americans series tially lowered the cost of exploration.13
s.
s.
s. 10 Sean Patrick Adams, The Journal of Policy History Vol. 18, No. 1, Promotion, Competition, Captivity: The Political Economy of Coal (2006).
t http://greatamericansclass.blogspot.com/2010/03/1902-anthracite-coal-strike.html.
11, 12, 13 Ibid. Adams.
14 Available at http://greatamericansclass.blogspot.com/2010/03/1902-anthracite-coal-strike.html.
12
Jefferson Do - Pfund and Healey, August 2011
arly state-sponsored geologic surveys, intended to spur coal developmen
ifferent from todays attempts by the Department of the Interior to adva
velopment:
Government Land Surveys,
from Coal to Solar
The Interior Department has identified some two dozen potential sites for
large-scale solar
These early state-sponsored geologic surveys,
power installations
intended to spur coal development, are
on public lands in six Western states as
The Interior Department has identified some two
dozen potential sites for large-scale solar power
part of an effort to encourage
not so different development
from todays attempts by of renewable
installations on public lands in sixenergy on public
Western states
15
the Department of the Interior to advance
lands and waters.
solar development:
as part of an effort to encourage development of
renewable energy on public lands and waters.15
15 John M. Broder, The New York Times, Officials Designate Public Lands for Solar Projects (Dec 16, 2010).
r coal only grew as technology helped drive further demand for the fuel:
g the Civil War, the railroads expanded tremendously. The trains themselves u
Early support for coal only grew as technology Along with these charters, legislatures granted
helped drive further demand for the fuel: special rights to railroad companies that allowed
them to vertically integrate so as to drive further
Following the Civil War, the railroads expanded coal production. In 1861, for example, Pennsyl-
tremendously. The trains themselves used a vania granted railroads the ability to purchase the
great amount of coal. Steam locomotives switched stocks and bonds of other corporations, a valuable
to coal from wood, which was starting to become concession they previously had been denied.17 In
less available and more costly in some areas. [In 1869 the legislature made explicit its intent in the
addition,] the Bessemer process for steelmaking 1861 bill by clarifying the right of railroad com-
made possible the large-scale, low-cost production panies to invest in coal-mining corporations.
of steel and greatly increased the demand for coal.
Finally, the railroads made expansion of coal mining Since the end of the Civil War / Reconstruction
possible by providing the transportation network Era, tremendous subsidies have continued to flow
necessary for serving the expanding markets.16 to the coal industry. However, since our aim in
this paper is to discuss government subsidies to
It almost goes without saying, of course, that the the various energy sectors in their early days, we
transportation network created by the railroads will not return to a lengthy discussion of later
would never have been possible without the same government support for the coal industry. Suf-
kind of federal land grants that so benefitted the fice it to say, domestic coal did not arrive on the
timber industry. Any proper accounting of early scene as a mature, low-cost and competitive fuel
government support for the coal industry must source. Rather, government support over many
factor in these grants, which served to promote an years helped to turn it from a local curiosity in
exponential increase in coal consumption nation- Schuylkill County, Pennsylvania into the domi-
wide. nant fuel source of its time.
As the railroads grew, The high price of coal and

iron created a furor amounting almost to a
mania, and the files of both houses [in Pennsylva-
nia were] filled with bills for chartering new Coal
and Iron Companies, according to a contempo-
rary 1864 piece in the influential Miners Journal.
This craze was not unique to Pennsylvania, with
newly discovered coal deposits driving the grant-
ing of corporate charters around the country.
16 Op. cit. Cole, et. al.

17 Op. cit. Adams.
Categorization of
20th Century Subsidies
As we turn from a qualitative account of 19th E. Government Services
century subsidies towards a quantitative analysis This category refers to all services traditionally and
of more recent federal support for the various historically provided by the federal government
energy sectors, it is useful to establish a framework without direct charge. Relevant examples include
of the different kinds of subsidies that have played the oil industry and the coal industry. U.S. govern-
a role in shaping todays energy infrastructure and ment policy is to provide ports and inland water-
markets. Management Information Services, Inc., ways as free public highways. In ports that handle
a Washington D.C.-based economic research and relatively large ships, the needs of oil tankers
management consulting firm, has provided a clear represent the primary reason for deepening chan-
subsidy taxonomy that we lay out below: nels. They are usually the deepest draft vessels that
use the port and a larger thanproportional amount
A. Tax Policy of total dredging costs are allocable to them.
Tax policy includes special exemptions, allowances,
deductions, credits, etc., related to the federal tax F. Disbursements
code. This category involves direct financial subsidies
such as grants. An example of federal disburse-
B. Regulation ments is subsidies for the construction and oper-
This category encompasses federal mandates and ating costs of oil tankers.18
governmentfunded oversight of, or controls on,
businesses employing a specified energy type. Fed- This taxonomy is quite helpful in laying out the
eral regulations are an incentive in the sense that complete universe of subsidies that we could
they can contribute to public confidence in, and potentially explore. Many of these subsidies,
acceptance of, facilities and devices employing a however, are quite difficult to measure, and a lively
new or potentially hazardous technology. Federal debate exists in the NGO and academic literature
regulations or mandates also can directly influence about which should fully count as subsidies to the
the price paid for a particular type of energy. energy industry. Lets look at a few examples:
C. Research and Development One of the key factors in bringing natural gas to the
This type of incentive includes federal funding for East Coast was the conversion to natural gas of
research, development and demonstration programs. the Big Inch and Little Inch oil pipelines, which had
been built during World War II as means of bringing
D. Market Activity crude oil to the East Coast without fear of German
This incentive includes direct federal government submarine attack.19
involvement in the marketplace.
18 Management Information Services, Inc., prepared for The Nuclear Energy Institute, Analysis of Federal Expenditures for Energy Development (September 2008).
19 Op. cit. Cole, et. al.
what would jefferson do? - pfund and healey, september 2011 dbl investors categorization of 20th century subsidies 17
Sticking with natural gas, consider the development of the combustion turbine:
Its pedigree traces back to jet engines. For decades, utility managers found generating units
based on jet technology cheap, but inefficient and unreliable. Largely through government-
funded R&D on combustion turbines for aircraft use, the technology improved. Reportedly, th
Defense Department invested an average of $425 million per year in jet engine R&D from the
mid-1970s to the mid-1980s, reaching $750 million annually in the late 1980s. In the 1990s, th
independent power sector used these cheap, effective, government-enabled aeroderivative
How should one value this contribution to According
turbines to todominance
challenge the the Congressional
of establishedResearch
utilities. Service,
20
Americas natural gas network, which clearly acts For the 63-year period from 1948 through 2010,
as an ongoing subsidy to gas despite its original, Of the hundreds of millions
nearly 12% of [of
dollars
DOE spent R&D by the government
spending] developing
went to these turbines, ho
muchif anyshould be charged to the natural gas subsidy account?
defense-related purpose? renewables, compared with 9% for efficiency, 25%
21
Of course, just tofor lookfossil,
at theand 50% for
renewable sidenuclear. The chart
of the equation, therebelow
is a long history of NASA
Sticking with natural gas, consider the develop- research and development
shows the breakdown for the most recent 10-yearas well. Managemen
money supporting solar energy technologies,
Information Services estimates that from 1950 2006, NASA spent nearly $1 billion (in 2010$
ment of the combustion turbine:
Sticking with natural gas, consider the developmentperiodofofthe our history. turbine:
combustion But since this graphic fails
on R&D devoted to solar. While significantly smaller than the hundreds of millions of dollars
spent
Its pedigree traces back to annually
jet engines.on
to account
Forcombustion
for the spillover
decades, utilitydevelopment,
managers foundthis
benefits of Depart-
early government
generating units support for solar was
Its pedigree traces back to jet engines.
based Fornonetheless
on jet technology ment
dec-cheap, butcritical
inefficient ofunreliable.
to and
the Defense
technologys or NASA
eventual
Largely R&D spending, it
commercialization.
through government-
funded R&D on combustion turbines for aircraft use, the technology improved. Reportedly, the
ades, utility managers found Defense
generating unitsinvested
Department based clearly
of $425gives
million us
per only
year inajetsmall
engineportion
R&D from of the full
Accordingantoaverage
the Congressional Research Service, For thethe63-year period from 1948 through
mid-1970s to the
on jet technology cheap, but inefficient andnearlymid-1980s, reaching
unreli-12% [of DOE R&D
$750
R&Dpicture.
million annually in the late 1980s. In the 1990s, the
spending] went to renewables, compared with 9% for efficiency, 25%
independent power sector used these cheap, effective, government-enabled aeroderivative
able. Largely through government turbinesfunded R&D
and
to challenge on
the50% for nuclear.
dominance
21
Theutilities.
of established chart20below shows the breakdown for the most recent 10-year pe
combustion turbines for aircraft use, the technology history. But since this graphic fails to account for the spillover benefits of Department of Defe
Of the hundreds of millions of dollars
NASA R&D spent by theitgovernment
spending, clearly gives developing
us only athese
smallturbines,
portionhow
of the full R&D picture.
improved. Reportedly,muchif
the Defense Department
anyshould DOE
be charged to the natural gas Energy Technology Share of Funding,
subsidy account?
invested an average of $425 million per year in jet fy2001 fy2010
Of course, just to look at the renewable side ofDOE theEnergy
equation, there is aShare
Technology long history of NASA
of Funding, FY2001-FY2010
engine R&D from the mid-1970s to the mid-1980s,
research and development money supporting solar energy technologies, as well. Management
reaching $750 millionInformation
annually inServices
the late 1980s.that from 1950 2006, NASA spent nearly $1 billion (in 2010$)
estimates
on R&D devoted to solar. While significantly smaller than the17.1% hundreds of millions of dollars
In the 1990s, the independent power sector used
spent annually on combustion development, this early government support for solar was
these cheap, effective,nonetheless
government-enabled aero-
critical to the technologys eventual commercialization. 27.7%
derivative turbines to challenge the dominance of

