if there is a $20 increase in the tax on heating oil, what will happen to the price?

There is a long history of authorities intervention in free energy markets. Numerous energy subsidies be in the U.Southward. tax code to promote or subsidize the product of inexpensive and arable fossil free energy. Some of these subsidies have been around for a century, and while the United States has enjoyed unparalleled economic growth over the past 100 years—thanks in no small office to cheap energy—in many cases, the circumstances relevant at the time subsidies were implemented no longer exist. Today, the domestic fossil fuel industries (namely, coal, oil and natural gas) are mature and more often than not highly assisting. Additionally, numerous make clean and renewable alternatives exist, which have become increasingly price-competitive with traditional fossil fuels.

The 116th Congress is weighing potential policy mechanisms to reduce the impact of climatic change and cap global warming to an internationally agreed upon target of no more than 2 degrees Celsius (3.half-dozen degrees Fahrenheit). Equally a effect, fossil fuel tax subsidies, as well every bit other mechanisms of support, accept received boosted scrutiny from lawmakers and the public regarding their current suitability, scale and effectiveness. Indeed, the subsidies undermine policy goals of reducing greenhouse gas emissions from fossil fuels.

A recent analysis published in Nature Free energy found that continuing current fossil fuel subsidies would make it profitable to extract half of all domestic oil reserves. This could increase U.S. oil product by 17 billion barrels over the side by side few decades and emit an additional 6 billion tons of carbon dioxide.

The United States provides a number of tax subsidies to the fossil fuel industry as a means of encouraging domestic energy production. These include both straight subsidies to corporations, as well equally other tax benefits to the fossil fuel manufacture. Conservative estimates put U.Southward. direct subsidies to the fossil fuel industry at roughly $20 billion per year; with 20 percent currently allocated to coal and lxxx percentage to natural gas and crude oil. European union subsidies are estimated to total 55 billion euros annually.

Historically, subsidies granted to the fossil fuel industry were designed to lower the cost of fossil fuel product and incentivize new domestic energy sources. Today, U.S. taxpayer dollars go along to fund many fossil fuel subsidies that are outdated, but remain embedded inside the taxation lawmaking. At a time when renewable free energy engineering science is increasingly toll-competitive with fossil power generation, and a coordinated strategy must be adult to mitigate climatic change, the broader utility of fossil fuel subsidies is existence questioned.

There are many kinds of costs associated with fossil fuel apply in the form of greenhouse gas emissions and other pollution resulting from the extraction and called-for of fossil fuels. These negative externalities have agin ecology, climate, and public health impacts, and are estimated to have totaled $5.iii trillion globally in 2015 alone.

Subsidizing an industry with such big, negative impacts is difficult to justify. Public subsidies should be consistent with an overarching, coordinated, and coherent energy policy that not only considers the supply of affordable, reliable power, only as well public health impacts, climatic change, and environmental deposition. While both Democratic and Republican administrations and lawmakers accept discussed repealing fossil fuel subsidies, no significant action has been taken to-date.

Several international institutions, including the G20, the International Energy Agency, and the Organisation of Economical Cooperation and Evolution (OECD), have chosen for the phase-out of fossil fuel subsidies. The European Union has too called for such a phase-out merely has not yet taken physical actions.

But rather than being phased out, fossil fuel subsidies are actually increasing. The latest International Monetary Fund (Imf) written report estimates 6.five percent of global Gross domestic product ($5.two trillion) was spent on fossil fuel subsidies (including negative externalities) in 2017, a half trillion dollar increment since 2015. The largest subsidizers are Prc ($1.four trillion in 2015), the United States ($649 billion) and Russian federation ($551 billion). Co-ordinate to the IMF, "fossil fuels business relationship for 85 percent of all global subsidies," and reducing these subsidies "would have lowered global carbon emissions by 28 per centum and fossil fuel air pollution deaths past 46 percent, and increased government revenue by 3.viii percent of GDP." An Overseas Evolution Institute study found that subsidies for coal-fired power increased well-nigh 3-fold, to $47.3 billion per year, from 2014 to 2017.

