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The World According To St George Monbiot

February 3, 2016

By Paul Homewood 

 

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http://www.theguardian.com/commentisfree/2016/feb/02/cheap-oil-taxpayers-crisis-bailouts-fossil-fuels

 

Poor old George Monbiot is having a big rant in the Guardian, about how the taxpayer is propping up big oil. According to poor George:

 

Already, according to the International Monetary Fund, more money is spent, directly and indirectly, on subsidising fossil fuels than on funding health services.

Now, you would have been entitled to think that taxpayers are forking out billions to send to wicked oil companies, which could otherwise be spent on the NHS. But as usual with George, the truth is the diagonal opposite. This is the IMF report he refers to:

 

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http://www.imf.org/external/pubs/cat/longres.aspx?sk=42940.0

 

 

The first thing to note is that these are all consumer subsidies, and not producer subsidies. In other words, nobody is suggesting that billions are being paid to Exxon. What they are saying is that the price for energy paid by consumers is subsidised by governments, ie when consumer prices are below supply costs. As most energy is fossil fuel based, most of these subsidies will be as well.

(These are initially calculated on a pre-tax basis, and I will come back to the post-tax chunk later.)

In contrast, producer subsidies are when the cost of production is higher than the market price, as with renewables.

 

 

There are many reasons why governments pay consumer subsidies on energy, for instance to mitigate fuel poverty and to help develop an industrial base. There may also be many abstract reasons why such subsidies are bad. But the bottom line is that it is up to individual governments around the world to make these decisions, and not the IMF or Mr Monbiot.

One of the issues that the paper explores is that of energy efficiency, in other words that cheap energy discourages using less. This, of course, was Obama’s stated policy of making energy prices skyrocket.

Translation – if we put up the price of your electricity, you won’t be able to use as much! It says a lot about the current state of political discourse that abstruse arguments take priority over real world problems.

The IMF paper notes that the vast bulk of these pre-tax subsidies arise in the third and developing world. By what right does Monbiot think he can lecture these countries in what they should be doing?

 

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Post Tax Subsidies

 

As the above table shows, pre –tax subsidies only account for a very small proportion. The rest take the form of “taxes”:-

1) A tax to reflect environmental damage.

2) And an additional tax applied to all consumption goods to raise government revenues.

 

Let’s take the first one.

It will come as no surprise that much of this is to reflect the cost of climate change. Despite various attempts to put a social cost on carbon, I am not aware of anybody actually quantifying the cost arising from global warming in the last century or two.

Quite the opposite in fact, as there are clear arguments that the world’s climate is better than it was in the 19thC. Certainly, world governments were alarmed in the 1970’s after three decades of cooling.

I would invite anyone who disagrees with this analysis to choose which temperature they would like to set the world’s thermostat to, and explain why.

To be fair, the paper also looks at the health costs of air pollution, but fails to say what the alternatives would be.

Unfortunately we don’t live in a perfect world. Putting up the price of energy certainly won’t help fuel poverty or people’s health. Nor will job losses caused by making industry less competitive.

The assumption of air pollution costs in any event misses the much wider issue, that societies are now, for the most part, far healthier than they were even a few decades ago, never mind centuries. The reason lies in economic development, which simply cannot be divorced from the use of fossil fuels.

If we really want to help the third world, we should be helping to build clean coal and gas plants, with technology that is able to eliminate most of the real pollution.

They even include the cost of road congestion under this heading! They argue that we would all be much better off on public transport, leaving the roads clear. I don’t know about anyone else, but in my experience it usually takes a lot longer going by bus.

 

 

The “additional tax” implies that tax on energy, say VAT or sales tax, should be the same as other goods. This sounds a rather ludicrous argument, that people would be better off as a result of handing billions over to their governments to waste.

In any event, many goods, such as food, have lower or zero rates of tax. Would the authors suggest that governments put the price of food up, to stop so much being wasted?

 

All of this misses the point that most countries charge oil companies an arm and a leg for the privilege of drilling for oil.

  

 

UK

As Monbiot’s article is laid out as a direct attack on UK government policy, it is worth a quick re-cap on how much the fossil fuel industries actually pays to the Exchequer, as opposed to receiving in subsidies.

 

For a start, we have North Sea oil:

 

Producers of North Sea oil are taxed in three ways:-

1) Petroleum Revenue Tax (PRT) – this only applies to fields operating, or with consent, prior to 1993.