According to the Congressional Research Service, For the 63-year period from 1948 through 2010,
established utilities.20 nearly 12% [of DOE R&D spending] went to renewables, compared with 9% for efficiency, 25% for fossil, Fossil Energy
Nuclear Energ
and 50% for nuclear.21 The chart below shows the breakdown for the most recent 10-year period of our
16.8% Electric Syste
history. But since this graphic fails to account for the spillover benefits of Department of Defense or
Of the hundreds of millions
NASA R&Dofspending,
dollarsitspent
clearlyby
gives us only a small portion of the full R&D picture.
Renewables
Energy Efficie
the government developing these turbines, how
muchif anyshould be charged to DOEthe natural
Energy Technology Share of Funding, FY2001-FY2010 Caveat: DOE funding
gas subsidy account? represents only a small
23.2%
17.1% 15.2% portion of the full
government R&D picture
Of course, just to look at the renewable side of the 27.7%
equation, there is a long history of NASA research Source: Congressional Research Service
and development money supporting solar energy Caveat: DOE funding represents Fossil Energy
20 only a small portion of the full Nuclear Energy

technologies, as well. Management Information Op. cit. Goldberg.government R&D picture Electric Systems
16.8%
21
Fred Sissine, CRS, Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear
Services estimates that from 1950 2006,Fossil NASA Energy, and Energy Efficiency R&D (January 26, 2011).
Renewables
Energy Efficiency
spent nearly $1 billion (in 2010$) on R&D de-
voted to solar. While significantly smallerWhat thanWould
the Jefferson Do - Pfund and Healey, Caveat: DOE funding
Augustonly
represents 2011 a small
hundreds of millions of dollars spent annually 15.2% on 23.2%
portion of the full
combustion development, this early government government R&D picture
support for solar was nonetheless criticalResearch

Source: Congressional to theService
technologys eventual commercialization.
20
Op. cit. Goldberg.
21
Fred Sissine, CRS, Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy,
Fossil Energy, and Energy Efficiency R&D (January 26, 2011).
20 Op. cit. Goldberg.
21 Fred Sissine, CRS, Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy, Fossil Energy, and Energy Efficiency R&D 16
(January 26, 2011). What Would Jefferson Do - Pfund and Healey, August 2011
The challenge of determining what subsidies to
include is not simply about parsing historical data
appropriately. Even today, a wide variety of ongo-
ing subsidies to every sector of the energy indus-
try might merit inclusion in our study, including
many that are hot-button items. For example,
a recent article in the New York Times lays out
existing oil and gas loopholes that are currently
under fire:
More than $12 billion [in government savings]

would have come from eliminating a domestic
manufacturing tax deduction for the big oil compa-
nies, and $6 billion would have been generated by
ending their deductions for taxes paid to foreign
governments. Critics suggest that the [oil and gas]
companies have been able to disguise what should
be foreign royalty payments as taxes to reduce their
tax liability.22
This is certainly contested terrain. The domestic