U.S. Tax Subsidies to the Fossil Fuel Industry

The federal government provides numerous subsidies, both direct and indirect, to the fossil fuel industry. Special provisions in the U.Southward. tax code designed to specifically support and advantage domestic fossil fuel‐related production are straight subsidies. Other provisions in the tax code aimed at businesses in general create indirect subsidies that are not exclusive to the fossil fuels industry. In sure cases, quantifying these subsidies is adequately simple. In the case of indirect subsidies, establishing an corporeality associated with these subsidies is more challenging. While not covered in this fact sail, another source of federal help to the fossil fuel industry is the discounted cost of leasing federal lands for fossil fuel extraction. Some fossil fuel subsidies provide public assistance, such as the Low Income Habitation Energy Assist Programme (LIHEAP), which assists low-income households with heating costs.

In May 2019, the United nations Environment Programme (UNEP) published a report detailing an internationally accepted methodology that will help countries make their fossil fuel subsidies more transparent.

Directly Subsidies

Intangible Drilling Costs Deduction (26 U.S. Code § 263. Active). This provision allows companies to deduct a majority of the costs incurred from drilling new wells domestically. In its assay of President Trump's Financial Yr 2017 Upkeep Proposal, the Joint Committee on Taxation (JCT) estimated that eliminating tax breaks for intangible drilling costs would generate $1.59 billion in acquirement in 2017, or $13 billion in the next 10 years.

Percentage Depletion (26 U.S. Lawmaking § 613. Agile). Depletion is an bookkeeping method that works much like depreciation, allowing businesses to deduct a certain corporeality from their taxable income equally a reflection of failing production from a reserve over time. However, with standard cost depletion, if a firm were to extract ten percent of recoverable oil from a property, the depletion expense would be ten percent of capital costs. In contrast, per centum depletion allows firms to deduct a fix percentage from their taxable income. Considering pct depletion is not based on capital letter costs, total deductions tin exceed capital costs. This provision is limited to independent producers and royalty owners. In its analysis of the President'due south Fiscal Year 2017 Budget Proposal, the JCT estimated that eliminating percentage depletion for coal, oil and natural gas would generate $12.9 billion in the next ten years.

Credit for Clean Coal Investment Internal Acquirement Lawmaking § 48A (Active) and 48B (Inactive). These subsidies create a serial of tax credits for energy investments, particularly for coal. In 2005, Congress authorized $ane.5 billion in credits for integrated gasification combined wheel backdrop, with $800 1000000 of this amount reserved specifically for coal projects. In 2008, boosted incentives for carbon sequestration were added to IRC § 48B and 48A. These included 30 per centum investment credits, which were made bachelor for gasification projects that sequester 75 percent of carbon emissions, equally well every bit advanced coal projects that sequester 65 percent of carbon emissions. Eliminating credits for investment in these projects would salve $ane billion between 2017 and 2026.

Nonconventional Fuels Taxation Credit (Internal Revenue Code § 45. Inactive). Sunsetted in 2014, this tax credit was created by the Rough Oil Windfall Turn a profit Taxation Deed of 1980 to promote domestic free energy production and reduce dependence on foreign oil. Although amendments to the act limited the list of qualifying fuel sources, this credit provided $12.2 billion to the coal industry from 2002-2010.

Indirect Subsidies

Final In, Kickoff Out Accounting (26 U.South. Lawmaking § 472. Active). The Last In, Outset Out accounting method (LIFO) allows oil and gas companies to sell the fuel most recently added to their reserves get-go, as opposed to selling older reserves showtime under the traditional Starting time In, First Out (FIFO) method. This allows the most expensive reserves to exist sold kickoff, reducing the value of their inventory for taxation purposes.

Strange Tax Credit (26 U.S. Lawmaking § 901. Active). Typically, when firms operating in foreign countries pay royalties away they tin deduct these expenses from their taxable income. Instead of claiming royalty payments every bit deductions, oil and gas companies are able to treat them as fully deductible foreign income tax. In 2016, the JCT estimated that endmost this loophole for all American businesses operating in countries that exercise not tax corporate income would generate $12.7 billion in tax revenue over the course of the following decade.

