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America spends over $20bn per year on fossil fuel subsidies. Abolish them

Posted on 30 July 2018 by dana1981

Imagine that instead of taxing cigarettes, America subsidized the tobacco industry in order to make each pack of smokes cheaper.

report from Oil Change International (OCI) investigated American energy industry subsidies and found that in 2015–2016, the federal government provided $14.7bn per year to the oil, gas, and coal industries, on top of $5.8bn of state-level incentives (globally, the figure is around $500bn). And the report only accounted for production subsides, excluding consumption subsidies (support to consumers to lower the cost of fossil fuel use – another $14.5bn annually) as well as the costs of carbon and other fossil fuel pollutants.

At a time when we need to transition away from fossil fuels as quickly as possible, the federal and state governments are giving the industry tens of billions of dollars to make the production of their dirty, dangerous products more profitable.

We already have to leave tapped fossil fuels in the ground

Crucially, the OCI report noted that if we want to meet the Paris target of limiting global warming to less than 2°C (and we do!), not only does the fossil fuel industry have stop developing new reserves, but “some already-tapped reserves must be retired early.”

carbon budgets

 Developed fossil fuel reserves vs. remaining carbon budget to meet 2°C and 1.5°C Paris climate targets. Illustration: Oil Change International

This reality is incompatible with continued US government subsidization of fossil fuel industry production, including $2.5bn per year for the exploration of new fossil fuel resources ­– new resources that simply cannot be developed if we’re to meet the Paris climate target.

To achieve that goal, we instead need to replace fossil fuels with clean energy as quickly as possible. And yet, OCI notes that permanent tax breaks to the US fossil fuel industry are more than seven times larger than those for renewable energy. Some of those fossil fuel subsidies have been around for over a century. And they’re making it profitable for the oil industry to extract resources that would otherwise be left in the ground:

at current prices, the production of nearly half of all U.S. oil is not economically viable, except with federal and state subsidies.

And as David Roberts notes, federal policy is also propping up the coal industry. Were they forced to meet modern pollution standards, 98% of currently operating coal power plants would be unprofitable compared to an equivalent natural gas plant. Coal power plants only stay open through regulations allowing pollution exemptions, and by forcing taxpayers to pick up the climate change bill.

Add another trillion dollars in climate subsidies

Without a price on carbon pollution, Americans are effectively subsidizing the fossil fuel industry for the costs incurred through its products’ climate change damages. For example, think about the added costs to taxpayers for worse wildfires, droughts, hurricanes, and flooding, all amplified by human-caused climate change. In the absence of a price on carbon pollution, the fossil fuel industry doesn’t pay a cent of those costs. Taxpayers pick up the whole tab.

These costs can be estimated via the ‘social cost of carbon.’ It’s a difficult number to pin down, but even at the extremely conservative US federal estimate of $37 per ton of carbon dioxide pollution (some recent research pegs the value at more than five times higher), that’s about $200bn per year for America and $1.3tn globally. While direct government subsidies to the fossil fuel industry are expensive, they’re dwarfed by the costs incurred by failing to tax carbon pollution.

The fossil fuel industry owns the GOP

The OCI report noted that the Obama administration actually proposed to eliminate 60% of federal fossil fuel industry subsidies, but that proposal went nowhere for one obvious reason:

In the 2015-2016 election cycle oil, gas, and coal companies spent $354 million in campaign contributions and lobbying and received $29.4 billion in federal subsidies in total over those same years - an 8,200% return on investment.

Of those fossil fuel industry contributions to political campaigns, 88% went to Republican politicians. As a result, 97% of House Republicans oppose taxing carbon pollution, and the Trump administration is looking into every possible scheme to further prop up the dying coal industry. The GOP might as well rebrand itself as the Grand Oil Party.

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Comments 1 to 13:

  1. Virtually every aspect of consumer capitalism is subsidised and generates a massive waste stream that is destroying the entire biosphere.

    The entire developing world is doing everything possible to reach higher levels of consumer capitalism increasing the waste stream along with them.

    We need to provide alternatives for people trying to claw their way out of a miserable existance.

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  2. The GOP claims to be the low tax party, yet has to effectively keep taxes higher then otherwise required for unjustifiable fossil fuel subsidides. It's an exercise in hypocrisy, out of control campaign financing rules, and crony capitalism. The Democrats are not much better.