manufacturing tax deduction applies to many
companiesnot just the major O&G playersso
is it fair to count something so generally applica-
ble against their subsidy scorecard? Perhaps, but
the oil and gas industry would certainly argue not.
Similarly, the fight about dual capacity taxpayers
and foreign royalty payments is far from cut-and-
dried. The current tax treatment is clearly benefi-
cial to the oil and gas industry, but does it count
as a subsidy, or is it simply an appropriate method
of avoiding double taxation? This is complicated
stuff, so in the following section, we do our best to
lay out the boundaries of our own study, in an ef-
fort to be transparent and to demonstrate that the
historical comparisons we are making are as close
to apples-to-apples as possible.
22 Carl Hulse, The New York Times, Senate Refuses to End Tax Breaks for Big Oil (May 17, 2011).
Key Historical
Subsidies by Sector
In researching this paper, we took a very practical 4 No, LIHEAP actually diminishes our abil-
approach to data collection, asking ourselves four ity to make meaningful comparisons, since it
questions: potentially subsidizes multiple energy resources
at differing levels. It is difficult to separate the
1 Was a given subsidy actually designed to in- subsidys contribution to each source.
crease domestic production of a given resource
(or does it do so in practice, even if that was Having failed three out of our four necessary
not its original intention)? conditions for inclusion in this analysis, we left
LIHEAP out of our subsidy calculus. Royalty
2 W
as the data related to that particular subsidy relief for offshore oil leases in the Gulf of Mexico
available? is another example: although clearly measur-
able and relevant to increased oil production, a
3 Did the subsidy exist during the early stages of subsidy created in 1995 does little to shed light
a resources domestic production? on our historical understanding of early-stage oil
and gas production in America. Similarly, many
4 Did inclusion of that subsidy increase our abil- of the modern-day subsidies examined in excel-
ity to compare subsidy levels across resources lent papers by the Environmental Law Institute,
and over time? Earth Track, Friends of the Earth, and the Green
Scissors Campaign, not to mention recent EIA
Let us look at the Low Income Home Energy reports on the subject, have no place in our paper,
Assistance Program (LIHEAP) as an example of since we focus on historical subsidies that had an
a subsidy not included in our calculus. impact as a particular energy source emerged.
1 No, LIHEAP is not specifically designed to Rather than articulating all of the subsidies that
increase domestic production of any given fuel we exclude from this analysis due to our need for
resource. It is questionable as to whether or not clear and consistent boundaries, then, let us in-
the extra dollars that LIHEAP injects into the stead lay out how we actually have treated each of
energy market actually increase production, or the major energy sources that have emerged over
simply redistribute consumption. the last 100 years of American history:
2 Yes, the data on LIHEAP is available. Oil and Natural Gas:
3 No, LIHEAP is a more recent program than We looked solely at the subsidies embodied in
some of the resources that it subsidizes (i.e. oil the expensing of intangible drilling costs and the
and gas), since it began in 1980. excess of percentage over cost depletion allowance.
what would jefferson do? - pfund and healey, september 2011 dbl investors key historical subsidies by sector 20
From the Congressional Research Service: with significant refining or retail activity). Marginal
effective rates can be near zero for independent
For more than half a century, federal energy tax (i.e., nonintegrated) producers eligible for percent-
policy focused almost exclusively on increasing age depletion, a favorable tax treatment for depleta-
domestic oil and gas reserves and production. ble costs. These relatively low marginal rates already
There were no tax incentives promoting renewable provide incentives to make petroleum production
energy or energy efficiency. During that period, two investments that have pretax returns below those
major tax preferences were established for oil and of investments in other industriesi.e., relatively
gas. These two provisions speed up the capital cost inefficient investments. Some petroleum production
recovery for investments in oil and gas exploration investments face negative marginal effective rates.
and production. First, the expensing of intangible This means that such investments are actually more
drilling costs (IDCs) and dry hole costs was intro- profitable after taxes than before taxes because they
duced in 1916. This provision allows IDCs to be help reduce taxes on other income.24
fully deducted in the first year rather than being
capitalized and depreciated over time. Second, the *Authors note: in 2009, domestic production of petro-
excess of percentage over cost depletion deferral leum accounted for a little more than 40% of total U.S.
was introduced in 1926. The percentage depletion consumption, and domestic production of natural gas
provision allows a deduction of a fixed percentage accounted for more than 90% of total consumption.
of gross receipts rather than a deduction based on
the actual value of the resources extracted. Through According to one analysis considering the im-
the mid-1980s, these tax preferences given to oil pact of Reagan era tax reform on the oil and gas
and gas remained the largest energy tax provisions industry, Effective tax rates on other industries
in terms of estimated revenue loss.23 average[d] about 28 percent under pre-1986 law,
compared to rates on oil investments ranging
And from a 1990 report of the General Account- from -6 percent to 24 percent under pre-1986
ing Office: law.25 Given the high profile of these two major
tax expenditures, we felt on firm ground basing
The marginal effective federal corporate tax our analysis of oil and gas subsidies on this pair
ratesi.e., the tax rates on genuinely incremental of long-lived government incentives. As one early
investmentsfor domestic petroleum production are researcher wrote, Our findings reveal that several
already among the lowest for a major industry, due public policies significantly affected investment
to the effects of existing tax incentives. These analy- in crude petroleum reserves. Our empirical
ses estimate marginal effective rates on petroleum estmates support the position that the special fed-
production investments to be about half of the statu- eral tax provisions have induced the petroleum
tory rate for integrated producers (i.e., producers industry to maintain a larger investment in proved
reserves than it would have in the absence of these
policies.26
23 Molly F. Sherlock, CRS, Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures (May 2, 2011).
24 Thomas J. McCool, et. al., GAO, Additional Petroleum Production Tax Incentives are of Questionable Merit (July 1990).
25 Robert Lucke and Eric Toder, The Energy Journal Vol. 8 No. 4, Assessing the U.S. Federal Tax Burden on Oil and Gas Extraction (1987).
26 J ames C. Cox and Arthur W. Wright, Studies in Energy Tax Policy, The Cost-effectiveness of Federal Tax Subsidies for Petroleum: Some Empirical Results
and Their Implications (Brannon, ed. 1975).
Take it from an even more storied source: In planner with a broad background in resource and
1937, President Franklin Roosevelt declared that land use policy and impact analysis. In his work,
percentage depletion was perhaps the most glar- Goldberg includes principally the costs of regu-
ing loophole in our present revenue law. 27 lation, civilian R&D, and liability risk-shifting
(the Price-Anderson Act), while also taking into
Coal: account both payments from the government to
industry and government receipts from industry
The Green Scissors Campaign is a 15-year old thus coming up with a net annual figure for every
effort to make environmental and fiscal respon- year from 1947 to 1990. Although on-budget
sibility a priority in Washington, sponsored by expenditures for the nuclear industry have been
a variety of D.C.-based public interest groups. enormous, we especially value Goldbergs analysis
In their 2010 report, the Green Scissors analysts because he attempts a rigorous quantification of
make the claim, Subsidies to the coal industry the off-budget value of the Price-Anderson Act
began in 1932, when the federal government first of 1957, which provided federal indemnification
began allowing companies to deduct a portion of of utilities in the event of nuclear accidents, thus
their income to help recover initial capital invest- removing a substantial (and perhaps insurmount-
ments (the percentage depletion allowance). 28 able) barrier to nuclear power plant develop-
Of course, what they mean is that modern, in- ment.29
come tax-based subsidies began in 1932. Those
who have made it this far in this paper already Congressional testimony at the time of passage
know that both the federal government and the confirms the importance of Price-Anderson:
various states heavily subsidized coal in the 19th
century. But since we do not have access to data For instance, the Edison Electric Institute noted
quantifying the coal subsidies that go back to the We wouldlike to state unequivocally that in our
fuels true origins in the early 1800s, we have cho- opinion, no utility company or group of companies
sen not to include coal subsidies in our compara- will build or operate a reactor until the risk of nuclear
tive quantitative analysis. accidents is minimized.30
Nuclear:
In considering how best to quantify nuclear data,

we considered multiple sources and decided to use
the analysis conducted by lifelong energy analyst
and consultant Marshall Goldberg, a resource
27 Mona Hymel, Loyola University of Chicago Law Journal Vol. 38, No. 1, The United States Experience with Energy-Based Tax Incentives: The Evidence Sup-
porting Tax Incentives for Renewable Energy (Fall 2007).
28 Autumn Hanna and Benjamin Schreiber, the Green Scissors Campaign, Green Scissors 2010 (2010).
29 Op. cit. Komanoff Energy Associates.
Hydro:
Measuring subsidies to big hydro is a beast of a This $1.6 billion figure ($2.7 billion in 2010 dol-
task, and there is broad disagreement about what lars) comes from an analysis by Doug Koplow of
analysts should and should not include as a subsidy. Earth Track, a respected think tank that works to
Management Information Services estimates about consolidate and standardize energy subsidy data
$80 billion in historical federal subsidies to hydro- and present a comprehensive view of such subsi-
electric power, with nearly three quarters of that dies so that we can better evaluate them. Koplow
total coming from their market activity category: arrives at his $1.6 billion figure by analyzing the
implicit borrowing subsidies provided to the Ten-
Market activity incentives for hydroelectric energy nessee Valley Authority, the Bonneville Power
include federal construction and operation of dams Administration, and the other Power Marketing
and transmission facilitiesestimated as the portion Administrations by the federal government over
of the net investment in construction and operation an 80-year period, thanks to their ability to access
of dams allocated to power development and the capital at lower-than-market rates.33
relevant transmission facilitiesand the net expendi-
tures of the power marketing administrations.31 However, even with a rigorous analysis such as
Koplows, hydro data remains unsatisfying. For
On the other hand: Data on early expenditures for example, consider the fact that large hydroelectric
hydropower are incomplete. This reflects both the facilities are essentially wholly owned subsidiar-
scarcity of archived generation and investment data ies of the federal government: thus, they do not
on hydropowerthe development of which began need to earn private sector rates of return and can
in the 1890sand the complex historical context price electricity more cheaply than they otherwise
of federal hydropower development. In particular, would. This is clearly an important subsidy, but it
federal hydropower facilities often formed part of is also an incredibly challenging one to measure.
larger projects with multiple goals, including flood In the end, then, since hydro does not lend itself
control, river navigability, regional development, and to facile comparisons with privately owned energy
stimulation of the local and national economies. resources, we decided to exclude historical hydro
For instance, most of the spending on hydropower data from our quantitative subsidy analysis. For
projects undertaken by the U.S. Army Corps of those who want to dig more deeply into the sub-
Engineers and the Bureau of Reclamation in the ject, we recommend the analyses by both Koplow
1930s and 1940s was considered supplemental to and Management Information Services, since the
the primary purpose of building dams for irrigation, two follow vastly different approaches to calculat-
flood control, and public water supply, among other ing federal support for hydroelectric power.
uses. For this reason, it is difficult to attribute
a specific portion of federal investment for power
generation. Nevertheless, to assist in further investi-
gations, the figure of $1.6 billion can be given for a
set of straightforward subsidies to hydropower.32
31 Op. cit. Management Information Services.

