Is ‘not taxing’ the same as subsidizing?

Recently, Mitchell Anderson of The Tyee wrote the following:

The International Monetary Fund estimates that energy subsidies in Canada top an incredible $34 billion each year in direct support to producers and uncollected tax on externalized costs.

These figures are found in the appendix of a major report released last year estimating global energy subsidies at almost $2 trillion. The report estimated that eliminating the subsidies would reduce global carbon emissions by 13 per cent. The stunning statistics specific to this country remain almost completely unreported in Canadian media.

Almost no one can compete with me in his or her zeal for ending government subsidies, whether of energy, the arts, or anything else. And $34 billion for fossil fuels (oil, natural gas and coal) in a country the size of Canada, with a GDP of more than $2 trillion, is a large number. In fact, it’s a whopping 1.7 per cent of the Canadian economy.

How was I unaware that Canadian governments were subsidizing energy so heavily? And why are such statistics “almost completely unreported in Canadian media?”

The answer to both questions, it turns out, is that the actual subsidies for fossil fuels are much smaller than $34 billion. In fact, they’re only about $2 billion.

Mr. Anderson admits as much in the first sentence I quoted above. Almost all of the “subsidy,” he writes, is “uncollected tax on externalized cost.” What he does, tracking the IMF methodology, is assume that fossil fuels should be taxed to reflect some analysts’ views of the harm they impose on the economy, and then call the absence of such a tax a “subsidy.”

Whatever you think of taxing fossil fuels, this is simply a misuse of language. I have no problem with analysts making explicit their assumptions that using fossil fuels increases global warming, and then calling for taxes on that basis. At this point, with our current knowledge, I don’t favour such taxes. (I can say why but not in a few words; if you want to know why, see Robert P. Murphy, “The Economics of Climate Change.") But it’s highly misleading to call a nontax a subsidy.

Still, it would be nice to know the actual subsidies to fossil fuels by various levels of government in Canada. To his credit, Mr. Anderson tells us most of what we need to know. Government subsidies to petroleum producers, he writes, were $840 million in 2011, and to natural gas producers were $440 million.

That leaves coal.

Although he doesn’t give a number for coal, the IMF, Mr. Anderson writes, “found that the coal industry receives $4.5 billion in annual subsides [sic]—almost all of this is un-priced carbon and sulfur dioxide emissions.” He doesn’t give the breakdown, but let’s be generous and say that “almost all” means 80 per cent. That leaves actual subsidies to coal at $900 million (20 per cent of $4.5 billion). A higher than 80 per cent estimate would give a lower than $900 million estimate for actual subsidies to coal. So the grand total of subsidies to fossil fuels is, drumroll please, $2.18 billion annually.

That’s nothing to sneeze at.

And notice something else. Mr. Anderson seems to oppose subsidies. But he says nothing about the substantial subsidies that Canadian governments give to so-called “green energy.” According to Brady Yauch, an economist and executive director of the Consumer Policy Institute, subsidies to wind producers “could hit $8 billion over the next decade.” That amounts to an average of $800 million a year.

If further examination shows that the $2.18 billion to fossil fuels is truly the annual subsidy, let’s end it. And, while we’re at it, let’s end the $800 million subsidy to wind producers and the other subsidies to green energy. That would save more than $3 billion a year.

But let’s not hide our policy preferences by calling the absence of a tax a subsidy.