pennings policy This Is


∆ Contact Dr. Harwood D. Schaffer or Dr. Daryll E. Ray at the UTʼs Agricultural Policy Analysis Center by calling (865) 974-7407,faxing (865) 974-7298, or emailing hdschaffer@utk.edu or dray@utk.edu. For more info, visit: www.agpolicy.org


DR. HARWOOD D. SCHAFFER


Adjunct Research Assistant Professor, Sociology


Department, University of Tennessee and Director,


Agricultural Policy Analysis Center DR. DARYLL E. RAY


Emeritus Professor, Institute of Agriculture, University


of Tennessee and Retired


Director, Agricultural Policy Analysis Center


While Agricultural Subsidies May Seem Large, Fossil Fuel Subsidies Are Gargantuan


W


e were recently struck by a paper that was


referenced in a recent column by Nobel Prize Economist Paul Krug- m


a n


(https://tinyurl.com/ru rbkde) that discussed the subsidies that we di- rectly and indirectly pay to the fossil fuel indus- try. The IMF Working Paper, “Global Fossil Fuels Subsidies Remain Large: An Update Based on Country-Level Esti- mates” by David Coady, Ian Parry, Nghia-Piotr Le, and Baoping Shang (https://tinyurl.com/y2 ccas4d) “updates esti- mates of fossil fuel sub- sidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environ- mental costs, and rev- enue considerations), for 191 countries.” For the US, alone, the sub- sidy was estimated to be in the range of $649 bil- lion per year. We were intrigued by


the calculation of such a large subsidy for the fos- sil fuel industry because one of the charges that is laid against the farm program is that it subsi- dizes farmers while other industries have to stand on their own and compete in the free mar- ket. As it turns out, like a lot of other things in life, it’s a little more complicated than that. The subsidies that


Coady et.al. are talking about are unpaid envi- ronmental and health costs above the price that result from the use of fossil fuels. According to the International Monetary Fund (IMF) authors, “by [subsidy]


component, underpric- ing for local air pollution is still the largest source (48 percent in 2015), while that for global warming is similar to earlier estimates (24 percent),


followed by


broader environmental costs of road fuels (15 percent), undercharging


“


forms from the exten- sion of the copyright pe- riod (the


co-called


Mickey Mouse Protec- tion Act), to patents to tax increment financing that induces businesses to relocate or expand in a particular area. In the agricultural dustries,


input in- lax enforce-


ernmental support of agriculture more visible is that the federally ap- propriated portion of agricultural subsidies (which by definition, we should caution, does not include


agriculture’s


unpaid societal environ- mental costs) come up for a very public vote


Though some readers may disagree with the accuracy of the calculations, even allowing for a margin of error, the extent of the fossil fuel subsidies society pays certainly remain large.


for general consumption taxes (7 percent) and for supply costs (7 per- cent).” Though some readers


may disagree with the accuracy of the calcula- tions, even allowing for a margin of error, the ex- tent of the fossil fuel subsidies society pays certainly remain large. In addition, US fossil fuel industries receive a variety of tax prefer- ences. But we need not stop


with the fossil fuel in- dustry. Many other in- dustries


receive subsidies in various


ment of antitrust laws have allowed consolida- tion to the point that the remaining oligopolistic firms can charge higher prices for the seeds and chemicals farmers pur- chase. When farmers go to sell their production, they face a similarly re- stricted market as the result of consolidation. The point here is not


to argue about the de- tails of the subsidies en- joyed by each industry, but to make the point that agriculture is not alone in seeking govern- mental support. One thing that makes gov-


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for ∆


DR. HARWOOD D.


SCHAFFER: Adjunct Re- search Assistant Profes- sor,


Sociology


Department, University of Tennessee and Direc- tor, Agricultural Policy Analysis Center


DR. DARYLL E. RAY:


Emeritus Professor, Insti- tute of Agriculture, Uni- versity of Tennessee and Retired Director, Agricul- tural Policy Analysis Center


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