33 Douglas N. Koplow, The Alliance to Save Energy, Federal Energy Incentives: Energy, Environmental and Fiscal Impacts (April 1993).
Biofuels:
Often, when comparing current energy subsidies, represent a government expenditure that benefits
the conversation breaks down into a fossil fuels energy and that supports a specific fuel (and
vs. renewables debate, with little thought given to Congress has not acted to restrict the use of these
the diversity of energy sources contained within subsidies in order to prevent them from supporting
each of those categories. Thus, using data from the corn ethanol production).35
Joint Committee on Taxation, the Treasury, and
annual OMB analytical reports, we have broken Although this argument certainly has merit,
out federal support for biofuels from those incen- the fact remains that these USDA subsidies are
tives designed to support increased wind, solar, designed to stimulate the growing of corn, not the
and geothermal energy production. Our compari- creation of fuel. The fact that some of this corn
son takes into account both the income tax credit ends up as fuel is driven by the various alcohol
for alcohol fuels and the excise tax exemption for tax incentives, federal blending requirements, and
alcohol fuels, including that exemptions more the price of traditional fossil fuels at any given
recent transition to a credit: moment in time, not by USDA grants. We have
not included these USDA grants in our biofuels
Beginning in 2005, the volumetric ethanol excise accounting.
tax credit (VEETC) was introduced to replace the
previously available excise tax exemption for ethanol. Renewables:
Since excise tax credits are deductible, replacing
the excise tax exemption with an excise tax credit Finally, we categorize renewables subsidies as those
has additional federal revenue consequences, tax subsidiesprincipally, the production tax credit,
above and beyond payouts for the excise tax credit. as well as the investment tax creditthat incent
Specifically, income tax receipts decrease due to power generation from wind, solar, and geothermal
the higher excise tax deduction.34 sources. Although some minor incentives became
law in the late 1970s, significant federal support did
Some biofuels subsidy analyses have also included not take hold until after the Energy Policy Act of
Department of Agriculture support for farmers 1992. Thus, we begin our accounting of renewables
that has incented the growing of corn for ethanol. subsidies in 1994, when the first firms really took
As the Environmental Law Institute points out, advantage of that 1992 law:
A substantial portion of USDAs corn production Section 45 of the IRS code, enacted in the Energy
subsidy payments are received by farmers who use Policy Act of 1992, provided for a production tax
their corn to produce ethanol. Even though these credit of 1.5 per kWh (indexed) of electricity gener-
subsidies are not directed at corn growers specifi- ated from wind and closed loop biomass systems.
cally for the purpose of producing ethanol, they The tax credit has been extended and expanded
34 Op. cit. Sherlock.

35 Adenike Adeyeye, et. al., Environmental Law Institute, Estimating U.S. Government Subsidies to Energy Sources: 2002-2008 (September 2009).
over time and currently is available for wind, closed-
loop biomass, poultry waste, solar, geothermal and
other renewable sources. Firms may take the credit
for ten years.
Nonrefundable investment tax credits for alterna-

tive energy were initially put in place in the Energy
Tax Act of 1978 (PL 95-618) at a rate of 10% for
solar and geothermal property. That law provided a
number of investment tax credits including a credit
for residential energy conservation investments. This
latter credit expired in 1982. [The Energy Policy
Act of 2005] increased the investment tax credit for
solar to 30% [extended through 2016 as part of the
Energy Improvement and Extension Act of 2008].36
In closing out this section, it is worth noting that

the American Recovery and Reinvestment Act of
2009 included a host of temporary clean energy
subsidies (many focused on energy efficiency and
research and development, although some spe-
cifically targeted towards increasing renewable
energy production). These temporary provisions
do not fall within the scope of this paper, but we
do recommend their inclusion in future longitudi-
nal analyses.
36 Gilbert E. Metcalf, MIT Joint Program on the Science and Policy of Global Change, Federal Tax Policy Towards Energy (January 2007).Z
Some Thoughts on ScopeOther Important Pieces of the Puzzle
State Level Subsidies
We do not include state level subsidies in our that the 20-year net present value of future rate
comparative analysis, although they are clearly increases due to North Carolinas RPS policy is
important in shaping the market for both re- about $1.6 billion, assuming current technology
newable and fossil fuel energy sources. Thus, in and prices.38 Starting with this figure, we then
order to ensure that we were not unfairly tilting estimated North Carolinas share of our na-
the playing field in favor of renewables by tional electricity usage, again recognizing that
excluding state renewable portfolio standards RPS policies currently cover about 50% of our
from our analysis, we did a few quick calcula- countrys electricity load, and we came up with
tions: a national 20-year NPV of $22.5 billion, or a
little more than a billion dollars per year.
Lawrence Berkeley National Laboratory has
conducted a number of studies to evaluate the Now, according to the Texas Comptroller of
costs of various state RPS policies. LBNLs fig- Public Accounts, the State of Texas offered
ures suggest that the median rate increase due about $1.1 billion in severance tax incentives
to the introduction of RPS policies around the to the states oil and gas industries in 2006.39
country is about 0.05 cents/kWh at the retail Even assuming that Texas is the only state
level,37 or about $1 billion in additional costs providing subsidies to the fossil fuel industry
per year across the 50% of U.S. electricity load (which is certainly not the case), the equivalen-
governed by RPS policies, given current EIA cy of this billion-dollar annual figure to the size
estimates of about 3,700 billion kWh/year in of the RPS subsidies gave us comfort that leav-
total electricity usage. ing out state subsidies was not unfairly biasing
our analysis in favor of renewables.
We also considered a study conducted by a
recent graduate of the Nicholas School of the
Environment at Duke University, which found
37 Cliff Chen, et. al., Renewable and Sustainable Energy Reviews Vol. 13, Weighing the Costs and Benefits of State Renewable Portfolio Standards in the United
States: A Comparative Analysis of State-Level Policy Impact Projections (2009).
38 Ting Lei, Masters project for the Nicholas School of the Environment at Duke University, A Cost Impact Analysis of the Renewable Energy and Energy Ef-
ficiency Portfolio Standard for Investor-Owned Utilities in North Carolina (May 2011).
39 Susan Combs, Texas Comptroller of Public Accounts, The Energy Report 2008 (2008).
Durability
Not included in this study are the effects of the

and bust cycles in renewable energy develop-
duration of various government subsidies, but ment, under-investment in manufacturing capac-
to put it bluntly, policy certainty matters a great
ity in the U.S., and variability in equipment and
deal: supply costs. Recent work at Lawrence Berkeley
National Lab suggests that this boom-and-bust
Some energy incentives, like the depletion al- cycle has made the PTC less effective in stimulat-
lowance for oil and gas, are permanent in the tax ing low-cost wind development than might be the
code. Wind energys primary incentive, the PTC, case if a longer term and more stable policy were
has been allowed to expire multiple times since established.41
itsDuration
creation in 1992, and has been consistently
reinstated for only one or two year terms.40 Similarly, uncertainty regarding the near
Not included in this study are the effects of theexpiration
duration ofof the renewable
various energy investment
government
Due to the series
subsidies, butoftoshorter-term, 2-yearcertainty tax
1- topolicy
put it bluntly, creditaingreat
matters 2008deal:
almost single-handedly
PTC extensions, growing demand for wind power handcuffed new growth in the solar industry,
Some energy incentives, like the depletion allowance for oil and gas, are
has been compressed into tight and frenzied before Congress renewed the credit at the
permanent in the tax code. Wind energys primary incentive, the PTC, has been
windows ofallowed
development. Thismultiple
to expire has led to boom
times last minute.
since its creation in 1992, and has been
40
consistently reinstated for only one or two year terms.
Source: Wiser Senate Testimony

