Oil Change International’s Subsidy Resources:

www.ShiftTheSubsidies.org: See how much money international development banks are sending to the fossil fuel industry in developing countries.

See new estimates of fossil fuel subsidies by the OECD here with US  totals broken out here.

Fossil Fuel Subsidy Frequently Asked Questions:

What is a fossil fuel subsidy?
A fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers or lowers the price paid by energy consumers. There are a lot of activities under this simple definition—tax breaks and giveaways, but also loans at favorable rates, price controls, purchase requirements and a whole lot of other things.

How much money does the U.S. government give oil, gas and coal companies?
Estimates of the value of U.S. federal subsidies to the domestic oil and gas industry alone (not coal) range from “only” $4 billion a year, to an amazing $41 billion annually.   One recent comprehensive study of U.S. energy subsidies (see graph below) identified $72.5 billion in federal subsidies for fossil fuels between 2002-2008, or just over $10 billion annually. For more information on the range of subsidies, see below.

Whatever the number, it seems ludicrous that any of our tax dollars would support such established and profitable industries. These energy subsidies are completely out of step with a nation that now broadly accepts the need to end our collective “oil addiction.”

What are the benefits from removing fossil fuel subsidies?
One of the most obvious benefits of ending fossil fuel subsidies is increasing the availability of public money.  Additionally, ending excessive and wasteful support for fossil fuels would reduce greenhouse gas emissions that lead to global warming.

The money saved from fossil fuel subsidies could be used to promote clean energy and energy efficiency alternatives, which would be in line with public opinion. A 2010 poll by Stanford University found public support for government action to increase clean energy and energy efficiency. The poll found that 84 percent are in favor of giving companies tax breaks to produce more electricity from water, wind, and solar power; 81 percent want more fuel efficient cars that use less gasoline; 80 percent want more appliances that use less electricity; and 80 percent want more home and office buildings that require less energy to heat and cool.

What is the U.S. government doing to end fossil fuel subsidies?
For the last several years, President Obama has proposed eliminating $4 billion in oil and gas subsidies from the U.S. budget. While these are not all the subsidies that this mature and very profitable industry enjoys, they are some of the most obvious.  But Congress hasn’t yet approved President Obama’s budget cuts.

Fossil fuel subsidies have come up in Congress – and rightly so! – in discussions of ways to cut government expenditures in order to balance the budget. In the spring of 2011, there was a push by some legislators to remove subsidies that target only the major oil companies – in particular, the “Big Five” (BP, Exxon, Chevron, Shell, ConocoPhillips). While this would end some of the oil subsidies, it would unfortunately exclude a number of huge companies such as Valero, Koch Industries, Occidental, Anadarko, Amerada Hess, Marathon, Murphy Oil and a number of more diversified energy companies that also produce large quantities of the nation’s oil and gas.

In the fall of 2011, there was some hope that fossil fuel subsidy reduction could be included in the Super Committee’s proposal to Congress for $1.5 trillion in deficit-reduction measures over the next ten years. There was support in Congress for this: In an October letter to the Super Committee, 36 House Democrats urged the committee to end subsidies to the fossil fuel industry that would save up to $122 billion over the next ten years.

But in the end, it proved to be an uphill battle to get the Super Committee to take a stand on fossil fuel subsidies – and perhaps that’s not so surprising, given the influence of fossil fuel industry money on the Super Committee. Eight Super Committee members received over $300,000 in contributions from the fossil fuel industry since 1999: Senators Baucus (D-MT), Kyl (R-AZ), Portman (R-OH), and Toomey (R-PA), and Representatives Camp (R-MI), Clyburn (D-SC), Hensarling (R-TX), and Upton (R-MI).

Is there any reason to be concerned about removing fossil fuel subsidies?
Calls for subsidy removal tend to be answered by the oil industry and their allies with dire predictions of falling domestic production, loss of jobs, and rising gas prices.  But the reality is that removing fossil fuel subsidies (which the industry deceptively calls new taxes) will have little to no impact on domestic production, jobs, or prices at the pump.

According to the Treasury Department, removing the domestic subsidies as proposed in the President’s budget would reduce U.S. oil production less than one half of one percent, and will increase exploration and production costs less than two percent. Considering the price that the domestic industry receives for crude has more than doubled over the past several years, the industry can afford that – without laying anyone off or jacking up the price at the pump.

The global oil market, not the domestic industry, determines gas prices.  Treasury estimates that subsidy removal would cause a loss of less than one tenth of one percent in global oil supply, and thus would have no impact on global or U.S. prices.

U.S. reliance on foreign oil has been a fact since the 1970s, and no amount of additional drilling or subsidies is going to change that. The only way to end our reliance on foreign oil is to end our dependence on all oil.

