Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs

Attributed Authors: David Sher Published: Jun 2011

Numerous energy subsidies exist in the U.S. tax code and have been there for up to a century. In certain cases the circumstances relevant at the time of implementation may no longer exist. Today, for example, the domestic fossil fuel industries (coal, oil, natural gas) are mature and highly profitable, and numerous other energy resources that do not create the negative health and environmental effects associated with the extraction and burning of fossil fuels are available. One example is the far‐reaching negative effects that mining and burning coal will have on air and water quality across the United States. There is a risk that indirect subsidies like tax breaks or favorable accounting treatments, once implemented, do not react to changes in circumstances and, therefore, persist far longer than appropriate or necessary. As such, insufficient attention to indirect subsidies should be even more concerning to the public. This concern is heightened by the scale of the issue. The indirect subsidies examined in this paper alone most likely will amount to nearly $50 billion over the next decade, and represent just a select number of subsidies offered to the fossil fuel industry. In fact, the National Academy of Sciences indicates the cost of externalities of fossil fuel usage may be greater than $1 trillion over a ten‐year period, in addition to any climate‐related costs, which are not included in the scope of this paper.  This paper provides a discussion of the history and mechanics of a number of the key tax breaks to the fossil fuel industry, as well as estimates for subsidies through royalty relief and negative externalities.

Tags: tax subsidies fossil fuel subsidies foreign tax credit percentage depletion