Source: Wiser Senate Testimony
Due to the series of shorter-term, 1- to 2-year PTC extensions, growing demand
for wind power has been compressed into tight and frenzied windows of
development. This has led to boom and bust cycles in renewable energy
development, under-investment in manufacturing capacity in the U.S., and
40 American Wind Energy Association, U.S. Energy Subsidies (May 2010).
variability in equipment and supply costs. Recent work at Lawrence Berkeley
41 Ryan Wiser Testimony before the U.S. Senate Finance Committee, Wind Power and the Production Tax Credit: An Overview of Research Results (March 29,
National Lab suggests that this boom-and-bust cycle has made the PTC less
2007). Wiser is a staff scientist at Lawrence Berkeley National Laboratory. He leads and conducts research in the planning, design, and evaluation of renewable
effective in stimulating low-cost wind development than might be the case if a
energy policies, and on the costs, benefits, and market potential of renewable electricity sources.
41
longer term and more stable policy were established.
Similarly, uncertainty regarding the near expiration of the renewable energy

investment
what would jeffersontax
do? -credit in healey,
pfund and 2008 almost
septembersingle-handedly
handcuffedkeynew
2011 dbl investors growth
historical in by sector
subsidies 27
the solar industry, before Congress renewed the credit at the last minute.
Minor tax considerations Defense Spending: Billions are so civilian
Sections of the tax code exist that one would Earlier in this paper, we briefly touched on
most likely never look at to find energy subsi- the Department of Defense and NASA R&D
dies, but, nonetheless, they often turn out to be spending that has benefited different energy
critical. Not included in this study are provi- technologies. But because so much of our
sions like the following: current energy subsidy debate centers on the
question of energy security, we felt that it was
Developers of wind farms and solar power plants worth finding out if someone has attempted
have begun lobbying for legislation that would let to quantify how much of American defense
them form master limited partnerships, a financial spendingoutside of R&D moneysubsidiz-
structure used by pipeline operators, drillers and es our energy consumption (even if we do not
mine operators, as well as private-equity compa- include those numbers in our own comparative
nies such as KKR and Blackstone that pay no analysis):
corporate taxes, passing tax liability directly to
investors. Eliminating the corporate tax burden in- An innovative approach comes from Roger Stern,
creases the potential profit of master limited part- an economic geographer at Princeton University
nerships and makes them appealing to wealthy who published a peer-reviewed study on the cost
investors. The tax vehicles were responsible for of keeping aircraft carriers in the Persian Gulf
building much of the U.S. oil and gas pipeline from 1976 to 2007. Because carriers patrol the
networks.42 [italics added] gulf for the explicit mission of securing oil ship-
ments, Stern was on solid ground in attributing
One might think that whats good for the that cost to oil. He had found an excellent metric.
goose should be good for the gander in terms He combed through the Defense Departments
of energy subsidies. Our research has revealed, data ... and came up with a total, over three dec-
however, that traditional fossil fuel sectors ades, of $7.3 trillion. Yes, trillion.43
benefit from a host of older policies that the
government has never extended to newer re-
newable forms of power generation, such as the
master limited partnership provision cited here.
42 Bloomberg New Energy Finance, Wind Power Wants U.S. Tax Advantage Used by Oil Companies (July 19, 2011).
43 Peter Maas, Foreign Policy, The Ministry of Oil Defense (August 5, 2010).
e heart of this effortour quantitative analysis of historical federal subsidies to
Findings and Analysis
ts start with an overview of cumulative subsidies:
Cumulative Historical Federal Subsidies

Finally, we come
2010$, to the heart of this effortour quantitative analysis of historical federal subsidies
billions
to the energy sector.44 Lets start with an overview of cumulative subsidies:
Finally,$5.93
we come to the heart of this effortour quantitative analysis of historical federal subsidies to
the energy sector.44 Lets start with an overview of cumulative subsidies:
1994-2009
2010$, billions
2010$, billions
$32.34
1980-2009 $5.93
Finally, we come to the heart of 1994-2009
this effortour quantitative analysis of historical federal subsidies to
the energy sector.44 Lets start with an overview of cumulative subsidies:
$32.34
1980-2009
2010$, billions O&G
$185.38 O&G
1947-1999 $185.38 $5.93 Nuclear
1947-1999 1994-2009 Nuclear
Biofuels
Biofuels
$32.34 Renewables
1980-2009 Renewables
$446.96
1918-2009
O&G
$446.96 $185.38
Nuclear
1947-1999
1918-2009 Biofuels
Renewables
The chart above is illuminating in demonstrating the $446.96

historical magnitude of oil and gas and nuclear
1918-2009
subsidies, but it does little to facilitate useful longitudinal comparisons. Thus, we turn to the chart
The below,
chartwhich
above showsis illuminating
the average annual in subsidies
demonstrating theover
to each sector historical magnitude of oil
and gas and
their lifetimes.
nuclear subsidies, but it does littleAverage
Historical to facilitate
of Annualuseful longitudinal comparisons. Thus, we turn to
Energy Subsidies:
the chart below, which shows the average annual subsidies to each sector over their lifetimes.
minating in demonstrating theabove
The chart historical magnitude
is illuminating
6
in demonstratingof theoil andmagnitude
historical gas and of oilnuclear
and gas and nuclear
subsidies, but it does little to facilitate useful longitudinal comparisons. Thus, we turn to the chart
ttle to facilitate useful longitudinal
below, which showscomparisons. Thus,
the average annual subsidies
5 wesector
to each turn totheir
over the chart
lifetimes.
Historical Average of Annual Energy Subsidies: A Century of Federal Support
e average annual subsidies to each sectorHistorical overAverage
theiroflifetimes.
Annual Energy Subsidies:
4
6
Historical Average of Annual Energy Subsidies:

2010$,
billions
3
A Century of Federal
$4.86 Support 5
2
$3.50
4
2010$,
billions
3 $1.08
$0.37
0 $4.86
O&G, 1918-2009
2 Nuclear, 1947-1999 Biofuels, 1980-2009 Renewables, 1994-2009
$3.50
1
44
See Appendix for all data sourcing for this section.
$1.08
$0.37
0 26
What Would Jefferson Do - PfundO&G,
and1918-2009
Healey, August 2011
Nuclear, 1947-1999 Biofuels, 1980-2009 Renewables, 1994-2009
44
See Appendix for all data sourcing for this section.
$4.86
26
$3.50
44 See Appendix for all data sourcing for this section.
$1.08
$0.37
what would jefferson do? - pfund and healey, september 2011 dbl investors findings and analysis 29
, 1918-2009 Nuclear, 1947-1999 Biofuels, 1980-2009 Renewables, 1994-2009
Of course,
Of course, what wewhat
arewe aretrying
really reallyto
trying to understand
understand in thisare
in this paper paper are the levels
the subsidy subsidy
to levels to the various
the various
energy sectors during the early days of those subsidies, as new fuel sources have emerged. The chartThe chart
energy sectors during the early days of those subsidies, as new fuel sources have emerged.
belowbelow
tracks tracks the dollar
the actual actualsubsidies
dollar subsidies
to eachto eachduring
sector sectorthe
during
first the first 30
30 years of years
those of those subsidies
subsidies
existence:
existence:
Of course, what we are really trying to understand in this paper are the subsidy levels to the various energy
Oil andOil and gas:during
sectors
gas: 19181947
19181947 the early days of those subsidies, as new fuel sources have emerged. The chart below
Nuclear:
Nuclear: 19471976
19471976
tracks 19802009
Biofuels:
the actual dollar subsidies to each sector during the first 30 years of those subsidies existence:
Biofuels: 19802009
Renewables:
Renewables: 19942009
19942009 (with
(with the nextthe
14next
years14extrapolated
years extrapolated
forward forward
along thealong thelines,
dotted dotted
if lines, if
renewables
renewables subsidies
subsidies were towere
growtoatgrow at therate
the same same rate asearly
as either either early
O&G O&G orsubsidies
or nuclear nuclear subsidies
did) did)
Comparison of Early Federal Subsidies to Energy Sectors
Comparison of Earlyof
Comparison Federal Subsidies
Early Federal to Energy
Subsidies toSectors
Energy Sectors
7 7
Oil and gas: 19181947
6
O&G subsidies
O&Gare larger than
subsidies than renewables Nuclear: 19471976
renewables
are larger
6
subsidies, even duringeven
subsidies, Depression-era dip
during Depression-era dip
Biofuels: 19802009
5 5 Renewables: 19942009
(with the next 14 years extrapolated
4 forward along the dotted lines, if
4
Nuclear, 1947 - 1976renewables subsidies were to grow
2010$, Nuclear, 1947 - 1976
2010$,
billions O&G, 1918 - 1947 at the same rate as either early O&G
billions O&G, 1918 - 1947
3
3 or 1980
Biofuels, 1980 - 2009
Biofuels, nuclear
- 2009subsidies did)
Renewables, 1994 - 2009
Renewables, 1994 - 2009
2
2
Dotted lines represent increased subsidy level

