9

https://www.nrdc.org/experts/danielle-droitsch/time-us-end-fossil-fuel-subsidies

A new study, the G7 Fossil Fuel Subsidy Scorecard, measured the US against other G7 countries on each country’s progress in eliminating fossil fuel subsidies. The US ranked the worst out of the G7 countries, spending over $26 billion a year propping up fossil fuels. (The G7 countries are Canada, France, Germany, Italy, Japan, UK and the US.)

Why won't the U.S. government end all fuel subsidies? Is this simply a result of the oil lobby, or does the oil subsidy serves some sort of geopolitical interest? What are the political/geopolitical advantages of maintaining a large fuel subsidy for the U.S.? Given other countries spend a lot of money on oil subsidy, something tells me there must be a good reason for this.

  • 1
    Up here in USA's Hat, ending fuel subsidies would cripple family farms. Those tractors are thirsty beasts. – Roger Sep 12 at 13:57
  • Because the EPA doesn’t give a crap. – Stormblessed Sep 16 at 22:48
11

The answer(s) to a question like this are pretty obvious and not unique to the oil industry:

  • It employs a lot people domestically; almost 900,000 directly, if the industry lobby can be believed. (I'm offering the industry figures here, because the official BLS data is extremely badly organized on this; the derrick operators or "rotary drill, oil and gas" operators for example are not considered to work in the oil extraction business but are "support" personnel somehow, and the workers in petroleum refining I wasn't able to locate in BLS data; they're probably aggregated in the chemical sector somewhere. If we add the oil workers categories I was able to find in BLS, we get about 500,000.)

  • The US is an oil producer and exporter; in fact the largest producer in the world as of 2018, and might become the largest exporter as well.

The United States became the world’s biggest oil producer in 2018, and over the next five years, the nation will take aim at becoming the top oil exporter, according to the International Energy Agency.

IEA forecasts U.S. exports of crude oil and petroleum products will nearly double, hitting about 9 million barrels per day by 2024. At that level, the U.S. will surpass Russia’s shipments and threaten to unseat Saudi Arabia, the current top exporter.

Whenever you have lots of people employed and/or exports are involved, you can expect subsidies...

If you read the official US rationale(s) instead, they center on national self-sufficiency in energy, like preserving national production capabilities despite price fluctuations on the global market(s).

Also, the figure you have advanced for the US subsidies ($27B) seem pretty large given what I've seen before:

enter image description here

There are fossil fuel subsidies on the consumer side as well (with the usual reason of providing social protection to those who can't easily afford heating oil etc.), but I'm not sure adding those would give the figure from your study.

From the actual ODI study, which seems the actual source of that "G7 scorecard" and $27B figure, I see the figure includes all fossil fuel subsidies, including consumer subsidies (as I suspected it would).

enter image description here

I will not try to argue like K Dog that this study is Chinese or Russian propaganda, but there is an obvious criticism to using this ODI study to single out the US: most other significant oil producers are not in G7. From the G20 countries data (previous table), Russia had higher (than the US) oil-production subsidies for the years considered in that study.

  • 2
    "If you read the official US rationale(s) instead, they center on national self-sufficiency in energy". Does anyone actually believe that selling off a non-renewable asset is a way to maintain self-sufficiency in that asset? If that were the true goal, the US would be importing as much crude as possible and conserving their own resources until everyone else runs out. – Ray Butterworth Sep 12 at 13:00
  • 4
    @RayButterworth My understanding is that the US did do that for quite a while. But I suspect that it now sees the writing on the wall - renewable is the future, and by sitting on its reserves it would simply be waiting for them to devalue. They want to sell while demand is still high. In other words, the official rationale may have been nominally true at one point, but is now legacy. – cpcodes Sep 12 at 17:18
3

Additionally to Fizz's excellent answer, it's worth mentioning the obvious political reason: the current US government doesn't want to end or reduce fuel subsidies.

The main reason why other G7 countries try to reduce their fuel subsidies is global warming, and this is part of their objectives as signatories of the Paris agreement. On the contrary, Trump's administration made the US withdraw from the Paris agreement and supports the traditional fossil fuel industry. Additionally Republican voters tend to be much less concerned by global warming (if believing in it at all), and such a policy would undoubtedly cause a major backlash.

So politically speaking the current US government has absolutely no reason to reduce fuel subsidies.

