Issue Briefing:

End Fossil Fuel Subsidies

 

The U.S. government uses public money to prop up the fossil fuel industry.

Photo by Zbynek Burival on Unsplash

Photo by Zbynek Burival on Unsplash

Direct U.S. taxpayer support to fossil fuel companies totals $20.5 billion per year, while indirect subsidies may reach $649 billion annually. “Direct” subsidies include direct cash payments, while “indirect” subsidies refer to tax incentives plus externalities that result from financial benefits to the fossil fuel industry.

Broadly, U.S. fossil fuel “subsidies” generally take the form of 1) tax incentives, 2) passively allowing fossil fuel companies to exploit tax loopholes and use creative accounting methods, 3) federally funded investment in fossil energy development projects, and 4) pricing fossil fuels below their social cost in the absence of emissions pricing. The first three can be repealed by an act of Congress, while the fourth can be tackled by introducing a carbon pricing scheme in tandem with repealing subsidies.

Earlier this year, President Biden included the repeal of fossil fuel subsidies in his budget proposal to Congress, which was projected to save the U.S. government $121 billion over 10 years. So far, Congress hasn’t follow through at that magnitude. But there’s hope! The Inflation Reduction Act, passed in 2022, makes polluters pay by reinstating a clean-up tax for Superfund sites. The new law also raises royalty rates on fossil fuel leases both onshore and offshore. This helps ensure there’s a competitive market for natural resources instead of giving fossil fuel companies preferential rates.

Recommended video: President Biden and Congress Must End All Fossil Fuel Subsidies

Clear Policy Ask

Congress must end all taxpayer-funded support for the fossil fuel industry. Both chambers must pass the End Polluter Welfare Act (S.1167/HR.2102).


The End Polluter Welfare Act would eliminate publicly funded fossil fuel subsidies and save American taxpayers up to $150 billion over the next 10 years by:

  • Abolishing dozens of tax loopholes and subsidies throughout the federal tax code that benefit oil, gas, and coal special interests.

  • Updating below-market royalty rates for oil and gas production on federal lands, recouping royalties from offshore drilling in public waters, and ensuring competitive bidding and leasing practices for coal development on federal lands. (Policy update: The recently passed Inflation Reduction Act raises the floor for onshore and offshore fossil fuel royalty rates!).

  • Prohibiting taxpayer-funded fossil fuel research and development.

  • Ending federal support for international oil, gas, and coal projects and supporting the global community’s fight to move away from dirty fossil fuels.

Other proposed bills to eliminate taxpayer subsidies to fossil fuels include the Clean Energy for America Act (S.2118) and the End Oil & Gas Tax Subsidies Act (H.R.2184).

Check whether your members of Congress already cosponsor fossil fuel subsidy legislation:

  • End Polluter Welfare Act (House) (Senate)

  • Clean Energy for America Act (Senate)

  • End Oil & Gas Tax Subsidies Act (House)

The Case for Ending Fossil Fuel Subsidies

Eliminating fossil fuel subsidies would save billions in revenue for the federal government. For climate advocates and budget hawks, eliminating these subsidies is a win-win. The Biden administration projected savings of $121 billion over a decade, which could be used to fund critical public health, education, infrastructure, and social initiatives instead of raising taxes.

Pricing fossil fuels efficiently would cause a dramatic decline in global emissions. The International Monetary Fund found that efficient oil, gas, and coal pricing by 2025 would lead to a 36% decline in global emissions. This puts us well on track to keep warming below 2 degrees Celsius. Current global fossil fuel subsidies reached $5.9 trillion in 2020, or $11 million every minute.

Fossil fuel companies spend public money on private lobbying. Fossil energy companies earn a greater than 13,000% return on investment while slashing thousands of jobs. In 2020, the oil, gas, and coal industries spent more than $115 million lobbying Congress in defense of their $15 billion in giveaways. Eliminating subsidies to the industry is a step toward fighting corruption and preventing the abuse of taxpayers’ hard-earned money.

Fossil fuel subsidies are economically inefficient policies. They price carbon at far below its social cost to society, and on a global scale, they are economically regressive policies that benefit the wealthiest 20%. Externalities from supporting the fossil fuel industry cost the U.S. $649 billion every year.

Ending fossil fuel subsidies is politically popular. According to polling from Data for Progress, 54% of voters are in favor of rolling back all tax incentives for fossil fuel companies, compared to only 30% opposed.

 
Screen Shot 2021-09-29 at 6.22.26 PM.png
 

Removing subsidies at home will strengthen U.S. credibility abroad. Fossil fuel subsidies are pervasive in all of the world’s top oil and gas economies, not just the United States. Previous initiatives by the G-20 have been unsuccessful in achieving global fossil fuel subsidy reform, but the U.S. has an opportunity to lead by example and reinvigorate G-20 efforts.

Fossil fuel companies currently benefit from a slew of federal handouts that are unique to their industry, even as they deliver diminishing returns. To name a few unique perks: they cash in using the intangible drilling deduction, deductions and credit for royalty payments paid to foreign governments (!), incentives for enhanced oil recovery (a method of drilling using injected CO2), and financial support for the exploration and production of new oil and gas wells. This money would be better spent diversified across industries that will grow and flourish in the 21st century.

 Stop!

You now know enough to effectively advocate for ending fossil fuel subsidies!

If you want to learn even more, continue reading below.

