The Rigged Market for Fossil Fuels

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Just how rigged is the fossil fuels market? In a word, overwhelmingly.

Experts believe that oil companies alone receive $10-40 billion in handouts yearly. A conservative study from the Environmental Law Institute found that from 2002-2008, oil companies received $72 billion of taxpayer’s hard-earned cash. Another report from Management Information Systems, Inc found that between 1950 and 2010, $594 billion was spent directly subsidizing fossil fuels—and the lion’s share of that, almost two thirds, went to the oil industry. Coal, too, receives billions of dollars in annual federal handouts.

Clearly, government assistance distorts the price of fossil fuels, making them artificially cheaper. But those direct subsidies are nothing compared to the enormous costs the public indirectly pays for fossil fuels.

For one, our taxpayer dollars fund the cleanup of the industry’s accidents and disasters. In an interview, Dylan Ratigan told me that greedy bastards in the energy world are “masters” of transferring the long tail risk in their businesses to the public:

“They transfer that two tenths of a percent chance that the nuke melts down or the oil spill happens, or whatever the abomination is, to the state. The state takes that risk, and allows the limited regulation and all of the profits from the extraction of the energy resources to go to the energy companies, because they fund the politicians.”

Mining, transporting, and burning oil, gas, and coal also inflicts major damage to the environment and public health—and we pick up the tab. A 2009 report from the National Research Council showed that fossil fuels impose $120 billion of annual costs on the public every year. Air pollution takes a massive toll on public health—it causes respiratory problems, widespread illness and death, and leads to a huge number of missed work days. The prognosis from a Harvard study, the first to analyze the full life-cycle impact of coal, is even bleaker.That report’s lead author, the late Dr. Paul Epstein, told me in an interview that “Between the land disturbance, the mountaintop removal, the processing ... and the combustion, we estimate that this is costing the American public somewhere between a third to half a trillion dollars in health costs and deaths.”

Yes, that’s ‘trillion’ with a ‘T’. Every year.

In fact, coal is so economically disastrous that the mainstream journal American Economics Review found that the electricity generated from coal actually does more damage to the economy than the electricity is worth. Grist’s David Roberts notes that “Coal-fired power is a net value-subtracting industry. A parasite, you might say. A gigantic, blood-sucking parasite that’s enriching a few executives and shareholders at the public’s expense.”

Finally, taxpayer-funded military expeditions have played a crucial role in securing fossil fuel supplies and transport routes—a cost to the public registered not just in billions of dollars but in American lives.

According to Ratigan’s calculations, the price of gasoline is around $10 too cheap per gallon when all unaccounted-for costs are included. Other projections put the figure even larger. And there are a wide range of estimates of the “true” cost of coal: Depending on how you factor in the costs of climate change, it could be between a few additional cents per kWh to a whopping ¢26.89 extra per kilowatt hour—the high-end estimate from the Harvard study. By way of comparison, the average American paid ¢11.54 per kWh on their residential electric bills last year. In other words, if prices accurately reflected all of the actual costs of burning coal, coal-fired power plants would be dead in the water.

Using the example of oil, Ratigan writes that such distortion results in a situation where “the free market can’t help [us] decide if it’s worth switching from gas to another fuel, because the market isn’t free, it’s rigged.” Similarly, investors, homeowners, and utilities can’t decide whether it will pay off to invest in clean energy and efficiency when the price of burning coal, which still supplies nearly half the nation with electricity, is so cheap.

Which is why we’ve got to restore price integrity to commodities like oil and coal—we’ve got to prevent fossil fuel companies from dumping their costs on us, level the playing field for clean energy technologies, and give Americans the choice they deserve over what powers their lives. Which means we've got to increase the price of gasoline and coal-fired electricity.

http://www.treehugger.com/energy-policy/true-cost-fossil-fuels.html