Master Limited Partnerships (Internal Acquirement Code § 7704. Indirect. Agile). Many oil and gas companies are structured equally Chief Limited Partnerships (MLPs). This structure combines the investment advantages of publicly traded corporations with the tax benefits of partnerships. While shareholders still pay personal income revenue enhancement, the MLP itself is exempt from corporate income taxes. More than three-quarters of MLPs are fossil fuel companies. This provision is not available to renewable energy companies.

Domestic Manufacturing Deduction (IRC §199. Indirect. Inactive). Put in place in 2004, this subsidy supported a range of companies by decreasing their effective corporate tax rate. While this deduction was bachelor to domestic manufacturers, information technology nevertheless benefitted fossil fuel companies by assuasive "oil producers to merits a tax break intended for U.S. manufacturers to preclude job outsourcing". The Office of Direction and Budget estimated that repealing this deduction for coal and other hard mineral fossil fuels would have saved $173 one thousand thousand between 2012 and 2016. This subsidy was repealed past the Tax Cuts and Jobs Act (P.L. 115 – 97) starting financial twelvemonth 2018.

Recent Efforts to Reform and Repeal Fossil Fuel Subsidies in Congress

"Allow's look at the oil and gas subsidies, let'due south take them away. Let's allow them compete just like everyone else at the aforementioned level. Nosotros can practise that with the revenue enhancement lawmaking to take those special provisions abroad."

— Rep. Fred Upton (R-MI)
Oct 2012

Clean Energy for America Act (South. 1288): Introduced in May 2019 and sponsored by Senator Wyden (D-OR), South.1288 amends the Internal Revenue Code to replace the 44 existing energy tax credits with three engineering neutral tax provisions that would incentivize the use of low and cipher-emissions technologies, including clean electricity, make clean transportation and free energy efficiency. The bill is cosponsored by 25 Democrats.

Financing Our Free energy Future Act (Southward. 1841): Formerly the MLP Parity Act , S.1841 has been reintroduced in the 116th Congress and allows renewable energy firms to benefit from the MLP structure by expanding the types of energy generation that qualify. The beak, sponsored past Sen. Christopher Coons (D-DE) and cosponsored by half dozen Republicans, four Democrats and an Independent, has broad appeal and does not prevent fossil fuel companies from continuing to structure as MLPs.

Off Fossil Fuels for a Better Hereafter Human activity (H.R. 3671): Introduced by Rep. Tulsi Gabbard (D-How-do-you-do) in the 115th Congress, H.R. 3671 amends several sections of the Internal Acquirement Code of 1986 to eliminate subsidies aimed specifically at the fossil fuel manufacture. The bill had 45 Autonomous cosponsors.

Fossil Fuel Research, Development, and Deployment

The fossil fuel industry receives substantial government funding for enquiry and development. Federal funding for fossil fuels is largely administered by the Department of Free energy (DOE) through three initiatives: the Office of Advanced Fossil Free energy R&D, the Loan Guarantee Plan, and the National Energy Technology Lab. Annual appropriations and grants directed toward the fossil fuel industry can likewise be considered straight subsidies, as they are directly related to maintaining the competitiveness of the industry. Efforts to make coal more economic and cleaner—despite declining natural gas and renewable energy prices—accept been a item focus of the federal government's funding, equally has Carbon Capture and Storage (CCS). CCS technologies capture carbon dioxide from power and industrial sectors and store it deep hush-hush in geological formations, or turn it into useable products, such every bit fuels or chemicals.

The American Recovery and Reinvestment Act (Inactive). The American Recovery and Reinvestment Act of 2009 was an economic stimulus package of $787 billion. Every bit part of this package, the Office of Fossil Energy received $3.4 billion toward fossil fuel research and evolution between 2009 and 2011. The funds primarily supported R&D of carbon capture and storage technologies.

