The most widely read article ever on the Forbes Energy Source site is one I wrote in 2012 called The Surprising Reason That Oil Subsidies Persist: Even Liberals Love Them. I can always tell when someone comments without reading the article, because they draw conclusions strictly from the headline.

See, the article isn’t a dig at liberals at all. Rather it shows that many programs enjoying strong support from Democrats are actually classified as fossil fuel subsidies. Thus, some Democrats are calling for an end to “fossil fuel subsidies” while strongly defending them when they go by another name.

An example I give in that article is the Low Income Home Energy Assistance Program (LIHEAP). This federally-funded program provides funds for people who have trouble paying their heating bills, and it has been in the news lately. The extremely cold weather has increased the demand for, and driven up the price of natural gas, heating oil, and propane. LIHEAP is there to ensure that people don’t freeze because they can’t afford to buy fuel.

Two of the biggest supporters of LIHEAP are also two of the most outspoken opponents of fossil fuel subsidies: senators Chuck Schumer, D-NY, and Ed Markey, D-MA.

Sen. Schumer recently announced that federal funding for LIHEAP would increase by $169 million this fiscal year, to a total of $3.4 billion. The article went on to explain:

Kathy Fox, director of the Herkimer County Office for the Aging, said during a telephone interview Thursday the increase in funding for the 2014 fiscal year was “definitely” good news. “It means that [low-income seniors] won’t have to turn their furnace down to 50,” said Fox. “They turn it way down so that they don’t use the heat. Fox said most of those seeking help from her office receive $900 to $1,000 a month, with fuel oil costing about $3.70 a gallon. Fox said these tanks are usually 250 gallons in size.

Sen. Markey is one of the most vocal critics of the oil industry. Last year, for instance, Markey said he would propose legislation to repeal some $7 billion in tax subsidies for energy companies. He released a statement that read in part: “As Congress works to address the numerous fiscal challenges facing our nation, it is time for Republicans in Congress to join me to end big oil’s subsidies, which is a common sense deficit reduction measure available right now.”

Over the years, Markey, who was previously in the House of Representatives, has been a consistent voice of opposition to the oil industry. He has:

• Voted No on opening the Outer Continental Shelf to oil drilling

• Voted No on barring EPA from regulating greenhouse gases

• Voted Yes on enforcing limits on CO2 global warming pollution

• Voted Yes on removing oil & gas exploration subsidies

• Voted Yes on keeping the moratorium on drilling for oil offshore

• Voted No on authorizing construction of new oil refineries

• Voted Yes on prohibiting oil drilling & development in the Alaska National Wildlife Refuge

• Spoken out against the Keystone XL pipeline

My point is not to criticize the senator but rather to establish that he is one of the harshest critics of any measure that would help the oil industry. Markey’s big concern here is climate change, and his votes are consistent with his desire to slow down the consumption of fossil fuels.

Yet on the subject of LIHEAP, Senator Markey asked the Obama Administration to release nearly half a billion dollars for the program, including more than $13 million for his state of Massachusetts, to help low-income families combat the cold weather. He has also advocated for releases of oil from the Strategic Petroleum Reserve (SPR), a move aimed at lowering oil prices by dumping our crude oil reserve onto the market, which would also boost demand and increase greenhouse gas emissions.

I am also not criticizing LIHEAP, but rather explaining why some oil subsidies aren’t going away. That $3.4 billion of LIHEAP money — allocated to help people afford fuel in winter — is a part of the fossil fuel subsidy tally. In fact, most global fossil fuel subsidies are aimed at making fossil fuels more affordable for low-income families.

Oil Change International is an organization that tracks fossil fuel subsidies, and the $775 billion in global annual fossil fuel subsidies that it has tabulated is oft-cited. (They note that the number can be as high as $1 trillion; consumer subsidies fluctuate with the price of oil.) Of that $775 billion, $630 billion is classified as “Consumption Subsidies in Developing Countries” and another $45 billion is for “Consumption Subsidies in Developed Countries” — the category in which LIHEAP resides. Thus 87 percent of their global fossil fuel subsidy number is aimed at helping poor people afford energy.