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  3. Including Federal and State subsidies, the total is just about the same as NASA's annual budget. A year of Space Exploration as opposed to hand-outs to the fossil fuels industry. I know which I choose as my tax money well spent!

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  4. Discussing the ongoing debate and argument about 'how much added cost' should be applied to fossil fuels needs to include a clear statement that the actual required added cost is the amount of added cost (or other actions) that will produce the required rapid termination of the global fossil fuel industry.

    Fossil fuel burning is not like tobacco. Tobacco users only harm themselves, where public smoking is limited by laws. And the tax on tobacco can be sort of figured out to cover public health care costs for those people. The people benefiting from fossil fuel burning are not suffering the negative consequences.

    Fossil fuel burning is like speeding or armed robbery. The harm and risk to harm to others requires penalties and enforcement that effectively limit the amount of the riskier more damaging activity.

    Debating a Carbon Tax with people who do not care to be corrected, because being correct is contrary to their developed personal interest, has gone the way it would be expected to:

    • The first step is actually their denial that what has developed is unacceptable. Instead of admitting that penalties are required to stop the unacceptable behaviour, they want to debate how much the unacceptable activity that needs to be rapidly curtailed 'should cost' (while never intending to agree to any added cost, just using the debate as a delay tactic and propaganda tool based on 'attempts to increase the cost' to drum up unjustified support for nothing being done).
    • Then the debate over the cost becomes an argument about the discount rate to be applied (which moves even further from the reality that the activity is simply unsustainable and harmful and must be stopped). They push for a higher discount rate to reduce the 'corrective cost' to be applied.
    • And they apply that higher discount rate to an understated evaluation of future harm done.
    • All of this diminishes the amount or degree of corrective action, and delays it being implemented.
    • Then they claim the small added cost will do nothing meaningful or helpful - and they are correct because doing nothing meaningful is their end game (because meaningful helpful actions are detrimental to their developed desires and interests).

    Democracy and free markets only produce good results when they are governed or limited by Good Helpful Altruistic Reasoning (same goes for communism, any other -ism, or any religion). As John Stuart Mill warned in “On Liberty”: “If society lets a considerable number of its members grow up mere children, incapable of being acted on by rational consideration of distant motives, society has itself to blame for the consequences.”

    Humanity needs Good Reason to govern what humans do. Everybody can understand that (even the people who are determined to resist admitting it). And this is nothing new. Greeks were writing about it thousands of years ago.

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  5. The International Monetary Fund has a working paper accessible via that estimates total world subsidies to fossil industries (including external costs) to have been for

    2011—$4.2 trillion (5.8 percent of global GDP)

    2013 - $4.9 trillion (6.5 percent of global GDP)

    2015 - $5.3 trillion (6.5 percent of global GDP) 

    Externalities were about 80% and about 75% of externalities were not climate change, suggesting their impact would be local and self-interested countries should mitigate regadless of climate change.

    And I'm SWAG-ing (scientific wild-ass guessing) that future climate change damages could be far more than historical depending on the extent to which we mitigate and with uncertainty (per Weitzman's "fat-tail") that effectively makes them practically "priceless".  


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    Moderator Response:

    [PS] Fixed link. In future please create the link yourself using the link button in the comment editor.

  6. What do the people who don't like the small subsidies for renewable energy think about these subsidies? 

    Do you really think we should take away all subsidies from renewables (the energy of the future) and make them compete on this unequal play field? 

    Does it really make sense to take away renewable subsidies while giving fossil fuels over 5 trillion dollars????

    We have to have renewable energy policies that consider the realities of the current system.

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  7. OPOF, I agree with the general thrust of your comments, but fossil fuel use is more like tobacco smoking than you think. Fossil fuel use harms the individual and other people, and also many future generations. Passive smoking obviously harms the individual, but it also harms other people through passive smoking, and it harms the unborn child.

    Taxes are applied to tobacco for two reasons, firstly to pay for costs of illness, and secondly  to reduce the rates of use of tobacco, so taxes (or a 'levy') seem appropriate as a mechanism to reduce fossil fuel use. Tobacco taxes have lead to a considerable reduction in use in NZ despite the fact tobacco is extremely addictive. 

