The very obvious, extremely visible hand of the fossil fuel market
Under the Big Bad Budget Bill, the Trump Administration and congressional Republicans have stripped away the tax credits for renewable energy made possible through the Inflation Reduction Act. Revoking these credits will have a direct, negative impact on the country’s ability to meet clean energy targets, likely resulting in project cancellations, job loss, and higher electricity costs. The bill also highlights more broadly the contrast in how we subsidize different types of energy in the US.
Adam Michel, director of tax policy studies at the Cato Institute, a libertarian think tank, says of the cuts, “If you require a money-spigot from Washington to make your business viable, it probably shouldn’t have been in business in the first place.”
So what’s the deal - should we expect energy projects to stand on their own and be profitable without any public funding or support? And, if that's our expectation, do fossil fuel companies meet it?
These are fundamental questions that evoke the flawed theory of the “invisible hand” of the free market - an often misconstrued term coined by Adam Smith. Despite the beliefs of many modern proponents of free market economics, the term was actually not originally meant as a god-like representation of a perfect economic system, as it’s sometimes viewed now. In fact - Adam Smith actually first used the term in a critique of this kind of economic system.
As a quick refresher - the theory goes that in a market without any outside interference, humans will act in their self-interest. Through these self-interested actions, “the invisible hand” of the market will guide the whole in the direction of the public interest. Although the idea of this “natural state” of markets is appealing, it is not how the world actually works. One key reason is that it doesn’t take into account so-called “externalities,” like, for instance, environmental or climate impacts, and the costs of those impacts. Unregulated markets may produce cost-effective, efficiently made goods, but, if not regulated, as we have seen for decades - industry will abuse labor and pollute the environment and the climate to their sad little hearts’ content, public interest be damned.
Which brings us back to the question of energy subsidies. Should the renewable energy industry have to operate without public money? Should the fossil fuel industry? Is there any precedent for an energy industry operating without subsidies?
Some might be surprised to learn just how subsidized the fossil fuel industry is, in the US and across the world. According to Oil Change International, in 2022, governments worldwide provided an estimated $1.4 trillion USD in subsidies to fossil fuels. This is a huge number. To put that in perspective, that’s equivalent to about the entire GDP of a country like Russia or Australia. Meanwhile, US federal and state governments gave away $20.5 billion average per year in 2015 and 2016 in production subsidies to the oil, gas, and coal industries. A 2017 study found that without these subsidies, about 45 percent of US oil production would not have been profitable that year.
According to Sarah Carballo of the FracTracker Alliance, “The narrative of a free market in energy is a convenient fiction, particularly when it comes to fossil fuels. The idea that fossil fuels thrive in a free market is a myth. The industry has been shielded by decades of favorable policies, tax breaks, and government handouts that keep prices artificially low and bog down the transition to cleaner energy. While policymakers who decry government intervention in markets continue to guarantee billions in subsidies for oil and gas companies, taxpayers ultimately foot the bill—funding these subsidies and paying for the long-term consequences of a system rigged in favor of polluting industries.”
In light of all that, it’s important to note that this year’s Republican budget bill doesn’t just cut tax credits for renewables. It also adds billions of dollars in new subsidies for the fossil fuel industry, under the lie of “cutting wasteful spending” (all while adding $3.4 trillion to the national debt). Make no mistake - this is not about free market economics - this is about strategic payouts to fossil fuel CEOs and lobbyists - payback for the massive donations these industries supplied to their chosen candidates. In 2024, the oil and gas industry spent just under $220 million on the US election, the vast majority of which went to Republican candidates. The free market myth is just a compelling narrative used to distract from this corruption. “The market” does not act in our best interest, and neither do the politicians paid for by the fossil fuel industry.
If we let go of the idea that markets can somehow naturally decide what’s good or bad for us, we can reclaim our own agency in determining that for ourselves. If we decide that clean air, clean water, and a livable climate are priorities, we can stop subsidizing industries that pollute our air and water, and start putting our public money towards clean energy. We can hold politicians accountable to these standards and not let them off the hook when they take payouts from polluters. And even when our values are not being reflected at the federal level, we still have the power to make these choices at the state level.
Currently, there are a few ways to do that. Our local energy utility, GVEA, has an extremely short timeline to sign power purchase agreements with the two wind projects currently on the table in order to avoid losing millions in federal funding opportunities for renewable energy, given the new cuts in the budget bill. We need to keep pushing GVEA to meet this deadline, as well as letting our federal Alaska delegation know how important this is to us, so they can help expedite access to funding opportunities promised under the IRA. If we succeed, and GVEA is able to sign power purchase agreements with both major wind projects on the table, and obtain the funding promised for battery and transmission upgrades, we would eliminate the current dire threat of rolling blackouts and energy shortages, and we would be well on the way to achieving GVEA’s stated goal of reducing carbon output by 26% by the year 2030. To take action, click the link below:
We also have an opportunity to level the playing field by removing some unfair advantages fossil fuel companies currently have in Alaska. SB 92 is a piece of legislation introduced over the past year that would close the tax loophole which currently allows the largest oil and gas company in the state (a Texas company) to pay zero corporate income tax.