DOE Advanced Fossil Loan Programs Role (Active). The Department of Energy's Loan Programs Part (DOE LPO) was created in 2005 to provide loans to innovative energy, tribal energy, and avant-garde automobile manufacturing projects. While the DOE LPO is primarily focused on financing first-of-kind renewable and efficiency technologies, it has also designated $8 billion for loans to avant-garde fossil fuel projects that aim to avoid or sequester greenhouse gases. Originally, the program was aimed solely at coal technologies and was later expanded to include any fossil fuel. The first two loan solicitations did not effect in whatever loan guarantees, largely because falling natural gas prices take made new coal projects uneconomical.

In Dec 2016, the LPO made its outset fossil award to the Lake Charles Methanol Project, which received an initial commitment of $2 billion. The project would have produced methanol from the gasification of petcoke, a product of petroleum refining. However, projected costs increased following tariffs on Chinese imports, and the project has stalled. Equally of September 2018, construction had not begun.

DOE Office of Fossil Free energy R&D FY2019 Funding (Select Examples)
Coal Carbon Capture and Storage (CCS) and Power Systems	$25 million
Carbon Storage (CCS retrofits at coal and natural gas facilities)	$xxx million
Avant-garde Energy Systems: efficiency, reliability & flexible operations	$37 million
National Free energy Technology Laboratory Coal Research and Development	$eighteen million
Unconventional Fossil Energy Technologies (unconventional gas & oil)	$13.5 million

DOE Fossil Energy Research & Development Office (Agile). Historically, DOE'southward advanced fossil free energy R&D focused on reducing harmful emissions from coal-fired power plants, such every bit those responsible for acid rain. Today, the role is focused on advanced power generation, power plant efficiency, water direction, and carbon capture and storage technologies (CCS), as well as the development of unconventional oil and gas resources.

In examining DOE's fossil energy portfolio, the dollars directed towards preserving coal as a viable power source warrant closer test. Betwixt 2010 and 2017, the Department of Free energy provided $2.66 billion to support 794 avant-garde fossil energy inquiry and evolution projects: 785 of these were R&D projects, and the remaining nine were sit-in projects to evaluate the commercial readiness of carbon capture and storage technologies, mostly for coal. These projects received between $13 million and $284 million. Of the 785 remaining projects, 89 percentage focused on coal research and development, including for coal gasification, where coal is converted to synthesis gas ("syngas") that may be used for generating electricity and other purposes. During this same seven-yr flow, 91 percent of total fossil R&D money ($1.4 billion) was spent on coal-related research. For fiscal yr 2019, Congress appropriated $740 million for Fossil Energy Research and Development, with continued emphasis on the continued use of coal-fired power.

Coal-Fired Power & Carbon Dioxide Removal

Despite pregnant federal investment, Carbon Capture and Storage technology is unlikely to sustain the domestic use of coal power.

In that location is a scientific consensus that carbon dioxide removal technologies, such as Carbon Capture and Storage (CCS) and Direct Air Capture (DAC), volition exist required to stabilize atmospheric concentrations of CO2 over the coming decades. The majority of 1.five°C and fifty-fifty 2°C warming scenarios, equally reported past the Intergovernmental Console on Climatic change (IPCC), rely heavily on such carbon dioxide utilization and storage (CCUS) strategies to manage atmospheric concentrations of CO2.

However, CCS technologies are still not widely commercialized. In the U.s.a., there are only 10 carbon capture facilities, and only one of these is at a coal plant. Given both the electric current negative economics of coal for power generation, and the energy intensity of carbon capture and storage, CCS is very unlikely to sustain the domestic use of coal power. Instead, the near promising avenues for CCS applications include energy-intensive industrial sectors, direct air capture of CO2, carbon utilization, and carbon capture in natural gas power plants. To achieve aggressive climate targets as quickly and price-finer equally possible, phasing out coal's use every bit a source of energy will remain necessary.

