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?
In the United States, credible estimates of annual fossil fuel subsidies range from $14 billion to $52 billion annually, while even efforts to remove small portions of those subsidies have been defeated in Congress, as shown in the graphic below. Download your own pdf copy here.
Capitol Spill Graphic Background:
$2.4 Billion: subsidies to the Big Five producers debated and defeated in the Senate in 2011 and 2012
The Repeal Big Oil Tax Subsidies Act, sponsored by Senator Menendez (D-NJ) was debated and defeated by the Senate for two years running, and would have eliminated $2.4 billion in annual tax deductions for the five major oil companies: BP, Exxon, Chevron, Shell and ConocoPhillips.
Although the move would have been an initial step, it’s just the tip of the iceberg. So called “independent” oil companies are hardly small businesses. Major integrated oil companies also include Occidental, Amerada Hess, Marathon, Murphy Oil and dozens of others. Together, these companies produced 53.5 percent of U.S. oil in 2009.
$4 Billion: Subsidy cuts President Obama proposed in the 2013 budget.
President Obama has proposed cutting fossil fuel subsidies every year he’s been in office. The projections for savings have varied slightly each year but always hover around $4 billion annually. Congress has never even proposed voting on all of them.
$10 billion. Low end credible comprehensive estimates. Several recent independent estimates of U.S. fossil fuel subsidies all arrive at roughly this number, although they consider slightly different things. Recent studies include those conducted by Management Information Services, Environmental Law Institute, and the Organization for Economic Cooperation and Development – OECD. (The OECD numbers compiled and analyzed here.)
$52 billion. Highest credible comprehensive estimate. Includes some costs associated with defending pipelines and shipping lanes in the Persian Gulf. Earth Track, an NGO that specializes in subsidy valuation, estimates that annual oil, gas and coal subsidies total about $52 billion annually.
As if that wasn’t enough, the reality is that the fossil fuel industry has profound impacts in much bigger ways.
Health. A 2009 report by the National Academy of Sciences claims that burning fossil fuels results in about $120 billion per year in health-related costs.
Infrastructure spending. The US is already committed to spending at least $1.6 trillion additional dollars per year in maintenance, new vehicles and fuel. We built our power transmission lines on the assumption of large, remote power plants. We build our houses and industries on the assumption of cheap electricity; those practices, codes and regulations are still embedded in our construction and manufacturing sectors. We built our power transmission lines on the assumption of large, remote power plants.
Favorable corporate structures. According to new research (July 2013), fossil fuel companies are the main beneficiaries of favorable corporate structures under Master Limited Partnerships that provides them with some $4 billion per year in subsidies and tax avoidance.
Whatever the numbers, 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 and fight global warming.
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.
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 $53 billion in fossil fuel 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 on this page.
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.