Katerina Swanson
The removal of fossil fuel subsidies is a highly debated topic, with many countries agreeing to phase out inefficient subsidies and implement alternative energy sources. The US has seen a push for this, with proposals such as the End Oil and Gas Tax Subsidies Act of 2023 and the Biden-Harris Administration's FY 2024 budget request aiming to eliminate fossil fuel tax preferences. The End Polluter Welfare Act, reintroduced by Senators Bernie Sanders and Ilhan Omar, aims to close tax loopholes and eliminate corporate handouts to the fossil fuel industry, saving taxpayers up to $170 billion over a decade. However, the oil, gas, and coal industries spent nearly $137 million lobbying Congress in 2023 to retain their subsidies. The removal of fossil fuel subsidies is a complex issue with economic, environmental, and social implications that Congress must carefully consider.
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What You'll Learn
The End Polluter Welfare Act
The 118th Congress (2023-2024) has proposed additional legislation to reduce or reform fossil fuel subsidies. This includes the End Oil and Gas Tax Subsidies Act of 2023 (R.1483), which aims to repeal fossil fuel tax breaks. The Clean Energy for America Act (S.1288) introduces technology-neutral tax provisions to incentivize low and zero-emissions technologies. The Financing Our Energy Future Act (S.1841) allows renewable energy firms to benefit from the MLP structure.
The Biden-Harris Administration's FY 2024 budget request also reflects a commitment to eliminating fossil fuel subsidies. The proposed budget would eliminate 13 fossil fuel tax preferences and credits, modify taxation rules for the foreign income of U.S. oil and gas companies, and reduce the federal deficit by $31 billion over a decade. These efforts demonstrate a growing recognition of the need to transition away from fossil fuels and towards cleaner, more sustainable energy sources.
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The End Oil and Gas Tax Subsidies Act of 2023
The Act targets specific tax breaks, such as the expensing of intangible drilling costs and the percentage depletion allowance. These two subsidies alone have significantly enhanced the value of new oil and gas projects, contributing to the shale development boom in the United States. By eliminating these subsidies, the Act seeks to reduce the incentive for excessive profit-making in the industry and redirect resources to more sustainable initiatives.
The push to end fossil fuel subsidies is further supported by the recognition that many of these subsidies are no longer relevant. The domestic fossil fuel industries, including coal, oil, and natural gas, are now mature and highly profitable, and clean and renewable alternatives are becoming increasingly price-competitive. Moreover, the social costs of fossil fuel subsidies are significant, with implicit subsidies reaching $754 billion in 2022, according to the International Monetary Fund. These costs are borne by society in the form of negative health impacts and environmental degradation.
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The Off Fossil Fuels for a Better Future Act
The OFF Act proposed to eliminate tax breaks and subsidies for the fossil fuel industry, specifically amending sections of the Internal Revenue Code of 1986. These subsidies have long been in place to promote cheap and abundant energy, but with the maturity and profitability of the domestic fossil fuel industry, they are no longer necessary. The bill also intended to provide support for workers affected by the transition, recognizing the need for a just shift away from fossil fuels.
The legislation garnered support from over 400 clean energy, climate change, and environmental justice organizations. Endorsers of the bill acknowledged the direct relationship between climate change and national security, economic prosperity, and food supply. By transitioning to clean energy, the OFF Act aimed to improve the health and well-being of Americans, stimulate the economy, and protect the environment.
While the OFF Act did not receive a vote during its introduction in 2017, its provisions could still be enacted through inclusion in other bills or re-introduction in subsequent Congressional sessions. The recognition of the need to reduce fossil fuel subsidies and transition to clean energy is evident in other pieces of legislation, such as the End Oil and Gas Tax Subsidies Act of 2023 and the End Polluter Welfare Act, reintroduced by Sen. Bernie Sanders and Rep. Ilhan Omar in 2024.
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The Clean Energy for America Act
In May 2019, Senator Wyden (D-OR) introduced the Clean Energy for America Act (S.1288) in the 116th Congress. The Act amends the Internal Revenue Code to replace the 44 existing energy tax credits with three technology-neutral tax provisions. These provisions incentivize the use of low- and zero-emission technologies, including clean electricity, clean transportation, and energy efficiency. The bill also terminates certain fossil fuel provisions and mandates that contractors on federal energy projects ensure that at least 15% of total labor hours be performed by qualified apprentices.