1 Dottedtoday
for renewable parity lineswith
represent increased subsidy level
historical
1 forsubsidies,
renewable parity today with historical
O&G and nuclear respectively
O&G
(nuclear is bright and nuclear subsidies, respectively
green)
(nuclear is bright green)
0
1 2 30 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
1 2 3 4 5 6 7 8 9 10 11of12
Years 13 14
Subsidy Life15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years of Subsidy Life
Looking at the jagged changes in year-over-year subsidy levels displayed in the chart above, it is
Looking
probably worthatnoting
the jagged changes
here that mostin ofyear-over-year subsidy in
the subsidies analyzed levels displayed
this paper in the
do not takechart above,
the form of ait is
probably worth noting here that most of the subsidies analyzed in this paper do not take the form of a
Lookingappropriation,
specific legislative at the jaggedwhichchanges in year-over-year
one might expect would be smoother Some overkey points
time. jump
Instead, tax out from the chart above:
specific legislative appropriation, which one might expect would be smoother
expenditure subsidies, for example, rise and fall according to how effectively the private sector takes over time. Instead, tax
subsidy
expenditure levels displayed
subsidies, for in
example,the chart
rise and above,
fall it
according to how effectively
advantage of them in a given year. Similarly, an off-budget subsidy such as the risk-shifting embodied in the private sector takes
is probably
advantage
the Price-Anderson of Actworth
them in anoting tohere
given year.
corresponds that most
theSimilarly,
number annew
of of nuclear
the subsidy
off-budget such
Early
plants coming subsidies
asonline
the to the
risk-shifting
in any given nuclearinindustry
embodied
year. thesubsidies
Price-Anderson Act corresponds to the
analyzed in this paper do not take the number of new nuclear plants coming online
dwarf all others; in any given
year.
form of a specific legislative appropriation, which
Some key points jump out from the chart above:
onekey
Some mightpointsexpect
jump would
out frombethe smoother
chart above: over time. Biofuels subsidies rose linearly for most of their
Instead,
Early tax expenditure
subsidies to the nuclearsubsidies,
industry dwarf for all
example,
others; lifetime but jumped enormously due to policy
Early
Biofuels subsidies
subsidies rosetolinearly
the nuclear
for mostindustry
of theirdwarf all others;
lifetime but jumped enormously due to policy
rise and fall according to how effectively the changes in the mid-2000s;
Biofuels
changes subsidies rose linearly for most of their lifetime but jumped enormously due to policy
in the mid-2000s;
private
Renewable sector
changes intakes advantage
thetrail
subsidies mid-2000s;
all others by of athem in a given
significant margin, with the lone exception being the
year.
2006 Similarly,
jump an
associated
Renewable off-budget
with the
subsidies allsubsidy
temporary
trail such as the ofmargin,
othersreauthorization
by a significant with
Renewable
the productionthe tax subsidiesbeing
lonecredit.
exception trail the
all others by a sig-
However,2006 even
jumpthat high-water
associated mark
with the barely
risk-shifting embodied in the Price-Anderson Act equaled
temporary the lowest
reauthorization subsidy
of theyears during
production the
tax early
credit.
nificant margin, with the lone exception being
days ofHowever,
oil and gas subsidies
even (which occurred
that high-water due to equaled
mark barely falling production
the lowestduring
subsidytheyears
Depression).
during the early
corresponds to the number of new nuclear plants the 2006 jump associated with the temporary
days of oil and gas subsidies (which occurred due to falling production during the Depression).
coming online in any given year. reauthorization of the27production tax credit.
What Would Jefferson Do - Pfund and Healey, August 2011 27
However, even that high-water mark barely
equaled the lowest subsidy years during the
early days of oil and gas subsidies (which oc-
curred due to falling production during the
Depression).
The yearly ups and downs of the chart on the previous page make it somewhat hard to read. Below is
a version of the same data, smoothed out via 30-year trend lines. Here, the point jumps out even more
starkly:
The yearlyrenewable subsidies
ups and downs of constitute
the chart ononly
thea previous
small percentage
page makeof the subsidies received
it somewhat by both
hard to read. the oil
Below is aand
version
gas andofthe
thenuclear
same data, smoothed
industries outearly
in their via 30-year
days, in trend lines. Here, the
inflation-adjusted point jumps out even more
terms.
starkly: renewable subsidies constitute only a small percentage of the subsidies received by both the oil
and gas and the nuclear industries in their early days, in inflation-adjusted terms.

7
4
2010$,
billions
3
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Now, on the following page is a chart that requires some explanation. If the federal budget is a
reflection of spending priorities, then it would be useful to see what percentage of the federal budget
Now, on the following page is a chart that requires What weve done, then, is taken the 19181932
various energy subsidies constituted during their early days. However, it would not be fair to compare
some explanation. If the federal budget is a reflec- federal budgets (which represent the first 15 years
oil and gas subsidies in 1918 to renewable subsidies in 1994 as a percentage of the budget, since the
tion ofbudget
federal spendinghaspriorities,
grown sothen
much it larger
would due
be useful of federal
to new spending oil and gas from
on everything subsidies) andto
defense brought them
to see whattopercentage
agriculture Medicaid. of the federal budget vari- forward in time to overlap with the introduction
ous energy subsidies constituted during their early of subsidies to the other energy sectors. That is to
days.weve
What However, it would
done, then, isnot be fair
taken theto compare federalsay,
19181932 when (which
budgets you look at the chart
represent the on
firstthe
15following
years of
federal
oil andoil
gasand gas subsidies)
subsidies in 1918and brought them
to renewable subsi-forward page,
in time to overlap
youre lookingwith the introduction of
at inflation-adjusted budgets
subsidies to the other energy sectors. That is
dies in 1994 as a percentage of the budget, since to say, when you look at the chart on the following
for the years 19181932, absent any other in- page,
youre looking at inflation-adjusted budgets
the federal budget has grown so much larger due for the years 19181932,
creases absent
in federal any other
spending. Thus,increases in
you can actually
federal spending. Thus, you can actually get an apples-to-apples comparison of how the subsidies stack
to new spending on everything from defense to get an apples-to-apples comparison of how the
up with one another in terms of federal support.45
agriculture to Medicaid. subsidies stack up with one another in terms of
45
Once again, federal support for the nuclear industry overwhelms federal support.
the other subsidies. Still, it is just as
striking to compare the levels of support received by the oil and gas and renewables sectors. Oil and gas
support never falls below a level at least 25% higher than renewables, and in the most extreme years,
that support is nearly 10 times as great. This is a striking divergence in early federal incentives.
45 For example, the first tax expenditures for oil and gas occurred in 1918. We took the 1918 federal budget (year 1 for oil), and adjusted it for inflation to 1947 (year 1
for nuclear), to 1980 (year 1 for biofuels), and to 1994 (year 1 for renewables). We then did the same for each of the 1919-1932 federal budgets.
45
For example, the first tax expenditures for oil and gas occurred in 1918. We took the 1918 federal budget (year 1
for oil), and adjusted it for inflation to 1947 (year 1 for nuclear), to 1980 (year 1 for biofuels), and to 1994 (year 1
for renewables).
what We then
would jefferson do? - did theand
pfund same for september
healey, each of the 1919-1932
2011 federal budgets.
dbl investors findings and analysis 31
28
Once again, federal support for the nuclear industry overwhelms the other subsidies. Still, it is just as
striking to compare the levels of support received by the oil and gas and renewables sectors. Oil and gas
support never falls below a level at least 25% higher than renewables, and in the most extreme years, that
support is nearly 10 times as great. This is a striking divergence in early federal incentives.