Facts by Issue Frame

+ Equity and Environmental Justice

  • The impacts of the fossil fuel economy are disproportionately felt by communities of color, and half of those within 3 miles of a Superfund site are people of color.
  • On a global scale, fossil fuel subsidies are regressive, disproportionately benefiting the wealthy. An estimated 61% of gasoline subsidies accrue to the top 20% of income earners, while the bottom 20% receives just 3%.
  • A recent EPA study on four vulnerable groups found that racial minorities will suffer disproportionately from the effects on climate change. Specifically, Black Americans are 40% more likely to live in areas with increased climate change-related mortality rates. The numbers for other racial groups all show increased likelihood to live in those areas over non-POC Americans: Hispanic/Latino at 43%, American Indians at 48%, and Asian Americans at 23%.
  • Low-income Americans and those with no high school diploma are 25% more likely to live in areas with high projected labor loss due to climate change, according to the EPA.

+ Public Health

  • Health externalities from fossil fuel use comprise 350,000 preventable deaths each year. By subsidizing fossil fuels, we are allowing polluters to abdicate responsibility for the social costs they impose on communities.
  • Health effects of climate change can be caused by air and water pollution that directly result from the burning of fossil fuels, but climate change also alters environmental determinants of health, such as extreme heat, corroded infrastructure, proliferation of disease, famine, drought, and natural disasters.
  • Without pricing carbon, we’re already paying less than the true cost to public health and safety that fossil fuels impose on society. When we subsidize the industry, we move even further away from making polluters pay their fair share.

+ Rapid Decarbonization

  • Billions of public dollars supporting fossil fuel companies means that clean energy companies are on an uneven playing field with an incumbent industry.
  • Fossil fuels extracted on public lands account for 24% of U.S. GHG emissions. Ending government support of these operations would be a significant step toward U.S. decarbonization.
  • Research demonstrates that fossil fuel subsidy reform in the top 32 subsidizing countries would yield a 6% emissions reduction on average per country, with the potential to reduce emissions by up to 35%. (The IMF published a similar study that showed a 36% projected decline in emissions if fossil fuels were priced accurately on a global scale).
  • These global emissions reductions correspond to 500 million - 2 billion metric tons of CO2 per year, or one quarter of all emissions pledges under the Paris Agreement.

+ Jobs

  • Evidence suggests that the windfall in taxpayer funds devoted to fossil fuel companies benefits shareholders and fails to trickle down to workers. In 2020, 62 of the coal, oil, and gas companies that received a CARES Act tax bailout (combined $7.7 billion) laid off over 58,000 workers.
  • Jobs in the fossil fuel industry can pay well, but that’s because they pose extreme risks to health and safety for workers who spend hours on end in coal mines and on oil rigs. Clean energy jobs are safer and healthier for our workers.
  • Fossil fuel jobs tend to be centralized in just a few states, whereas clean energy jobs can happen in every state. A movement towards a clean economy will expand job opportunities.
  • Low-income Americans and those with no high school diploma are 25% more likely to live in areas with high projected labor loss due to climate change, according to the EPA.
  • With no action on climate change, extreme heat will force U.S. outdoor workers to collectively lose $55.4 billion in earnings per year.

+ International Affairs & National Security

  • In 2009, the G-20 agreed to phase out fossil fuel subsidies but made little progress. The G-7 subsequently set a deadline of 2025 for fossil fuel subsidy reform, but in the absence of leadership on the issue, countries have reached an impasse.
  • The U.S. military spends at least $81 billion per year defending global oil supplies. This puts American troops at risk and takes resources away from other critical national security objectives.
  • Research demonstrates that fossil fuel subsidy reform in the top 32 subsidizing countries would yield a 6% emissions reduction on average per country, with the potential to reduce emissions by up to 35%.
  • The Paris Agreement presents an opportunity to link fossil fuel subsidy reform with Nationally Determined Contributions (NDCs) for lowering emissions. Only 14 countries have pledged to reform fossil fuel subsidies in their NDCs, but given projected emissions reductions, that number has the potential to be much higher.

+ Impacts on Urban & Rural Communities

From the Global Change National Climate Assessment :

  • "Climate change and its impacts threaten the well-being of urban residents in all U.S. regions. Essential infrastructure systems such as water, energy supply, and transportation will increasingly be compromised by interrelated climate change impacts. The nation’s economy, security, and culture all depend on the resilience of urban infrastructure systems."
  • "Approximately 245 million people live in U.S. urban areas, a number expected to grow to 364 million by 2050."
  • "Many major U.S. metropolitan areas, for example, are located on or near the coast and face higher exposure to particular climate impacts like sea level rise and storm surge, and thus may face complex and costly adaptation demands."
  • "The urban elderly are particularly sensitive to heat waves. They are often physically frail, have limited financial resources, and live in relative isolation in their apartments. They may not have adequate cooling (or heating), or may be unable to temporarily relocate to cooling stations. "
  • Meanwhile, "rural communities are highly dependent upon natural resources for their livelihoods and social structures. Climate change related impacts are currently affecting rural communities. These impacts will progressively increase over this century and will shift the locations where rural economic activities (like agriculture, forestry, and recreation) can thrive."
  • "Physical isolation, limited economic diversity, and higher poverty rates, combined with an aging population, increase the vulnerability of rural communities. Systems of fundamental importance to rural populations are already stressed by remoteness and limited access."

Sample Social Post

It’s time for the U.S. government to #StopFundingFossils. Taxpayers shouldn't be forced to prop up polluters and prolong the displacement of fossil fuels by renewable energy. @ your Member of Congress, end govt support for coal, oil & gas.