How come there’s such a big range in estimates of fossil fuel subsidies?
First, accounting methods and exact definitions of subsidies vary. Second, while environmental and consumer groups tend to calculate the total amount of revenue to the American taxpayer that these subsidies cost, others note that “many subsidies have a higher value to recipients than their direct cost to the government.” In other words, the higher values are more indicative of the corporate welfare given to the already highly profitable oil industry annually, while the more conservative figures are a better estimate of how much the elimination of these subsidies would save the U.S. taxpayer.

Finally, some of the highest estimates include a portion of defense spending (more info on defense subsidies to oil here and here). It should be noted that while the estimate of $41 billion in oil and gas subsidies annually does include some of the cost of U.S. military “defense” of the Persian Gulf region, it does not specifically incorporate any increase in defense spending relating to Iraq, or any quantification of the environmental externalities associated with oil. And none of the amounts cited include fossil fuel subsidies in the form of international aid, which is explained in greater detail below.

While the estimates of how much subsidies are worth varies, estimates of the relative levels of funding of energy types are consistent. The chart from Environmental Law Institute on the right illustrates that the vast majority of subsidies still go to fossil fuels.

What can I do to help end fossil fuel subsidies in the United States?
So how do we transform oil companies into energy companies and jumpstart the new energy economy? The first step is a Separation of Oil & State – including an end to governmental subsidies to Big Oil and an investment in renewable energy alternatives and energy efficiency instead.

How much are fossil fuel subsidies internationally?
Globally, subsidies are also difficult to estimate, but they are likely more than $600 billion annually, including production subsidies (making the cost of production cheaper) and consumption subsidies (making the price of fuel cheaper to the consumer).

A recent report from the Organization for Economic Cooperation and Development (OECD) estimates that between $45 billion and $75 billion in budgetary support and tax expenditures have been provided to the coal, oil and gas industries by the 24 richest OECD countries.  These are production subsidies.

According to the International Energy Agency, consumption subsidies in 37 developing countries were worth $557 billion annually. Consumption subsidies are intended to keep the price of gas affordable in developing countries. A recent technical overview of global fossil fuel subsidies can be found here.

Didn’t President Obama and the G20 announce an end to fossil fuel subsidies?
No.  The Obama Administration and the G20 nations proposed that they end fossil fuel subsidies. Although this process has generated some new studies and data, so far zero subsidies have actually been eliminated as a result.

What are the challenges of ending fossil fuel subsidies internationally?
The principle is simple and clear: You can’t really say you’re committed to the fight against climate change if you’re still funding oil and coal. Many global leaders including the leaders of the G-20 nations, U.N. Secretary General Ban Ki Moon, Sir Nicholas Stern, Al Gore, and Sir John Browne (the former Chief Executive of BP) have all spoken out against the ongoing practice of subsidizing fossil fuels with public funds. But care needs to be taken in how – and what kinds – of subsidies are eliminated and in what time frame.

To equitably phase out fossil fuel subsidies, it is important to consider the difference between the dominant types of subsidies in industrialized vs. developing countries, namely production subsidies vs. consumption subsidies.

In the U.S. and the rest of the industrialized world, we generally have production subsidies, which also serve as corporate welfare to the oil and coal industry that return the favor with lavish campaign contributions. So, great, let’s get rid of those subsidies.

But in the developing world, consumption subsidies, which make access to energy and fuel affordable to the poor, are far more common. As mentioned above, these subsidies may reach the hundreds of billions annually – meaning excluding the military and wars for oil, consumption subsidies are the largest subsidies. However, the intent of these subsidies is generally not to increase consumption of fossil fuels per se—rather it’s often simply to help make access to energy and transport affordable in developing countries.

Therefore, eliminating consumption subsidies is not the place to start leveling the playing field for clean energy. Like raising prices on U.S. consumers, it’s likely to provoke a backlash in developing countries, ensuring gridlock for years to come.

So where do we start internationally to level the playing field on clean energy?
A great place to start eliminating fossil fuel subsidies in the developing world would be to end international subsidies via institutions like the World Bank, regional development banks, and export credit agencies like the U.S. Export-Import Bank, or the Overseas Private Investment Corporation. These institutions actually use our tax dollars to build infrastructure for fossil fuel extraction and use in the developing world.

In the last three years, the World Bank and the major regional development banks gave over $40 billion in loans, grants, and equity to the fossil fuel industry. Export credit agencies gave billions more. All of this money could instead be important sources of public funds for clean energy.

For more information on international subsidies, check out our database at www.ShiftTheSubsidies.org.