In 2012 environmental activist Bill McKibben led a “Twitter storm” calling for an end to the “$1 trillion in fossil fuel subsidies”, while at the same time downplaying Nigeria’s consumer subsidies — as if consumption subsidies for the poor represented a small portion of the total. McKibben went on to say that in the US, subsidies are “simply straightforward presents to rich companies, gifts from the 99 percent to the 1 percent.”

That’s simply not true. If you open the spreadsheet at the Oil Change International link — which contains the numbers cited by McKibben — here is what you will find. The three largest contributors to US fossil fuel subsidies are all programs that are defended by groups other than the fossil fuel industry: LIHEAP, maintenance of the SPR program (which exists to ensure we have crude oil in case of a major oil embargo), and the fuel tax exemption to farmers. Not exactly a cash payment to the 1 percent, is it?

There is no question that these are “fossil fuel” subsidies, because they help artificially reduce the price of fossil fuels. In many cases, however, the fossil fuel subsidy doesn’t benefit the fossil fuel company, and as I demonstrated in The Petrobras Fiasco, sometimes the subsidy comes right out of the pockets of oil company shareholders. Nevertheless, these “subsidies” are used as justification to criticize the oil industry.  

My point is that in order to develop coherent, lasting, and effective energy policies we have to make our objectives clear. If the priority is to lower greenhouse gas emissions, Congress shouldn’t pursue policies that result in cheaper fuel prices. If lower fuel prices are the objective, then it has to be recognized that this is in most cases incompatible with a goal of lowering greenhouse gas emissions. And we have to stop lying to each other. When Bill McKibben mischaracterizes the nature of fossil fuel subsidies in the US, he helps spread confusion that makes it harder to pass sensible energy policies.

Over the years we have developed a patchwork of rules and regulations in the energy industry that in many cases no longer make sense. We have a tremendous number of carve-outs for special interests (including the oil industry). The time is right for reform, but before we reform we must understand. Don’t demand an end to fossil fuel subsidies if that’s not really what you want. Stop playing politics with our energy policy, and give us something that will better the lives of future generations.

In this article, I sought to show that there is sometimes a disconnect between what we think we want in our energy policy, and what we really seek. In next week’s article I am going to break down what I believe is needed to bring the parties to some sensible energy policies that can be agreed upon by both sides. I will take a look at the proposals of Senate Finance Committee Chairman Max Baucus, D-MT, who is proposing the most significant energy policy reforms in many years.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

No Jumping From This Bridge

Having fingers in lots of pies is great when everyone’s eating pie, not so much when the pies are sliding down the faces of luckless investors in malfunctioning emerging markets.

Unfortunately for Chicago Bridge and Iron (NYSE: CBI), it found itself in the the latter predicament on Friday, so that the stock buckled 7.5 percent from the vicinity of recent record highs.

A pessimist might argue that spreading fears of emerging-market doom could hurt CBI’s extensive business in those countries, involving everything from Chinese nuclear plants to Russian LNG infrastructure. Perhaps too someone noticed the spike in US natural gas futures and figured costlier natural gas might make US LNG exports less attractive, just as CBI prepares to cash in on the profusion of such projects around the country.

The simplest explanation is that CBI is a cyclical and commodity-sensitive stock with a sizeable exposure to global growth and global credit. The share price had run up as much as 40 percent since early September without a shakeout of weak hands. Friday’s drop to the December low suggests that such a test is now under way.

Yet CBI remains reasonably valued and retains lots of business momentum. Beyond the LNG export boom, it should gain from the long-term necessity of shifting to cleaner fuels to limit global warming. A dip to $70 would be a gift. Buy CBI below $84.      

— Igor Greenwald

Stock Talk

We encourage you to engage with our analysts and your fellow subscribers on our website. To ask a question or post a comment related to a particular article, please do so in the Stock Talk field at the bottom of that article.

Or, to ask a general question, please go to the main Stock Talk page found under the Resources menu for each publication.