    There are other ways of phasing out fossil fuel use, like imposing a fine in literal terms, or forcing fossil fuel companies to phase down production, but its hard for me to see this having wide public and political appeal. A carbon tax and dividend might be the measure that has impact and is politically plausible and has some characteristics of a fine.

    And clearly fossil fuel subsidies should be immediately cancelled.

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  8. M Sweet @6,

    "Does it really make sense to take away renewable subsidies while giving fossil fuels over 5 trillion dollars????"

    I agree it most definitely does not! If fossil fuel subsidies remain in place, renewable energy must be equally subsidised. It has to be a level playing field, regardless of any carbon tax or other additional measure.

    Of course it would be more sensible to cancel fossil fuel subsidies and push that money into subsidisng what we want, namely renewable energy projects. However I have no illusions about the political difficulties of this.

    Or cancel both subsidies and rely on a carbon tax mechanism?

    I have no objection to subsidies in general principle. I just think they need to be mainly to help industries get started, and be time limited to ensure industries don't become permanently reliant on such things. For example electric cars  receive subsidies in the USA and I think this is until the underlying price becomes competitive and numbers of sales reach a certain level. This is not unreasonable. It could also have been just for a defined time period.

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  9. A nice supplement to Dana's article...

    Political Cartoon

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  10. OPOF @4:

    Fossil fuel burning is like speeding or armed robbery. The harm and risk to harm to others requires penalties and enforcement that effectively limit the amount of the riskier more damaging activity.

    Your comments are often incisive, but this is over the top. Speeding I might agree to, but while in some ways fossil fuel burning is like armed robbery, one key difference is that (I presume) not all of your friends and neighbors are armed robbers. In the same way, there are both similarities and differences between fossil fuel consumption and tobacco use. For one thing, tobacco benefits only its users, and in a non-essential way. Supplemental (i.e. non-food) energy inputs, OTOH, drive much of the daily business of living for virtually everyone in the world. In the absence of sufficient supplies of alternatives to fossil carbon, you're proposing to criminalize not just our daily crosstown errands, but the consumption of any good or service downstream of someone else's fossil-fuel burning. How will you persuade everyone to walk away from Omelas? Let me keep it simple: you and what army?


    Democracy and free markets only produce good results when they are governed or limited by Good Helpful Altruistic Reasoning (same goes for communism, any other -ism, or any religion). As John Stuart Mill warned in “On Liberty”: “If society lets a considerable number of its members grow up mere children, incapable of being acted on by rational consideration of distant motives, society has itself to blame for the consequences.”

    Now we come down to the issue of actually achieving global decarbonization, not just growling about the immorality of not doing it. JS Mill's fine passive-aggressive words aside, GHAR isn't commonly found in our species. How do you propose to elicit it consistently, from everyone?  How much force will you have to use to make it stick?

    Whereas a per-tonne carbon fee on fossil fuel producers and importers of manufactured goods, just large enough to eliminate their products' price advantage over existing carbon-neutral alternatives, would immediately encourage everyone to use less fossil carbon and nudge the good ol' invisible hand of the market to build out alternative supplies and infrastructure within a few decades. Forget the discount rate, and start the carbon fee/tariff at $40/tonne of carbon. Everyone pays the subsequent market price for fuels within our borders, as well as for imported manufactured goods based on embodied carbon. All revenue is returned to each taxpayer in equal-size periodic dividends: that is, the measure is revenue-neutral, though resulting in some net income transfer downward. Raise the fee/tariff periodically, as needed to keep reducing fossil carbon emissions. See for model Carbon Fee and Dividend with Border Adjustment Tariff legislation. Be genuinely skeptical, of course, of mercenary AGW-deniers who co-opt the idea.

    The point is that paying $XX/tonne more for fossil carbon, whenever we buy energy, can achieve what moral exhortation alone can't. Then it will only be worthwhile to criminalize obnoxious behavior like rolling coal, and attempts by fuel producers or goods importers to evade the tax. I, for one, am confident that with a little nudging from the visible hand of collection intervention, the invisible hand will manage the transition to a carbon-neutral global economy within the time available, with minimal punitive sanction required.

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  11. nigelj and Mal Adapted, Thank you for the feedback.

