For decades, the fossil fuel industry has enjoyed outlandish subsidies from taxpayers. Congress and the administration finally have the opportunity to stop the handouts, and address climate change, corporate power, and racial justice.
Piling on to Big Oil’s very bad week, the Biden administration took steps today to advance a campaign commitment to end the injustice of fossil fuel subsidies–the wasteful practice of spending public money on oil, gas, and coal companies.
These giveaways bolster corporate profits on the taxpayer’s dime, prop up a dying industry, and delay the just energy transition that we desperately need–and for which Americans voted in 2020.
Will Congress listen to voters–or lobbyists?
To be sure, President Biden’s FY22 budget is not great for Big Oil backers, who shockingly continue to claim that fossil fuel subsidies do not exist (even doubling down last month, in testimony before Congress).
The budget proposal would eliminate some of the most egregious examples of corporate welfare, which may add up to some $121 billion over ten years in handouts for the fossil fuel industry.*
Some of these subsidies are downright ridiculous, including each of the top four:
- Massive loopholes in taxing foreign oil and gas income (the $85 billion surprise!) that, among other things, exclude from normal US taxation any US-corporation-controlled foreign corporations’ income that specifically comes from oil and gas refining, transportation, and distribution…comically, these Trump-era giveaways incentivize both oil and gas polluting and offshoring.
- Expensing of intangible drilling costs ($10 billion) allows companies to immediately expense at least 70 percent of well drilling and construction costs that don’t have salvage value (100 percent for independent producers)–rather than depreciate them over time like normal capital investments…why the special carve-out for polluters?
- Percentage depletion allowance ($9 billion) allows independent producers to arbitrarily deduct 15 percent of gross production value, instead of allowing for deductions based on actual capital investments…meaning they can in some cases deduct more than they actually spend!
- Enhanced oil recovery credit ($8 billion) grants oil and gas producers a tax credit for 15 percent of the costs of pumping residual oil and gas out of wells using a tertiary injectant…a credit that subsidizes polluters’ hard-to-get-to (and often energy- and carbon-intensive) production.
These and other handouts sound convoluted, but the bottom line is that these subsidies deliver billions of dollars of public money to fossil fuel companies annually.
It’s no surprise that the industry has lobbied extensively to keep and expand them, all while fighting tooth and nail to prevent the public from seeing their taxes and the other payments they make to governments–in the US and other countries around the world.
This is why Oxfam applauds the administration’s effort to #BuildBackFossilFree. And the budget is not the only way Biden is challenging the industry’s grip on public spending. The President’s January 27 Executive Order instructed agencies to identify and eliminate subsidies, and his Made in America Tax Plan calls for their elimination.
However, while the administration’s actions on this front are laudable, we’ve also been down this road before. Former President Obama included some subsidy repeals in his budget proposals every year from 2009 to 2016. And every year, Congress left the polluter handouts intact.
So what’s different now?
A lot! There is now global consensus around the need to phase out fossil fuels in order to combat climate change. Notably, several of the world’s biggest oil and gas companies have begun to make commitments (if somewhat vague and insufficient) to reach net zero greenhouse gas emissions by 2050–meaning that their operations would, on the whole, no longer be fueling the climate crisis.
Just last week, the International Energy Association announced that achieving net zero in fact requires that that no new oil and gas fields be developed. And a suite of international organizations–including the IMF, OECD, G20 (and others)–have specifically called for an end to fossil fuel producer subsidies as a critical step toward phaseout.
But perhaps most importantly: The Democrats are now in control of both houses of Congress and the presidency for the first time in a decade. This reflects a groundswell of support from Americans seeking action to address climate change, hold corporations accountable, and fight for racial equity. And the public understands: voters in both parties support ending fossil fuel subsidies.
What can Congress do?
Congress should pass the End Polluter Welfare Act, introduced by Sen. Sanders and Rep. Omar, that would comprehensively repeal fossil fuel subsidies; or incorporate many of the bill’s strong provisions into the upcoming infrastructure bill.
Congress should also enact the End Oil and Tax Gas Subsidies Act, introduced in the House by Reps. Blumenauer and Casten, or the fossil fuel subsidy repeal provisions of the Clean Energy for America Act introduced by Sen. Wyden.
Congress must seize the opportunity to address this issue, once and for all, by acting immediately.
*This approach and estimate may still be quite conservative: Reports by Oil Change International and others (and even scoring by the Joint Taxation Committee) have estimated some of these corporate handouts to be more costly and have also included additional subsidies to repeal.
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