PRT is charged at 50% of profits, specifically for that field. In other words, losses from one field cannot be offset against the profits from another.

2) Corporation Tax – this is normally at 30% of profits (after PRT has been accounted for). Note that this is higher than normal corporation tax, which is now 20%.

3) Supplementary Charge – this is an addition to Corporation Tax, and is set at 20%, calculated against the profit before Corporation Tax.

 

So we can summarise:

 

  Pre 1993 Post 1993
Profit £100 £100
PRT £50 NIL
Profit after PRT £50 £100
Corporation Tax £15 £30
Supplementary Charge £10 £20
Total Tax £75 £50
Net Profit after Tax £25 £50

https://www.gov.uk/guidance/oil-gas-and-mining-supplementary-charge

 

As a non oil business would only pay Corporation Tax of £20, North Sea oil outfits are clearly paying much more than their share.

 

According to Wikipedia:

 

Petroleum Revenue Tax (PRT) is a direct tax collected in the United Kingdom. It was introduced under the Oil Taxation Act 1975, soon after Harold Wilson‘s Labour government returned to power and in the immediate aftermath of the 1973 energy crisis, and was intended to ensure "fairer share of profits for the nation" from the exploitation of the UK’s continental shelf, while ensuring a "suitable return" on the capital investment by oil companies.

PRT is charged on "super-profits" arising from the exploitation of oil and gas in the UK and the UK’s continental shelf. After certain allowances, PRT is charged at a rate of 50% (falling to 35% from 1 Jan 2016) on profits from oil extraction. PRT is charged by reference to individual oil and gas fields, so the costs related to developing and running one field cannot be set off against the profits generated by another field. PRT was abolished on 16 March 1993 for all fields given development consent on or after that date, but continues in existence for fields established before that date. At the same time, the rate of PRT was reduced from 75% to 50%, but various reliefs from PRT for expenditure on exploration and appraisal were withdrawn.

 

For many years, oil companies were seen as cash cows, making “undeserved” super profits. Even recently that has been the case. In 2002, the supplementary charge of 10% was introduced, increased to 20% in 2006, and 32% in 2011. It has only been reduced to 20% again last year in the face of the threat to North Sea oil output from lower oil prices.

 

On top of all of this, of course, and the fuel duties paid by motorists, which totted up to £27.2bn last year. The idea that oil, or oil companies, are being subsidised is frankly nonsense.

The same applies to natural gas. The only fossil fuel which can be said to have been subsidised is coal, back in the nationalised days of the 1970’s and 80’s, and that was not so much a subsidy of fossil fuel as one for yet another inefficient nationalised industry.

 

Yet somehow the idiot Monbiot thinks that subsidising the Exchequer to the tune of hundreds of billions over the years equates to “taxpayers propping up this toxic industry”.

 

The mind boggles!

10 Comments leave one →
  1. Joe Public permalink
    February 3, 2016 9:07 pm

    A h/t to Philip Bratby for the link to this statement from Section 1.31:

    There are a wide range of definitions of what constitutes a fossil fuel subsidy. The UK, like the EU and the IEA, excludes tax treatment from its definition of what is meant by a fossil fuel subsidy, using international market price as a benchmark. The UK therefore has no fossil fuel subsidies.

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/487300/FITs_Review_Govt__response_Final.pdf

  2. February 3, 2016 9:40 pm

    I thought this was priceless!
    “I would invite anyone who disagrees with this analysis to choose which temperature they would like to set the world’s thermostat to, and explain why.”
    It ought to be an obligatory question on a University entrance exam paper.

    Nicely done, Paul, as always. Keep up the good work – you are keeping a lot of us sane.!

  3. John F. Hultquist permalink
    February 3, 2016 9:41 pm

    I know a person that thinks like George Monbiot. We visit about once every 8 weeks. It gets tiring listing to the same stream of bs and then pointing out that what he just said makes very little sense. Good that he doesn’t have a weekly column in the local paper.
    The funny thing is that for his work he travels in a rather hefty pickup truck. I’ve told him that when he switches to an all electric truck I will remove my characterization of him as hypocrite. I still will not believe what he says but at least I could respect him a bit more.
    I’ll guess George Monbiot’s “carbon footprint” is many times larger than mine. Give me a heads-up when he walks and uses a bike to get around and lives in a home of passive-solar design. [I do not; just saying.] Until then let’s call him Toxic George.