Energy Subsidies
Energy asas
Subsidies Percentage
Percentageof
ofFederal Budget
Federal Budget
0.25 0.25
0.20
0.20
0.15
0.15
O&G
O&G
Nuclear
Nuclear
Biofuels
0.10
0.10 Biofuels
Renewables
Renewables
0.05
0.05
0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
0.00 Years of Susbsidy Life (Year 1 equivalent to inflation-adjusted 1918 Federal Budget)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Years of Susbsidy Life (Year 1 equivalent to inflation-adjusted 1918 Federal Budget)
Now, let us turn to the chart below: it examines the year-over-year increase in MMBTUs from a given
Now, let us turn
energy tosource
the chart below:dollar.
per subsidy it examines the year-over-year
It demonstrates increase
that when seen from aninincremental
mmbtus from a givenoilenergy
perspective,
Now, and
let us
gasturn to the chart
production seemsbelow:
to it examines
outperform the year-over-year
renewable production on increase
an MMBTU in /MMBTUs
$ basis fromthe
during a given
source energy
per subsidy dollar.subsidy
source per
It demonstrates that when seen from an incremental perspective, oil and gas pro-
industrys early days. dollar. It demonstrates that when seen from an incremental perspective, oil
ductionand
seems to outperform
gas production seems renewable production
to outperform on an
renewable mmbtuon
production / $anbasis
MMBTUduring/ $ the
basisindustrys
during theearly days.
industrys early days. Increase in MMBTUs Produced / $ in Subsidy
Increase in MMBTUs
0.20
Produced / $ in Subsidy
Note: early O&G subsidy period
0.190 Increase in MMBTUs Produced
0.186
/ $ in Subsidy
0.18 corresponds to rise of the
0.20
automobile and intense demand
0.16 Note:growth,
early O&G subsidy
versus period
renewables
0.190
0.18 corresponds
competing to against
rise of the
fully 0.186
0.14
automobile and intense
depreciated demand
existing generation
0.16 growth, versus renewables
facilities
0.12
competing against fullyMMBTU increase /
< 0.001 O&G
0.14 subsidy $
0.10 depreciated
0.107 existing generation
? Renewables
facilities Biofuels
0.12
0.08
< 0.001 MMBTU increase / O&G
Nuclear
subsidy $
0.10
0.06
0.107 ? Renewables
Biofuels
0.08 0.04 0.048
Nuclear
0.031
0.06 0.02 0.026
0.04 0.00 0.048

1st 15 Years of Subsidy Life 1st 30 Years of Subsidy Life
0.031
0.02 0.026
Nonetheless, it is worth considering why this may have been the case: with oil and gas, we are analyzing
0.00
a period in time (the 1920s) when the rise of the automobile was driving intense demand for oil, a fuel
1st 15 Years of Subsidy Life 1st 30 Years of Subsidy Life
29
Nonetheless, it is worth considering why this may have been the case: with oil and gas, we are analyzing
a period in time (the 1920s) when the rise of the automobile was driving intense demand for oil, a fuel
findings and analysis 32
Nonetheless, it is worth co nsidering why this
may have been the case: with oil and gas, we are
analyzing a period in time (the 1920s) when the
rise of the automobile was driving intense demand
for oil, a fuel source with no substitute for that
purpose. Producers were scrambling to keep up
with skyrocketing demand, and it is unclear how
much incremental supply the subsidies really in-
cented. Looking at renewables, on the other hand,
we are analyzing a set of emerging technologies
competing in a commodity business (the provi-
sion of electrons) against fully depreciated coal,
nuclear, and hydro facilitiesall of which had also
been subsidized, of courseon a grid not usually
designed to support new entrants.
Keeping that perspective in mind, then, the fact

that renewables have performed even half as well
as oil and gas on an MMBTU / $ basis should
perhaps surprise and impress us. And with renew-
able energy technologies improving at a rapid
rate, we certainly cannot predict what a 30-year
comparison graphic might eventually look like.
Discussion
Subsidizing Apple Pie: AreDiscussionSubsidizing
the Slices Getting Apple Pie: Are the Slices Getting Smaller?
Smaller?
The quantitative analyses presented in the previous section, along with the qualitative discussion of
century energy subsidies, demonstrate that not only are incentives a tried and true American approa
The quantitative analyses presentedtoindriving energy innovation,
the previ- but also that
The problem withcurrent
electricsubsidies
vehiclesfor
canrenewable technologies make up a m
be summed
smaller federal commitment than was made during previous transitions. Looking at the history of
ous section, along with the qualitative discussion
American up with
energy subsidies, onecase
a strong word:cansubsidies. Subsidies
be made that in orderare prima
to drive the next generation of
of 19th century energy subsidies, demonstrate that the federal
energy technology, facie evidence
governmentthatneeds
consumers would
to continue its not buy for renewables, in line wit
support
our historical
not only are incentives a tried and true American commitments to innovation:
the product at its market price. Subsidies distort
approach to driving energy innovation, butThe also markets, compromising economic growth, and are
energy industrys entrenched infrastructure is nearly impossible to compete with absent
47
that current subsidies for renewable technologies simply
federal tax incentives. Suchwealth transfers.
incentives were instrumental in overcoming the risk factor and
make up a much smaller federal commitment establishing the current petroleum industry, and they are as necessary now for the alternative
fuel businesses as they were 100 years ago to overcome high initial start-up costs, minimize the
than was made during previous transitions.riskLook- This
associated with newargument is intuitively
industries, and appealing,
signal to taxpayers nofordoubt.
support these industries.
46
ing at the history of American energy subsidies, a And for mature industries, it makes economic
Still, there is a chorus of voices in our current debate making the opposite point, as suggested in a
strong case can be made that in order to drive the sense (without going into the issue of externalities
recent USA Today opinion piece on electric vehicles (which could just as well apply to any other
next generation of energy technology, the federal
emerging energy technology):and the potential need to price in environmental,
government needs to continue its support for re- social, or other consequences of a market transac-
The
newables, in line with our historical commitments problem with electric
tion, vehicles
which is can be summed
a whole otherupquestion).
with one word:
Butsubsidies.
stick- Subsidies are
prima facie evidence that consumers would not buy the product at its market price. Subsidies
to innovation: ing to the purely
distort markets, compromising economic economic perspective,
growth, and consider
are simply wealth transfers.
47
the following recently published graphic:

This argument
The energy industrys entrenched infrastructure is is intuitively appealing, no doubt. And for mature industries, it makes economic sense
(without going into the issue of externalities and the potential need to price in environmental, socia
nearly impossible to compete with absent federal
other consequences of a market transaction, which is a whole other question). But sticking to the pu
tax incentives. Such incentives wereeconomic
instrumental Solar Average
perspective, consider Installed
the following Cost
recently per Watt
published graphic:
2004 to present
in overcoming the risk factor and establishing the
current petroleum industry, and they are as neces-
sary now for the alternative fuel businesses as they
were 100 years ago to overcome high initial start-
up costs, minimize the risk associated with new
industries, and signal to taxpayers support for these
industries.46
Still, there is a chorus of voices in our current

debate making the opposite point, as suggested in
a recent USA Today opinion piece on electric ve-
hicles (which could just as well apply to any other
emerging energy technology):
46
Op. cit. Hymel (2007).
47
Kenneth P. Green, USA Today, Opposing view on energy: Subsidies? Just say no (December 19, 2010).
46 Op. cit. Hymel (2007).