Other legislative proposals to reduce fossil fuel subsidies include the End Oil and Gas Tax Subsidies Act of 2023 (R.1483) and the Off Fossil Fuels for a Better Future Act (H.R. 3671). The End Polluter Welfare Act, reintroduced by Senator Bernie Sanders and Representative Ilhan Omar in 2024, aims to close tax loopholes and eliminate corporate handouts to the fossil fuel industry, saving taxpayers up to $170 billion over ten years.
The push to reduce fossil fuel subsidies reflects a growing recognition of the need to address climate change and promote clean energy alternatives. The American Clean Energy and Security Act of 2009 (ACES), for example, aimed to establish an emissions trading plan similar to the European Union's, but it did not become law due to political opposition. Nonetheless, various organizations, including the Republicans for Environmental Protection (REP), have advocated for legislative action to combat climate change and promote cleaner energy sources.
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The Biden-Harris Administration's FY 2024 budget request
The budget proposal estimates a reduction in the federal deficit by approximately $31 billion over ten years, with additional savings of $66 billion from modifications to taxation rules for the foreign income of U.S. oil and gas companies, totaling $96.9 billion in savings. The plan also includes investments in rural water projects, water conservation, and recycling and reuse initiatives to enhance community resilience to climate change impacts, such as droughts.
However, the proposal faces significant challenges due to opposition from Republicans and some Democrats in Congress. The removal of fossil fuel subsidies requires an act of Congress, and the chances of passing such legislation are slim, as noted by experts. The oil industry argues that the subsidies are necessary to ensure ongoing investment and a reliable supply.
Despite these challenges, the Biden administration continues to signal its commitment to reducing fossil fuel subsidies and addressing climate change. The proposal is part of a broader effort that includes investments in clean energy infrastructure and a goal to achieve net-zero emissions by 2050.
The FY 2024 budget request also includes a plan to raise taxes on the wealthy and allocate resources to build communities' resilience to climate-fueled weather events, such as floods, heatwaves, and wildfires. With a total budget plan of $6.8 trillion, the administration aims to prioritize its policy objectives, including addressing climate change and its impacts on communities.
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Frequently asked questions
Fossil fuel subsidies are forms of government support that promote or subsidize the production of fossil fuels. They can take the form of explicit subsidies, where the retail price is below a fuel's supply cost, or implicit subsidies, where costs such as negative health impacts and environmental degradation are borne by society as a whole.
There are several arguments for removing fossil fuel subsidies:
- They contribute to climate change and local air pollution, causing premature deaths.
- They hinder economic growth by promoting inefficient allocation of resources.
- They lead to higher taxes, borrowing, or lower spending.
- They do not effectively target the poor, mostly benefiting higher-income households.
- They accelerate environmental devastation and put future generations at risk.
There have been several legislative efforts in Congress to reduce or eliminate fossil fuel subsidies:
- The Off Fossil Fuels for a Better Future Act (H.R. 3671), introduced in the 115th Congress, aimed to amend the Internal Revenue Code to eliminate subsidies for the fossil fuel industry.
- The End Polluter Welfare Act, reintroduced in 2024 by Senators Bernie Sanders and Ilhan Omar, aims to close tax loopholes and eliminate corporate handouts to the fossil fuel industry.
- The End Oil and Gas Tax Subsidies Act of 2023 (R.1483) seeks to repeal fossil fuel tax breaks.
- The Biden-Harris Administration's FY 2024 budget request proposes eliminating 13 fossil fuel tax preferences and credits.
Removing fossil fuel subsidies can have several benefits:
- It can reduce energy security concerns related to volatile fossil fuel supplies.
- It can promote sustainable and equitable outcomes by using the revenue gain for better targeted social spending, reductions in inefficient taxes, and productive investments.
- It can help transition to a clean energy future, encouraging oil and gas companies to move towards renewable energy sources.
- It can reduce global fossil fuel CO2 emissions and contribute to global efforts to contain global warming.
Removing fossil fuel subsidies can be challenging due to the following reasons:
- Fossil fuel industries are mature and highly profitable, and they have significant influence over Congress through lobbying efforts.
- Subsidies have been in place for a long time, and some argue that they protect consumers by keeping prices low.
- Phasing out subsidies can be complex and may require implementing new taxes or pricing measures to cover external costs.