    ~~~Very good post, by the way.

    • February 4, 2016 1:31 pm

      But after we’re rid of coal, where will he plug in his electric pickup truck?

  4. February 3, 2016 9:42 pm

    The Green Blob are panicking, their “Green” energy revolution is crumbling, in part due to low petrol and gas prices, hence this nonsense about subsidies.

  5. David Richardson permalink
    February 3, 2016 10:24 pm

    An excellent post Paul. People like Monbiot have no grasp of the real world – and like you say their stupid obsessions cause hardship and death to millions in the third world.

    H/T to Euan Mearns for this answer he gave to a similar argument about “subsidies” and taxation a while back –

    “I never got around to the multiple layers of taxation on FF. What the population and politicians need to understand is that when they look around at their built environment that absolutely everything they see was built by FF (a little bit by nuclear and hydro) and that all the wealth and services flowing through our society comes from FF. Virtually all of it. Some of it in the way of multiple layers of taxation and the rest leveraged out of the work FFs do for us. The energy from FF is as important to our well-being as water and oxygen. The sooner society wakes up to that fact the better.

    There is no such thing as a free lunch in the energy world. As you know the extent of harm done by CO2 is disputed – certainly on this blog and on my own. To factor in externalities to notional subsidies is near impossible to do. But if it were to be done then it would be important to factor in the external benefits as well as costs, .e.g. CO2 fertilisation leading to greater plant / crop growth. And to apply this to all forms of energy production from flooded valleys to REE mining in China.”

    Thank you Euan, that often saves me a lot of typing – and I couldn’t have said as well.

  6. February 4, 2016 4:22 pm

    What I rarely see talked about is “who owns big oil”? From what I can gather, quite a few regular citizens have big oil as a significant part of their pension funds or mutual funds. I have no idea if this is accurate but here is one breakdown: http://www.whoownsbigoil.com/#/?section=whoowns-the-oil-companies-2

    Now I’d like to ask: who owns big green energy?

  7. auralay permalink
    February 5, 2016 7:09 pm

    “They even include the cost of road congestion under this heading! They argue that we would all be much better off on public transport, leaving the roads clear. I don’t know about anyone else, but in my experience it usually takes a lot longer going by bus.”

    That got me thinking of the cost of bus travel. From gov. publications https://www.gov.uk/government/publications/bus-passenger-journeys

    there were 1.29 billion local bus passenger journeys in UK, 2014 -15.
    Assume each bus journey, door to door takes 30 – 45 mins.
    Assume same journey would take 15 – 30 mins by car.
    Lost time = 1.29/4 billion hours.
    Min wage £6.5.
    Lost earnings cost of bus journeys = £2.1 billion.
    Should we add that to the cost of subsidising public transport?

  8. manicbeancounter permalink
    February 5, 2016 9:54 pm

    This is an excellent post, that covers a lot. But there is more to the issue.
    The biggest so-called subsidies are “failing to tax” for externalities. The externalities are mostly for pollution, not for global warming. They are biggest in Asia. Many of China’s and India’s cities have acrid and choking pollution. There were plenty of pictures of this in the run-up to the Beijing Olympics in 2008. But this pollution is not strictly an externality, but a consequence of the high levels of economic growth that the vast majority benefit from in higher living standards and (to use politicians speak) it better education, health care and social security. It might be ugly, but it is a trade-off. From the actions of the Chinese Government especially, it is a trade-off that the vast majority of the public accept as being more valuable than the alternative – lower economic growth and lower pollution.
    As for the much smaller global warming costs, the trade-off is even clearer when you look at maps of vulnerability to the costs of climate change. It is not the result of some super-duper forecasting model, but everything to do with economic output. So even if the climate models are true the sensible option is for high levels of economic growth.
    It is an extreme example of people with strong beliefs about certain priorities totally ignoring what the vast majority (and any person who weighs up priorities) decide.
    Old fashioned pollution – the choking smogs that exist – I believe will start to be dealt with in China once economic growth ceases to be dependent on rapidly growing fossil fuel emissions. It will also be about the time when economic growth slows. At that point reducing pollution to improve air quality will become worthwhile.

  9. Keith Gugan permalink
    February 6, 2016 3:17 pm

    Oil ‘subsidy’ is worse than nonsense it is a blatant lie. How such rubbish can be thought let alone written and published defies credibility.

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