Billions in Taxpayer-Funded Handouts Prop Up Oil and Gas, Fueling the Climate Crisis

I recently bought a new pair of sneakers. In deciding which ones to buy, I looked for a reasonable price, vetted the company making them, and decided it was worth it. That’s usually how it goes, right? We see how much something costs, weigh its value, and then decide whether or not to spend the money.

But sometimes there are other factors that need to be considered. For instance, you can get a tax credit -- money back when you file your taxes -- if you buy an electric vehicle. The goal of this tax credit is to make it easier for people to buy electric cars, which have positive externalities, or benefits to people other than the person who buys it, in the form of less pollution than a new gas-burning car. The tax credit incentivizes the individual to do something that is good for the many, not just the buyer. 

But what if this worked in the opposite direction? What if you were given money for doing things that actually had negative externalities and could even hurt the communities and people around you? That’s what’s happening now with the subsidies fossil fuel companies are receiving. 

The intense growth of shale oil and gas production over the past two decades has caused immense social and environmental harm. Yet US oil and gas companies have been incentivized to keep expanding this production, and the pollution that comes with it, to the tune of billions of dollars in subsidies each year. New research from Stockholm Environmental Institute (SEI) shows that these taxpayer-funded subsidies have increased the value of new oil and gas projects by billions of dollars, spurring and sustaining the US shale boom. While fossil fuel executives have profited, communities across the country -- especially communities of color -- have been left with the pollution and public health impacts of fossil fuel development. Dangerous extreme weather events driven by climate change are also on the rise as a result of the burning of fossil fuels, and taxpayers are being left to pick up the tab. 

The next decade will be crucial in swiftly shifting financing toward clean energy projects that support communities and create good jobs. But a new study from the Stockholm Environment Institute and Earth Track, published in the journal Environmental Research Letters, finds that fossil fuel executives are reaping benefits from taxpayer subsidies, and unless we take action, they will continue to profit at the public’s expense for years to come.

The SEI / EarthTrack study finds that a set of 16 subsidies the industry receives could increase the average rates of return -- the financial gain from a project -- of yet-to-be-developed oil fields by 55 percent and gas fields by 68 percent over unsubsidized levels. That’s a huge increase to the expected profit from these projects, which in turn incentivizes more production. When oil prices are low, these subsidies are sufficient to incentivize projects that otherwise wouldn't be viable. But when prices are high, it just means excessive profits for fossil fuel executives. Either way, polluters win while the public pays the price. These taxpayer-funded subsidies inappropriately bolster fossil fuel production at a time when we know that it’s critical that we rapidly draw down production in order to avert the worst impacts of the climate crisis.

We must stop these fossil fuel handouts, and we have no time to lose. According to multiple recent analyses including the International Energy Agency, if we want to limit warming to 1.5 degrees Celsius, there is absolutely no room in the carbon budget for expansion from new oil and gas drilling. Yet oil field investments over just the next five years are predicted to exceed the equivalent of carbon emissions from 1,200 new coal-fired power plants.  Industry must be held accountable for the social and environmental costs it imposes on the rest of us by internalizing the risks of continuing fossil fuel development and shouldering the true costs and instability of its operating model. We can hasten this shift by continuing to grow the movement to end fossil fuel extraction altogether. 

President Biden has said he would like to see an end to fossil fuel subsidies. Join us in telling Congress to act now to eliminate these handouts for corporate polluters.

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