1

Basically an add to Fizz's answer. Large industries certainly draw subsidies. But there are a couple of nuances worth pointing out, largely to do with GAAP accounting and tax law in the US as it applies generally to business operations in the United States, and those that apply specifically to oil, gas and mining.

General Accounting and Tax Law Considerations

The reason for this nuance is that these organizations that run these studies take an expansive view of subsidies. In the ODI study mentioned by Fizz, subsidies are broken down into three main groupings, Capex (exploratory, R&D), Opex (manufacturing) and consumer. In the Capex bucket, the ODI explicitly calls out the R&D tax credit, as research and development keep the US on the cutting edge. This is not a subsidy unique to oil and gas exploration and manufacturing. You could eliminate it entirely, but it offers salutary, outside benefits across industry, and across the government/private sector divide. Other items that are routinely categorized as "subsidies" from this group include the Master Limited Partnership, which avoids double taxation-- a sound and foundational policy goal of the US tax system, Domestic Manufacturing Deduction-- which encourages domestic manufacturing generally, and the foreign tax credit. (same sources for all). As far as I could tell the ODI study made no attempt to differentiate these types of "subsidies", but we know they included at least one of them, the R&D credit.

Specific Accounting Considerations for the Oil and Gas Industries

The question is why the US cannot eliminate "subsidies". One reason is that we have to account for these assets and expenses somehow, and GAAP better practices appear to be in conflict with the WTO's definition of subsidy (maximization of tax revenue). The two big ticket ones here are depletion allowance and intangible drilling costs both of which one could infer are in the ODI report. For small independent producers, petro reserves are required to be capitalized. Any asset on the books is required to be depreciated, again not specific to this industry. Likewise the intangible drilling costs from an accounting perspective one could easily argue that the rules are very penal to the oil and gas industry as $0 assets should be written off immediately, not over time. I think it's more incumbent on those suggesting that we get rid of these subsidies suggest what their plan is from a tax and accounting policy perspective.

-3

The US does not end fuel subsidies because it does not HAVE fuel subsidies, at least as far as I've been able to discover. Nothing in the linked article (that has actually been implemented) is a subsidy. (The general thrust seems to be that the authors think the US should be charging even higher royalties & taxes than it does, which is hardly a subsidy.) At most, there are lower rates of taxation, or tax refunds, for some fuels (e.g. agricultural diesel).

The Federal government taxes gasoline at 18.4 cents/gal and diesel at 24.4 cents/gallon. State local taxes add an average 34.24 cents to gas and 35.89 cents to diesel: https://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States In addition, oil & gas wells on public land pay royalties on the value of what they extract, and many states impose severance taxes on top of that: http://www.ncsl.org/research/energy/oil-and-gas-severance-taxes.aspx For instance, Alaska's taxes on North Slope oil production is enough to pay $1600 (in 2018) to every resident of the state (in addition to what's spent by the government). On top of that, fossil fuel companies pay income and property taxes.

  • The Low Income Home Energy Assistance Program (LIHEAP) is a federal fuel subsidy, to the tune of 3 - 4 billion dollars per year. Its purpose is to prevent poor people from freezing to death. – Jasper Sep 13 at 4:33
  • As you probably know, there is a good reason for providing tax refunds for agricultural diesel: Federal fuel taxes are intended to pay for public highways. Whereas agricultural diesel is used for tractors and other off-road vehicles. Thus, the argument that was used to justify taxing fuel does not apply to agricultural diesel. – Jasper Sep 13 at 4:39
  • The IMF puts US post tax fossil fuel subsidies at over $600bn in 2015. (China over $1200Bn and Russia $550Bn, table on page 35). Fossil fuel subsidies exist. – Jontia Sep 13 at 8:34
  • 1
    @Jontia: If those subsidies exist, it should be easy to find examples of them. I can't. (And I'd hardly call the IMF an unbiased source here.) Heating oil assistance for poor people should be counted as welfare, not subsidy. (There are similar energy assistance programs for electricity here, where much of it is hydro & geothermal.) WRT agricultural fuel, choosing to impose low or no tax on something is likewise not a subsidy. A subsidy would be if the farmers were paid extra for the fuel they used. – jamesqf Sep 13 at 17:24
  • This Guardian article links to a quite detailed OCI report on subsidies. Much older report on Obama wanting to remove subsidies, no real details though. Indirect subsides through looser regulation are incoming for Coal. IMF numbers include lots of indirect and are controversial. But zero? Nah. – Jontia Sep 13 at 17:47

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.