Fossil fuel subsidies in Pennsyvlania: A first look at the tax side

Natural gas fracking well in Louisiana, (c) 2013 Daniel Foster

With so much focus on the US federal budget deficit, it is easy to forget that the directed legislation, subsidies, and political bias plaguing our national government exist at the state and local levels as well.  While this certainly complicates the process of trying to figure out who is getting what, Pennsyvlania Fossil Fuel Subsidies: An Overview, written by Christine Simeone at PennFuture, highlights that greater transparency is possible everywhere.

The report documents some of the long-lived biases in state tax codes that favor fossil fuel production and consumption.  For example, though nearly all goods and services have to pay a sales tax, fuel purchases don't.  This is clearly a subsidy that encourages more consumption.  Industry sometimes argues that fuels already pay too much relative to other industries.  Too often, however, those comparisons overlook the fact that many of the fuel taxes are not for general revenue purposes, but rather to pay for fuel-related infrastructure (e.g., roads), problems (mine reclamation or fuel tank cleanups), or in some cases even resource rents on the fuel being extracted. 

PennFuture's findings on taxes are generally in line with multi-state work done in the early 1990s by Joe Loper, then with the Alliance to Save Energy.   Loper's analysis is still among the best work I've seen on state-level energy subsidies.  He estimated that reductions or exemptions for energy from state sales taxes alone was worth $18 billion (1992$) per year.  At the time, rate reductions were highest for the residential and industrial sectors, and for gasoline.

There is probably room for dialogue on how to treat various tax exemptions in the subsidy tallies.  For example, if a particular fuel charge is earmarked entirely for roads, I wouldn't view agricultural exemptions as a subsidy so long as the vehicles using the fuel are used only on private roads.  In contrast, agricultural exemptions from fuel charges linked to general revenues or amelioration of fuel-ralated problems such as tanks would be a subsidy.  Another interesting issue involves governments exempting themselves from fuel taxes or charges, something the PennFuture report calls attention to.  The issue of "self-charging" comes in many forms:  not paying rent for space in public buildings or for services provided by other government agencies; getting discounted power from municipal utilities (an issue in my town); or not paying fuel taxes on energy used during government business. 

While at first blush instituting full cost recovery seems like a complicated way simply to have government pay itself, that view misses the core value of price signals.  Because governments compete with others (including other parts of the government) for space, energy, or other resources, charging full price is a necessary part of proper cost accounting and decision-making for government managers and for the taxpayers who fund them.  Full prices ensure governments see the proper incentives to invest in demand-reduction options (be it smaller offices or more efficient appliances), and that they contribute their fair share of public spending on energy-related clean-up or infrastructure.  It's useful to remember that corporations routinely charge different parts of their organization full price on required inputs for quite similar reasons.

What is striking about Simeone's listing of subsidies (see table below) is not just that a single state could potentially have tax subsidies favoring the use of conventional fuels of close to $3 billion per year, but also that PennFuture didn't do much to identify and quantify the many other non-tax subsidy mechanisms that exist in the state.  Pennsyvlania, for example, allows the use of waste coal to qualify under its renewable portfolio standards (albeit at a lower tier, and called "alternative" instead of "renewable").  PA is also an old coal state, and studies of TN, WV, and KY have found subsidies to coal roads and mine cleanup were large and continuing sources of government support to the fossil fuel sector -- spending that in some situations actually resulted in net losses to the state on coal operations.  Looking in more depth at some of these additional forms of support would seem a useful task for subsequent work.


Pennsylvania's Fossil Fuel Subsidies



 2011-2012 Cost

Tax Exemptions


Sales and Use Tax Exemptions


Coal Purchase and Use Exemption

 $                         119,500,000

Residential Use Exemption



 $                         435,400,000

Fuel Oil/Natural Gas

 $                         322,700,000

Government Exemption

 amount undetermined

Resale Exemption

 amount undetermined

Manufacturing, Processing Exemption

 amount undetermined

Electricity Manufacturing Exemption

 amount undetermined

Public Utility Exemption

 amount undetermined

Mining Fuel Exemption

 amount undetermined

Mining Equipment Exemption

 amount undetermined

Gasoline and Motor Fuels Exemption

 $                     1,145,700,000

Dairy Exemption

 amount undetermined

Farming Exemption

 amount undetermined

Printing Exemption

 amount undetermined

Photographers Exemption

 amount undetermined

Commercial Vessel Fuel Exemption

 $                               2,900,000

Gross Receipts Tax Exemptions


Natural Gas Exemption*

 $                            82,200,000

*annual cost in 2000


Electricity Exemption

 amount undetermined

Electric Coop Exemption

 $                            21,100,000

Municipal Utility Exemption

 $                            11,500,000

Liquid Fuel and Fuels Exemptions


Government Exemption

 $                            10,200,000

Agricultural Exemption

 $                               1,100,000

Additional Exemptions


Oil Company Franchise Tax Exemption


Government Exemption

 $                            19,800,000

Agriculutral Exemption

 $                               1,900,000

Additional Exemptions


Electric Coop

 $                                    200,000

Personal Tax Exemption for Cost Depletion

 amount undetermined

Municipal Utility Realty Tax Exemption

 $                               4,000,000

Realty Transfer Tax for Extraction

 amount undetermined

Oil and Gas Local Property Tax Exemption*

 $                         477,730,000

* annual cost in 2012, will grow as more wells are drilled


Additional Exemptions


Pollution Control Device Sales and Use Tax Exemption


Pollution Control Device Capitol Stock and Franchise Tax Exemption


Non-manufacturing, R&D, Processing

 $                                    100,000


 $                         230,000,000

Tax Credits


Coal Waste Removal Tax Credit*

 $                                                    -  

*$18,000,000 potential cost


Alternative Energy Production Tax Credit*

 amount undetermined

*fossil fuels share unknown


Grant Programs


Alternative Fuel Incentive Grant

 amount undetermined


 $                     2,886,030,000