Fact Sheet—Fossil Fuel Subsidies: A Closer Look at Tax Breaks and Societal Costs

“Thanks to the Environmental and Energy Study Institute (EESI) for pinpointing the IMF’s estimate that in 2017, $5.2 trillion still subsidizing fossil fuels, and the US government is funding wasteful, unnecessary coal-related carbon-capture and sequestration (CCS) add-on devices to coal-burning utilities’ plants.  These are politically-motivated.

Science worldwide recognizes that increasing plant and forest coverage, conserving wild areas, using indigenous agricultural methods, expanding overlooked wild plants, including salt-loving plants to “green” deserts and add to the human food supply are the superior ways of capturing CO2 through photosynthesis and enriching soils.  (see or report “CATPTURING CO2 WHILE IMPROVING HUMAN NUTRITION 7 HEALTH:  2018 free download at www.ethicalmarkets.com).   We also cover the global plant-protein food companies.

~Dr. Hazel Henderson, Editor”

Fossil Fuel Subsidies:
A Closer Look at Tax Breaks and Societal Costs

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Authors: Clayton Coleman and Emma Dietz

Editors: Brian LaShier, Jessie Stolark, Amaury Laporte

There is a long history of government intervention in energy markets. Numerous energy subsidies exist in the U.S. tax code to promote or subsidize the production of cheap and abundant fossil energy. Some of these subsidies have been around for a century, and while the United States has enjoyed unparalleled economic growth over the past 100 years—thanks in no small part to cheap energy—in many cases, the circumstances relevant at the time subsidies were implemented no longer exist. Today, the domestic fossil fuel industries (namely, coal, oil and natural gas) are mature and generally highly profitable. Additionally, numerous clean and renewable alternatives exist, which have become increasingly price-competitive with traditional fossil fuels.

The 116th Congress is weighing potential policy mechanisms to reduce the impact of climate change and cap global warming to an internationally agreed upon target of no more than 2 degrees Celsius (3.6 degrees Fahrenheit). As a result, fossil fuel tax subsidies, as well as other mechanisms of support, have received additional scrutiny from lawmakers and the public regarding their current suitability, scale and effectiveness. Indeed, the subsidies undermine policy goals of reducing greenhouse gas emissions from fossil fuels.

A recent analysis published in Nature Energy found that continuing current fossil fuel subsidies would make it profitable to extract half of all domestic oil reserves. This could increase U.S. oil production by 17 billion barrels over the next few decades and emit an additional 6 billion tons of carbon dioxide.

 

The United States provides a number of tax subsidies to the fossil fuel industry as a means of encouraging domestic energy production. These include both direct subsidies to corporations, as well as other tax benefits to the fossil fuel industry. Conservative estimates put U.S. direct subsidies to the fossil fuel industry at roughly $20 billion per year; with 20 percent currently allocated to coal and 80 percent to natural gas and crude oil. European Union subsidies are estimated to total 55 billion euros annually.

Historically, subsidies granted to the fossil fuel industry were designed to lower the cost of fossil fuel production and incentivize new domestic energy sources. Today, U.S. taxpayer dollars continue to fund many fossil fuel subsidies that are outdated, but remain embedded within the tax code. At a time when renewable energy technology is increasingly cost-competitive with fossil power generation, and a coordinated strategy must be developed to mitigate climate change, the broader utility of fossil fuel subsidies is being questioned.

There are many kinds of costs associated with fossil fuel use in the form of greenhouse gas emissions and other pollution resulting from the extraction and burning of fossil fuels. These negative externalities have adverse environmental, climate, and public health impacts, and are estimated to have totaled $5.3 trillion globally in 2015 alone.

Subsidizing an industry with such large, negative impacts is difficult to justify. Public subsidies should be consistent with an overarching, coordinated, and coherent energy policy that not only considers the supply of affordable, reliable power, but also public health impacts, climate change, and environmental degradation. While both Democratic and Republican administrations and lawmakers have discussed repealing fossil fuel subsidies, no significant action has been taken to-date.

Several international institutions, including the G20, the International Energy Agency, and the Organization of Economic Cooperation and Development (OECD), have called for the phase-out of fossil fuel subsidies. The European Union has also called for such a phase-out but has not yet taken concrete actions.

But rather than being phased out, fossil fuel subsidies are actually increasing. The latest International Monetary Fund (IMF) report estimates 6.5 percent of global GDP ($5.2 trillion) was spent on fossil fuel subsidies in 2017, a half trillion dollar increase since 2015. The largest subsidizers are China ($1.4 trillion in 2015), the United States ($649 billion) and Russia ($551 billion). According to the IMF, “fossil fuels account for 85 percent of all global subsidies,” and reducing these subsidies “would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.” An Overseas Development Institute study found that subsidies for coal-fired power increased almost three-fold, to $47.3 billion per year, from 2014 to 2017.

 

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