Financing Fossil Fuel Projects Abroad

In addition to research and development projects funded through Department of Energy programs, the fossil fuel industry receives federal funding in the form of project loans, grants, and guarantees from the Overseas Private Investment Corporation (OPIC) and the United States Export-Import Banking company (EXIM). These sources of funding are meant to provide capital and fiscal security for investments in emerging markets overseas, just in many cases serve to subsidize the expansion of the mature and highly assisting fossil fuel industry. This can upshot in increased greenhouse gas emissions from projects in countries with weaker environmental regulations.

Overseas Private Investment Corporation (OPIC). OPIC is the U.Southward. Authorities's development finance institution, which supports American businesses in emerging markets abroad. OPIC provides "investors with financing, political risk insurance, and support for private equity funds." Between 2010 and 2015, OPIC committed more than $6 billion in financing to renewable energy projects, and in 2008 fix a target to reduce greenhouse gas emissions from new projects by 50 percent by 2023. While OPIC has dramatically increased its funding for renewable energy projects, it continues to support fossil energy, as well. Some examples of OPIC funded projects include:

• The revitalization of the aging Palagua oil field in Republic of colombia. In 2004, OPIC gave a $three.8 one thousand thousand loan to Joshi Technologies to support this project, which enabled the company to extract more than four,000 barrels of oil per day for over a decade.
• In 2017, OPIC committed $250 million for a natural gas projection in Jordan, which is expected to emit the equivalent of 617,000 tons of carbon dioxide per year.
• In 2018, Kosovo government officials sought out OPIC to assistance them finance a new coal-fired power plant that had lost its loan guarantee from the Earth Bank, after the Bank chose to halt financing for new coal projects.

United States Export-Import Bank (EXIM). EXIM is the credit bureau of the United States government, providing credit to facilitate the export of American goods and services. While President Obama'due south 2013 Climate Action Plan called for an end to government funding for overseas coal-fired power plants (with limited exceptions where no viable alternatives be or where CCS technology is utilized), EXIM continues to fund fossil energy development overseas. Over the past fifteen years, EXIM has lent or issued billions in grants to fossil fuel projects. They include:

• $14.8 billion dollars in grants and loans for 78 projects in the petroleum sector (2001 – 2018).
• Financing $900 meg in U.S. mining exports (2010).
• Lending $4.5 billion to the power sector in 2009, much of which went to the coal and petroleum sectors. This included the construction of a liquefied natural gas (LNG) projection in Mozambique in 2016. The project is estimated to produce v.2 million tons of carbon dioxide per twelvemonth.

Externalities and Social Costs of Fossil Fuels

Ultimately, the true cost of carbon and other pollutants are not reflected in the actual price of fossil fuels and fossil-derived products. Economists refer to such discrepancies equally externalities. Fossil fuel externalities, including societal costs, ecology costs, and health costs, are largely overlooked in the process of incentivizing fossil fuel production through policy mechanisms. The undervaluation of fossil fuel externalities unduly affects communities that are the most vulnerable to the wellness and environmental impacts of fossil fuel combustion and extraction, namely minority and depression-income populations that are more likely to live almost facilities that produce high amounts of pollutants, such equally ports, airports, highways, and petrochemical refineries. Addressing fossil fuel externalities could salve taxpayers billions of dollars in societal costs and ameliorate the health and quality of life for many people. Below is an outline of some major costs to consider.

Social Cost of Carbon (SCC):

The Social Cost of Carbon reflects the negative societal impacts of climate change (including the spread of diseases, decreased food security, coastal vulnerabilities, and public health costs), which is caused by manmade carbon emissions. The SCC is used as a metric to inform federal decision-making on environmental policies, besides every bit a factor to consider in toll-do good analyses of such policies. A federal Interagency Working Group created an approximate for the SCC in 2010 which considered the costs of carbon on a global calibration. The Trump administration is seeking to revalue the SCC by shifting from a global valuation to a national valuation, in which only the effects on the lower 48 states are considered, and by altering the disbelieve rate (used to catechumen hereafter outcomes into present dollars). Increasing the discount rate discounts the impacts on future generations.