47 Kenneth P. Green, USA Today, Opposing view on energy: Subsidies? Just say no (December 19, 2010).
what would jefferson do? - pfund and healey, september 2011 dbl investors discussion 34
As discussed earlier in this paper, combustion
turbines were once uneconomic, and government
support made them mainstream. That kind of
innovation was surely a subsidy to the natural gas
industry, but we can also agree that America as a
whole is better off having access to the resulting
technology. Why should current renewable tech-
nologies face different standards? Perhaps if they
were unable to achieve technological and pricing
breakthroughs, there would come a time when
we should abandon support for them, but as the
graphic on the previous page makes clearstick
with solar, and the price will continue to come
down. We could chart the same price decline with
wind technology, and who knows what will be
next? To put the case succinctly:
Some argue that incentives should be adjusted

according to the maturity of the technology . The
idea is that increased use of the technology enhanc-
es technological changewith the most potential
for technological improvement occurring in new
technologies. This perspective may suggest that
mature technologies such as those for fossil fuels
should be subsidized less than those for renewable
energy sources.48
48 Maura Allaire and Stephen Brown, Resources for the Future, Eliminating Subsidies for Fossil Fuel Production: Implications for U.S. Oil and Natural Gas Markets
(December 2009). Allaire is currently a PhD candidate at the University of North Carolina at Chapel Hill. Brown is the Director of the Center for Business and
Economic Research at the University of Nevada, Las Vegas.
what would jefferson do? - pfund and healey, september 2011 dbl investors discussion 35
ConclusionIn Energy We Trust
In closing, we present the two images below, the first a 1962 Life magazine advertisement from Humble
Oil (now Exxon Mobil) and the second a graphical representation of Americas current dependence on
foreign sources of energy.
Conclusion
ConclusionIn Energy We Trust
In Energy We Trust
In closing, we present the two images below, the first a 1962 Life magazine advertisement from Humble
Oil (now Exxon Mobil) and the second a graphical representation of Americas current dependence on
foreign sources of energy.
In closing, we present the two images below,

the first a 1962 Life magazine advertisement
from Humble Oil (now Exxon Mobil) and the
second a graphical representation of Americas
current dependence on foreign sources of energy.
EACH DAY HUMMBLE SUPPLIES ENOUGH ENERGY TO MELT 7 MILLION TONS OF GLACIER
Source: Koplow presentation49

49
Source: Koplow presentation
U.S. Energy Consumption vs. Production
120
Source: Koplow presentation49

100

30 Quads
80 (about 1,000 GW
of new generation)
10 Quads
120 Quadrillion
60
BTUs
40
100
20
0 30 Quads
80 (about 1,000 GW
Total Energy Consumption Total Domestic Fossilof
Fuelnew generation)
Production Fossil Fuels + Renewables
10 Quads
Quadrillion
60
BTUs 49
Douglas N. Koplow, OECD Expert Workshop on Estimating Support to Fossil Fuels, Quantifying Support to
Energy Why is It Needed? (November 2010).
40 33
20
Total Energy Consumption Total Domestic Fossil Fuel Production Fossil Fuels + Renewables

49
Douglas N. Koplow, OECD Expert Workshop on Estimating Support to Fossil Fuels, Quantifying Support to
Energy Why is It Needed? (November 2010).
33
49 Douglas N. Koplow, OECD Expert Workshop on Estimating Support to Fossil Fuels, Quantifying Support to Energy Why is It Needed? (November 2010).
what would jefferson do? - pfund and healey, september 2011 dbl investors conclusion 36
Together, these two images demonstrate the We titled this paper, What Would Jefferson
factmore clearly than we ever could in words Do? We believe that the answer to that question
that Americas energy needs and priorities have is now clear. He would do what our country has
changed over time, and that they will continue always donesupport emerging energy technolo-
to evolve going forward, driven by econom- giesto drive innovation, create jobs, protect our
ics, environmental concerns, and security issues. environment, enhance our national security in a
Throughout our history, energy incentives have time of rapid change, and to further a distinctly
helped drive critical innovation, speed U.S. eco- American way of life in which resources once
nomic transitions, and helped shape our national thought to be endless are replaced by ones that
character. Today, as we seek to move towards a actually are.
more independent and clean energy future, the
truth is that renewablesfrom a historical per-
spectiveare if anything under-subsidized. This
weak support is inconsistent with our nations own
historical energy narrative, which suggests:
Todays market for cheap power results in part from

substantial investment by the federal government in
innovative technology.
It takes a substantial amount of money, invested

over several years, to bring an electricity generation
technology to maturity.
Although energy subsidies can and do serve many

policy purposes, the most basic relate to furthering
the development and commercialization of technolo-
gies deemed to be in the public interest.50
what would jefferson do? - pfund and healey, september 2011 dbl investors conclusion 37
Appendix:
Data Sources
Consolidated data behind the charts in the

Key Findings section are all on file with the
authors and available upon request. A list of
original data sources follows below:
- Energy Information Administration: Annual

Energy Review 2009
- Energy Information Administration: Federal

Financial Interventions and Subsidies in
Energy Markets 2007
- Marshall Goldberg: Federal Energy Subsidies:

Not All Technologies are Created Equal
( July 2000).
- Doug Koplow: Federal Energy Incentives:

Energy, Environmental and Fiscal Impacts
(April 1993).
- Mona Hymel: Americans and Their Wheels:

A Tax Policy for Sustainable Mobility
(February 2006).
- The Joint Committee on Taxation: Background

Information on Tax Expenditure Analysis and
Historical Survey of Tax Expenditure Estimates
(1980 2010).
- Department of Treasury: Presidents Budget

(1980 2010).
- Office of Management and Budget, Analytical

Perspectives (1996 2010).

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What Would Jefferson Do?

The Historical Role of Federal Subsidies

by Nancy Pfund and Ben Healey

The authors wish to thank the following individuals

Jordan Diamond, Environmental Law Institute

iii. Timber & Coal in the 19th Century 11

iv. Categorization of 20th Century Subsidies 15

v. Key Historical Subsidies by Sector 18

vi. Findings and Analysis 26

vii. DiscussionSubsidizing Apple Pie:

viii. ConclusionIn Energy We Trust 33

ix. Appendix: Data Sources 35

August 1981 report of the DOE

O&G, 1918-2009 Nuclear, 1947-1999 Biofuels, 1980-2009 Renewables, 1994-2009

Energy Subsidies as Percentage of Federal Budget

Energy Subsidies as Percentage of Federal Budget

Source: Joint Committee on Taxation

U.S. Growth and Historical Energy Transitions

Source: Energy Information Administration

Primary U.S. Energy Consumption vs. GDP

Primary U.S. Energy Consumption

Total Energy Consumption Real GDP (2010 $B)

Source: Energy Information Administration and MeasuringWorth

Into the 1800s: From Stanfords Center for International Se-

From the Renewable Energy Policy Project

Through the 1900s: From Greenpeace In December, 1953,

As the railroads grew, The high price of coal and

16 Op. cit. Cole, et. al.

derivative turbines to challenge the dominance of

20 only a small portion of the full Nuclear Energy

support for solar was nonetheless criticalResearch

More than $12 billion [in government savings]

This is certainly contested terrain. The domestic

2 Yes, the data on LIHEAP is available. Oil and Natural Gas:

In considering how best to quantify nuclear data,

31 Op. cit. Management Information Services.

34 Op. cit. Sherlock.

Nonrefundable investment tax credits for alterna-

In closing out this section, it is worth noting that

State Level Subsidies

Not included in this study are the effects of the

Source: Wiser Senate Testimony

Similarly, uncertainty regarding the near expiration of the renewable energy

Minor tax considerations Defense Spending: Billions are so civilian

Cumulative Historical Federal Subsidies

The chart above is illuminating in demonstrating the $446.96

Historical Average of Annual Energy Subsidies:

Dotted lines represent increased subsidy level

Comparative Energy Subsidy Trends

Energy Subsidies as Percentage of Federal Budget

0.04 0.00 0.048

Keeping that perspective in mind, then, the fact

the following recently published graphic:

Still, there is a chorus of voices in our current

46 Op. cit. Hymel (2007).

Some argue that incentives should be adjusted

In closing, we present the two images below,

Source: Koplow presentation49

Source: Koplow presentation49

U.S. Energy Consumption vs. Production

Source: Energy Information Administration

Source: Energy Information Administration

Todays market for cheap power results in part from

vii. DiscussionSubsidizing Apple Pie:

August 1981 report of the DOE

Source: Energy Information Administration

- Energy Information Administration: Annual

- Energy Information Administration: Federal

- Marshall Goldberg: Federal Energy Subsidies:

- Doug Koplow: Federal Energy Incentives:

- Mona Hymel: Americans and Their Wheels:

- The Joint Committee on Taxation: Background

- Department of Treasury: Presidents Budget

- Office of Management and Budget, Analytical