The fossil fuel industry knew about the effects of CO2 on the planet as early as 1977 when their scientists sounded the alarm, 11 years before it became public. This hasn’t prevented oil companies from increasing production and profiting heavily from the world’s reliance on and addiction to oil, nor has governments globally subsidized the industry year after year.
United States fossil fuel companies rake an estimated $20,000,000,000 a year in direct and indirect subsidies. However, calculating the cost of these subsidies remains challenging as the fossil fuel industry is complex, and these incentives stretch across the U.S. tax code. Examples of this complexity can be seen in the varying tax codes that the industry, directly and indirectly, benefits from. Some of these tax codes provide direct subsidies, such as the Intangible Drilling Costs deduction (26 U.S. Code § 263), Percentage Depletion (26 U.S.C § 613), and the Credit for Clean Coal Investments (Internal Revenue Code §48A). Indirect subsidies would include: Last In, First Out Accounting (26 U.S.C. § 472), Foreign Tax Credit (26 U.S.C. §901), Master Limited Partnerships (IRC §7704), and the Domestic Manufacturing Deduction (IRC § 199).
Over the past six years (2017-2022), profits from the top five U.S. fossil fuel companies have reached $953.14 billion. The year the Covid-19 pandemic began, these five companies saw their lowest profit of 80.38 billion dollars. Since then, profits have continued to rise. 2021 saw numbers similar to pre-pandemic levels, while 2022 saw a total gross profit of $273.55 billion, nearly double that of 2019. In the United States alone, more than 32 fossil fuel companies are increasing the industry’s total profit.
There have been widespread calls to end oil subsidies to create a sustainable future. Condemnation against oil companies grew after gas prices rose at the pumps throughout 2022, coupled with record profits in the same year. In his 2022 State of the Union address, President Biden called Big Oil’s profits .’ Considering the administration has also approved 6,430 permits for oil drilling on public lands, this leaves one with slight apprehension as to whether the U.S. is up to the challenge to truly fight climate change. In President Biden’s 2024 budget, he has proposed eliminating some of the tax breaks that fossil fuel companies benefit from. In the coming year, $2.8 billion worth of tax incentives are proposed to be eliminated for fossil fuel companies, with a further USD 3.8 billion eliminated in 2025. From 2024 to 2028, the budget proposes eliminating USD 16.3 billion in fossil fuel tax preferences – an average of USD 3.2 billion annually. While this is a move in the right direction, commenters have pointed out the likely difficult task of the bill getting through both the House of Representatives and the Senate.
Needless to say, if the United States is serious about combating climate change, at the very least, oil subsidies need to end. The fact that the profit margins continue growing yearly only provides more evidence that they should. The real question remains whether it actually will or if Congress, with oil money campaign contributions, will lift a finger to create a future where subsidized profits don’t rule over people and communities.
This Post was submitted by Climate Scorecard US Country Manager Dave Schroeder