    I will try to clarify my comment @4. I tried being brief and ended up triggering some controversy. I failed to adhere to Einstein's advise to keep things simple, but not too simple. (I suspect I have now failed in the other direction - with some very long sentences, but what is done is done).

    I am not disagreeing with imposing an added cost on fossil fuel burning. I am trying to point out that getting drawn into calling it a Tax is not helpful (Some people have deliberately made Tax a four-letter word, and even calling it a Levy misses the point). The added cost should be called a Fine or a Penalty, like the actions applied to curtail any other unacceptable activity. And, like other unacceptable behaviour, the more likely it is that the person behaving unacceptably understands it is unacceptable to behave that way and the more they have tried to benefit from behaving unacceptably, the more severe/aggressive the corrective actions should be.

    The set of points I presented are the expected results of getting drawn into calling it a Tax or Levy. Once in that loop, it can/has become a fairly futile debate about the 'proper' financial 'value' for the tax or levy.

    What needs to be discussed is simply the magnitude of penalty required to achieve the required rapid correction of what has incorrectly developed. That discussion starts with the admission thta burning fossil fuels is unacceptable. And there should be consideration given to applying more severe penalties to richer more powerful people who behave unacceptably, because they 'should' know better, as well as having more capability to behave better.

    Armed robbery was not the best comparison to fossil fuel burning. But I still think it is applicable. Burning up fossil fuels is an activity that obtains personal benefit by wilfully unjustifiably taking from others, removing the ability for others to benefit from buried ancient hydrocarbons, without those others being able to do much about the action. And it creates harm to those others who can do little, or nothing in the case of future generations, to reduce the harm done. And admittedly the robbers run the risk of potentially suffer some personal harm. The 'armed' part also relates to the military actions and other violent actions, like violent police actions, that happen when powerful aggressors attempt to win more unjustified ability to benefit from fossil fuels (more brazen bank robbers).

    “Organized crime” is probably a better comparison to the fossil fuel burning industry:

    • People are tempted to buy the ill-gotten goods because they are cheaper
    • People buy into addictive activities
    • Desperate people who don't have better choices than to be exploited get exploited
    • People are tempted to join the gang that is doing what is 'understandably unacceptable but appears to be an easier quicker way to appear to have wealth and power relative to others'.

    And, like organized crime, everyone fights to be the biggest winners any way they can get away with. They use threats that they can get away with against their 'competition'. And as they become more powerful competitors they can abuse marketing appeals to primitive impulses, like fear of others and appearances of personally tribal glory, to stay in the Top of the Gang (to gather an unjustified passionate loyal following).
    Regarding the differences between Tobacco and Fossil Fuel Burning, the following may be better presentations of the differences:

    • Tobacco smoking can actually be a sustained activity. It can continue virtually forever, as long as people are willing to try out an addictive harmful activity and not seek treatment to end their addiction. Fossil fuel burning is also an addiction that people choose not to seek treatment to end. Though potentially beneficial as a temporary measure during a time of focus on the development of a transition to a sustainable way of living, fossil fuel burning grew into a massive damaging addiction that is like a terminal disease for humanity (that may seem over the top - but it is not far from a potential future reality. And the powerful resistance to being corrected is like a disease that has developed resistance to treatment).
    • The primary harm of tobacco is experienced by the person who chooses to consume it. Laws limiting the exposure of others to second-hand smoke offer significant, and likely to be adequate, mitigation. And there is no significant legacy harm on future generations (actions discouraging the smoking by expectant mothers reduce the potential harm). The already wealthy people who have continued to try to obtain more benefit from the burning of fossil fuels for the past 30 years are undeniably like the wealthy tobacco people who worked to develop a more addictive tobacco as secretively as possible and misleading market their product to prolong their ability to profit, to maximize their benefit). A big difference is that the consumers addicted to benefiting from the habit of burning fossil fuels are not personally likely to seriously suffer the negative consequences. The majority of the suffering will be by future generations, including the potential loss of the ability to benefit from easily accessible buried ancient hydrocarbons. And today the main ones suffering harm are the poorer people and others who have not obtained significant benefit from the burning (including the people who try to dramatically reduce their personal impacts but are surrounded and overwhelmed by others who do not care to behave better).