Nether the original framework, the SCC in 2015 was $36 per metric ton of CO2 at a 3 percentage discount rate. This is still viewed as a conservative estimate, since there is insufficient information to fully quantify all the externalities resulting from global CO2 emissions. With the Trump administration's proposed changes, that valuation falls to $6 per metric ton (at a 3 percent discount charge per unit) and $1 at a 7 per centum discount rate.

Health Externalities:

Effigy 1: Data from "The Wellness Costs of Inaction with Respect to Air Pollution," by Pascale Scapecchi, System for Economic Cooperation and Evolution, Ecology Working Papers No. ii.

Called-for fossil fuels creates air pollutants such as particulate matter, carbon monoxide, sulfur dioxide, ozone, and mercury. These pollutants lead to health impacts including asthma, lung disease, bronchitis, and other chronic respiratory diseases that may pb to premature death. Air pollutants from fossil fuels also contribute to the development of lung and other cancers; lung cancer accounts for 30 percentage of cancer-related deaths each twelvemonth. Air pollutants, such as those released from vehicles and power plants that rely on the combustion of fossil fuels, crusade 200,000 premature deaths each twelvemonth.

Taking into business relationship the coal power sector alone, it is estimated that fine particulate thing from U.Southward. coal plants resulted in thirteen,200 deaths, 9,700 hospitalizations, and twenty,000 heart attacks in 2010. Coal-fired ability plants are also the largest source of airborne mercury emissions in the Us. Mercury can movement through the food chain and accrue in the flesh of fish, posing the greatest risk to meaning women.

Environmental Externalities:

Extraction and refining of fossil fuel may event in a host of negative outcomes including landscape deposition, adventure for spills, and other unintentional environmental damage. Coal mining operations accept the potential to crusade pollution across the supply chain, from extraction to burning. In the United states, coal is often extracted using mountaintop removal and strip mining, which involves clearing the vegetation, soil, and rock higher up coal deposits. This leads to permanent damage of landscapes and the cosmos of massive amounts of mine wastes. Strip mining is used in roughly 65 percent of American coal production.

Afterward coal is burned, it leaves behind coal ash, a combustion byproduct containing heavy metals similar arsenic, mercury, and chromium, which are considered toxic. Coal ash is one of the largest sources of industrial waste in the United States, and a 2018 analysis of manufacture data found that 95 pct of coal ash storage sites take contaminated groundwater at levels accounted unsafe past the EPA. In the flooding that followed Hurricane Florence, several coal ash storage sites in North Carolina overflowed or were damaged, spilling contaminated water into surrounding areas.

Oil spills are possibly the all-time known fossil fuel-related ecology dangers. The 1989 Exxon Valdez oil spill polluted one,300 miles of shore and price nearly $two billion to make clean up. The 2010 Deepwater Horizon oil spill, the largest e'er, released iii.nineteen million barrels of crude oil into the Gulf of Mexico and toll BP (the company responsible) $61.vi billion. That same yr, the 2010 Enbridge spill in southwest Michigan released more than than 20,100 barrels of tar sands oil into the Kalamazoo River, creating i of the largest inland oil spills in U.S. history. The ongoing Taylor oil spill is on track to become the largest in American history, having released tens of thousands of gallons every 24-hour interval into the Gulf of Mexico for more than 14 years.

Conclusion

In seeking fiscal reforms that accept the potential to salvage taxpayer dollars while simultaneously addressing greenhouse gas emissions, phasing out subsidies for the fossil fuel industry should be a priority for federal policymakers. These subsidies aid an industry that is mature, well-established, and with an abundant private financing stream. Reducing the subsidies fossil fuel stakeholders receive tin can aid right inefficient economic interventions into free energy markets, salvage billions of taxpayer dollars, and reduce negative social and environmental impacts.

Authors: Clayton Coleman and Emma Dietz

Editors: Brian LaShier, Jessie Stolark, Amaury Laporte

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Source: https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs