OPINION: If wind and solar were economic, they wouldn't need government subsidies

There is a persistent public misperception that the oil and gas industry receive billions of dollars in tax subsidies from the federal government. That misperception, along with several others, was perpetuated in a recent opinion piece by Robert Weissman of the Public Citizen titled “Oil subsidies underpin economic injustice” (Jan. 5, Sunday Journal).

It is born of the public confusion between tax incentives and tax subsidies, or the difference between a deduction off your taxes, which the oil industry does receive, versus a tax credit against your taxes, which is doled out in vast quantities to the “green” industries.

I apologize in advance for boring tax talk but let me set the record straight.

The reality is that the oil industry doesn’t get subsidies but is allowed to deduct their investment from their taxes, just like any other business. There are three types of costs associated with drilling an oil well: The cost of leasing the oil and gas rights under the well, the tangible costs to drill the well — such as the pipe or the wellhead or something physically there when the process is over — and the intangible drilling costs, which cover everything else from all the manpower to the rig to fracking the well.

Each of these types of investment is treated differently for taxes.

The cost to lease the land is depleted over the life of the well as the reserves are produced, while the tangible drilling costs are depreciated over a seven-year life assumed for that equipment. The intangible drilling costs are allowed to be written off in the year incurred, versus over seven years like the tangibles.

It is this accelerated intangible drilling costs write-off that is decried as giving billions of dollars to the oil industry.

Again, writing off one’s investment in some manner is allowed across the board to all businesses, including NVIDA, Walmart or any other entity when they install a new facility or make some other capital investment. But because write-offs are not a subsidy, the ability to write the intangible drilling costs off faster will not turn a marginal well into an economic success.

Meanwhile, the Inflation Reduction Act includes over $250 billion in green energy tax credits. Unlike tax incentives, these are tax subsidies without which many of these green projects would never turn a profit. Many still don’t.

When someone like Robert Weissman, president of Public Citizen who wrote the Jan. 5 column “Oil subsidies underpin economic injustice,” touts how cheap solar is, he is talking about the instantaneous cost at noon on a summer day.

He most certainly isn’t including the capital costs of the solar plus the costs of the natural gas generation plant that comes on in the evenings. This duplicity is an inefficient use of capital, as ironically, the natural gas plant was not displaced by solar but must be there in addition to the solar.

The bottom line is that if wind and solar were economical, they would not need the subsidies. And if their energy were cheap, then places like California would have the lowest energy prices in the nation versus the highest.

Before closing, I’d like to address one more misperception perpetuated by Weissman — that Chris Wright, President Donald Trump’s nominee for secretary of energy, is a “climate change denier.” On the contrary, Wright believes climate change is happening and needs to be thoughtfully addressed. But he does not believe it is the “crisis” perpetuated in the media. He feels that humankind has bigger problems to face, particularly the lack of energy in disadvantaged countries.

His book, “Bettering Human Lives,” talks about the millions of people who die each year from problems that energy could solve.

Despite the absolute need for oil and natural gas or the pragmatic reality of Wright’s positions on energy, neither Wright nor the industry expect to be loved by the public which they serve. We just hope someday to be understood.

George Sharpe is an energy educator and investment manager for Farmington-based Merrion Oil & Gas. His video, “Understanding Energy in the Face of Climate Change,” can be found on YouTube.