    As for the JSMill's quote. It comes from a section in “On Liberty” about the wealthier educated and more aware portion of a society having a responsibility (and actually having the ability) to help the entire population be more aware and understanding of what is really going on. It is not passive-aggressive. It is insightful. And one of the Einstein quotes at his Memorial in front of the National Academy of Science in Washington DC is “The right to search for truth implies also a duty; one must not conceal any part of what one has recognized to be true.”

    Regarding Mal Adapted's query about what army will bring about the required correction?: People becoming more aware, thoughtful and considerate will make the change happen, no army required (and the corrections required will not happen without the development of leadership that is responsibly governed by Good Reason - a major point made by Al Gore in “The Assault on Reason”). The sustainable alternatives to burning fossil fuel have always existed. They have just been less convenient, required more effort (walking or biking), or lacked the collective interest and resulting responsible leadership in developing them (or faced deliberate efforts to debilitate them like the efforts to keep places like early Los Angeles from developing effective public transportation).

    Eliminating the fossil fuel subsidies is part of the solution, but it will likely only happen when a larger portion of the population choose to be more Altruistic than Selfish. So, it would be helpful to argue against the ability of people to claim that fossil fuel burning is a Good Thing. For at least the past 30 years it has been undeniably unacceptable for any already more fortunate people to try to get even more benefit from the burning of more fossil fuels. That essential point is lost in a debate about the way to financially calculate the tax rate to apply to the burning. A carbon tax lets the richer person continue to get richer from the unacceptable activity, while failing to require them to show leadership by leading the correction to living the lower impact life that they can actually afford to live (and could have afforded 30 years ago). How about discussing the penalty for an already rich person who tried to get richer from the activity through the past 30 years?

    If awareness of that understanding does not increase then the sustainable development objectives are unlikely to be sustainably achieved. All that will be developed is appearances of having done something regarding some of the goals that will later be learned to have also been unsustainable and is likely to also be discovered to be more harmful than the available best alternatives (because less sustainable is almost certain to be cheaper and easier than more sustainable). A sustainable better future requires all of the SDGs to actually be achieved and improved upon. That requires Good Helpful Altruistic Reasoning (GHAR) to govern over and limit the 'far too easy to encourage to develop' primitive impulsive selfish interests (PISI).

    I see the potential for massive harm to occur before enough people are helped by the wealthier more powerful people to keep the harmful unjustified pursuers of wealth and power from winning more. Large Corrections/Revolutions can be ugly things. They often turn violent when the ones who deserve to be corrected resort to violence and threats of violence to resist being corrected, and as a result develop a larger required correction. The sustainable decent objective that they fight against being achieved must also be maintained (or even be tightened). Their resistance to correction should not be allowed to move the goal posts (those attempts to delay and diminish the corrective actions is the damaging way they want to play the game). And the unjustified among the wealthy and powerful pushing to see how far they can push things, especially with misleading marketing, before triggering a powerful revolution of awareness and understanding against them, can be understood to be just about the worst that can happen, because it can develop and trigger violent support (offensive defence) from their Tribe (and it clearly delays the potential for humanity to develop a sustainable better future).

    Developing GHAR takes more effort for a human who is immersed in a competition to appear to be superior to others. Especially, when that competition is full of marketing that tries to get their primitive gut-reaction responses to overpower their ability to thoughtfully and considerately evaluate what is really going on and determine how to be sure their actions, and the actions of others, are helpful rather than harmful.

    I would contend that even in the USA today the majority of the population is still inclined to be more altruistic. Republicans as a whole are still below 50% support. And part of that support is actually reasonably altruistic people who have allowed themselves to be misled into being fans of Team Harmfully Selfish (and too a smaller degree some supporters of the Democrats are greedy and intolerant). Though Team Harmfully Selfish is the minority, they have succeeded in rigging the game in their favour as much as they can get away with (gerrymandering, blatantly biased Supreme Court appointments, and making up bad laws particularly laws that selectively restrict access to voting). They also succeed in rigging public opinion regarding fossil fuel burning in their favour by unjustified but appealing claims that the science is wrong or that there is no viable alternative (while their rich team members who could actually afford to live in the existing sustainable alternative ways do nothing of the sort). JSMill's comment is spot on regarding those undeserving rich people and the consequences to the future of US society and global humanity as a result of their ability to so easily impress enough people to Win (they should not even be allowed to compete - sports have all learned to penalize or eject the unacceptable competitors).

    The more robust point I am starting to make regarding claims of burning fossil fuels being a Good Thing is to require evidence confirming that a truly Sustainable Good Thing was developed because of fossil fuel burning (a benefit that people thousands of years from now will be able to continue to benefit from). The production of steel is one of the few things that comes to mind. Many things attributed to fossil fuel burning could have also been achieved without fossil fuel burning. And many of the Sustainable Good Things, like more walk-able and bike-able cities, can be understood to have been delayed in developing because of the unjustified popularity and profitability of burning fossil fuels.

    One Sustainable Very Good Development of fossil fuel burning is the undeniable understanding that competitions to appear to be a winner relative to others based on power, popularity and profitability will not produce Sustainable Good Results if they are not governed/limited by Good Reasoning that determines acceptable/allowed behaviour.

    The awareness and understanding that burning fossil fuels was unsustainable has been undeniable for a long time. Understanding that burning up non-renewable resources was unsustainable, could not be continued to be benefited from in the future, is something that the biggest beneficiaries of the activity have been aware of for a long time. They have fought for the ability to be the biggest beneficiaries for as long as they can get away with (to maximize their benefit). They have even succeeded in winning Subsidies for their unacceptable activities. The fact that the activity was also harmful, and harmful in many more ways than climate change impacts, has also been understood for a long time by those who have benefited most from the activity. And it is that group that is the problem, the small percentage of the population that is able to gather unjustified popular support for an understandably damaging and unsustainable activity rather than making others more aware and understanding of how to live sustainably and not be harmful to others. And the abuse of misleading marketing power to do that is glaringly clear for everyone to see, it is actually undeniable.

    I believe that most humans do not want to be associated with criminal/harmful groups. As it becomes more undeniable that a political/economic group is behaving like a harmful criminal group, gathering unjustified support/benefit through misleading marketing efforts and attempts to fight against being exposed/corrected any way that can be gotten away with, more people should choose to oppose it.

    I consider the Winning by the likes of Trump among the USA Republicans to be one of the greatest threats to the future of humanity to ever develop (positive-great in the sense of the undeniable example it presents, as well as the obvious negative-great). Hopefully it will result in Good Helpful Altruistic Reasoning sustainably gaining more support, the sooner the better for the future of humanity.

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  12. OPOF @11, I understand all the logic in calling it a fine, and the comparison to an armed robbery is reasonably valid, but calling it a fine has just as bad connotations from the publics point of view as a tax. I think a levy is probably the best word. It's a bit of a euphemism, but that's sometimes ok.

    I think we need to promote "Good Helpful Altruistic Reasoning" because its our best hope of convincing people of the benefit of a carbon levy (or fine or tax). So I think MA needs to ponder on that one! Of course I have no illusions that it will be easy, but  we have to promote what we think makes sense and is for the best.

    Remember a carbon tax could be graduated to affect the rich more than the poor.

    I agree most people have some level of altruism in them, and team harmfully selfish has rather artfully manipulated the system in their own interests.  Trump's policies are almost all bad for the world and he  shamelessly manipulates people. People put silly fears about immigrants and lgbt people promoted by Trump above far more important concerns and it just amazes me, but in the end they will be the losers.

    Have a read of the following NY Times article. Losing the Earth. This is an important article with some good points and history, although in its commendable efforts to be unbiased, it goes too easy on  the fossil fuel industry. 

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  13. nigelj,

    A serious concern is: the tactics used to 'delay and dimishment climate action' by the people opposed to rapidly correcting the understandably incorrectly developed burning of fossil fuels (especially what has continued to develop through the past 30 years).

    I am particularly concerned about the unjustifiably wealthier people not be chastised and penalized for failing to lead the rapid correction in personal actions, including efforts to make te entire poulation more 'correctly' aware and 'correctly' understanding what needs to change, the unacceptability of what has developed.

    The wealthier people have no good excuses. They cannot claim they were 'confused' or 'unaware'. They cannot claim it is too expensive to live more sustainably. Living that way is undeniably less proftable and more expensive than continuing to get away with benefiting from damaging unsustainable burning of fossil fuels. But the richest can all easily afford it (though they won't be as rich relative to others, they will still be richer).

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