Problem

Environmental destruction effected through government subsidy

Other Names:
Taxation deductions promoting unsustainable development
Nature:
Pollution, for the most part, is a treated as a business write-off. Incentives, subsidies and tax deductions enable and encourage environmentally damaging activities.
Incidence:
Anti-environmental tax breaks, like those that subsidize oil exploration and logging in national forests, cost the USA $20 billion in a five-year period. In contrast to the tax breaks for extractive industries, solar and geothermal research and development received only $58 million in subsidies, $22.4 for pollution to every $1 for technological research and development.

Lucrative government subsidies persuade oil and gas companies to drill in pristine areas they would otherwise leave alone, like the St. George Basin, off the west coast of Alaska in the Bering Sea. The region, a gateway for virtually every marine mammal, bird and fish species migrating through to the North Pacific, was estimated to have only a 28 percent chance of harboring commercially-viable offshore oil. Yet oil companies were willing to pay almost $500 million for exploration there, a dubious business proposition that makes sense only in light of the generous tax advantages.

In the USA, mining companies can deduct exploration costs in the year they were incurred, rather than spreading them over the lifetime of the property (the usual practice for business investments). The practice encourages exploration activity that would otherwise be dismissed as not economically viable. In recent years, mining companies have claimed more than $100 million annually in such deductions. Another tax break for mining companies allows them to automatically deduct a certain percentage from their gross income to reflect their mines' dwindling value over time. This fixed depreciation, known as the percentage depletion allowance, results in a five to 22 percent reduction in annual taxable value (depending on the substance mined). The highest deductions are actually given to the most dangerous, toxic substances, including uranium, lead, mercury and asbestos, creating absurd contradictions in governmental environmental policy. Mining companies often recoup more money through this tax loophole than they actually invest in the mine. Government estimates show that taxpayers have, in effect, paid $1.5 billion in subsidies for mining operations through this deduction.

Problem Type:
E: Emanations of other problems
Date of last update
07.04.1999 – 00:00 CEST