TODAY’S STUDY: WHY THE OIL & GAS INDUSTRY BACKS AN ALL-OF-THE-ABOVE ENERGY POLICY

Cashing in on All of the Above: U.S. Fossil Fuel Production Subsidies under Obama

July 2014 (Oil Change International)

Executive Summary

Each year, the U.S. federal and state governments give away more than $21 billion in subsidies to oil, gas, and coal companies to promote increased fossil fuel production and exploration – expanding oil and gas development and increasing the reserves base at the same time that climate scientists around the world agree that we need to leave at least two-thirds of existing reserves in the ground to avoid catastrophic climate change.

Thanks in large part to these huge subsidies, U.S. fossil fuel production is booming. Between 2009 and 2013, natural gas production increased by 18 percent and oil production increased by 35 percent. Although President Obama has pledged to tackle climate change and eliminate fossil fuel subsidies, he champions the oil and gas boom as the centerpiece of his Administration’s “All of the Above” energy strategy.

Since President Obama took office in 2009, federal fossil fuel subsidies have grown in value by 45 percent, from $12.7 billion to a current total of $18.5 billion. This rise is mostly due to increased oil and gas production: the value of tax breaks and other incentives has increased along with greater production and profits, essentially rewarding companies for accelerating climate change.

It should be noted that President Obama has proposed ending some of the most direct and fastest-growing subsidies to the oil industry in every budget he has sent to Capitol Hill. If Congress had not blocked these proposals, they would have resulted in $6.1 billion less in subsidies in 2013, and the value of federal subsidies would have declined by 2% during the Obama Administration.

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In summary, the findings in this report include:

f The United States federal and state governments gave away $21.6 billion in production and exploration subsidies to the oil, gas, and coal industries in 2013.

f At the federal level only, largely due to increased oil and gas, production, fossil fuel production and exploration subsidies have grown in value by 45 percent since President Obama took office in 2009 from $12.7 billion to a current total of $18.5 billion.

f Repeated attempts by the Administration to reduce subsidies have failed at least in part because of the cozy relationship between Congress and the fossil fuel industry. In 2011-12, oil, gas, and coal companies spent $329 million in campaign finance contributions and lobbying expenditures and received $33 billion in federal subsidies over the same two years – a more than 10,000 percent return on investment.

f More than $5 billion annually is spent by U.S. taxpayers for federal subsidies that encourage further exploration and development of new fossil fuel resources – resources we know we cannot afford to burn

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f Subsidies promoting fossil fuel production on federal property – related to rules governing royalty payments to the U.S. government for leasing federal oil, gas, and coal-producing land – total nearly $4 billion each year.

f Fossil fuel company deductions for pollution clean-up costs from their tax payments range from tens of millions to billions of dollars each year. These subsidies incentivize not only increased production, but also increased pollution and poor environmental stewardship by transferring the risk and expense of damages onto taxpayers.

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f Although not included in the production subsidy totals, above, there are a number of additional types of support to the oil, gas, and coal industries that should be noted, including:

g U.S. federal and state consumption subsidies are on the order of $11 billion a year, but were not included in the total above in order to focus on exploration and production subsidies. Thus the total annual value of all known U.S. state and federal fossil fuel exploration, production, and consumption subsidies is $32.8 billion.

g U.S. financing of fossil fuel projects overseas increased by 14 percent from $4.1 billion in 2009 to $4.7 billion in 2013, driven by an increase in bilateral oil and gas project lending.

g Additional costs borne by taxpayers related to the military, climate, local environmental, and health impacts of the fossil fuel industry are credibly estimated between $360 billion and $1 trillion each year – in the United States alone.

Channeling billions of taxpayer dollars to the oil, gas, and coal industries each year is in direct opposition to the urgent demands of climate change. The U.S. needs to reject its current All of the Above energy strategy that amounts to nothing less than climate denial and live up to its promises to eliminate fossil fuel subsidies and usher in a rapid transition to clean, renewable energy.

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What is a Fossil Fuel Subsidy?

Broadly speaking, a fossil fuel subsidy is any government action that lowers the cost of production, lowers the cost of consumption, or raises the price received by producers. Types of fossil fuel subsidies include financial contributions or support from the government or private bodies funded by governments, including direct transfers of funds, transfer of risk such as loan guarantees, foregone revenue including through tax breaks, and provision of goods and services aside from general infrastructure.1

Oil Change International groups fossil fuel subsidies according to three categories:

1. Exploration: support for expanding fossil fuel reserves, including the discovery of new resources;

2. Production: support to fossil fuel companies for producing oil, gas, and coal, usually in the form of special tax deductions, low-cost access to government land, and infrastructure support; and

3. Consumption: support to consumers to lower the cost of fossil fuel use. (U.S. fossil fuel consumption subsidies are listed in Appendix II but are not included in the total subsidy estimates in this analysis).

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Given the increasing urgency of climate change, as well as fiscal concerns around government spending, it is highly inefficient to continue subsidizing fossil fuels. Removing subsidies to the fossil fuel industry is one of the first, and least, goals that public policy should seek to achieve, especially given U.S. failure to pass carbon price legislation and the huge unaccounted for social cost of carbon resulting from increased U.S. fossil fuel production.

While international pressure for fossil fuel subsidy elimination has been mostly targeted at consumption subsidies, exploration and production subsidies are potentially even more damaging because they encourage the extraction of more and more dirty energy resources that our climate can’t safely absorb.

For this reason, and because consumption subsidies are often intended to support social goods beyond the corporate health of oil, gas, and coal companies (such as heating for the poor or affordable fuel for farmers) the focus of this report is U.S. fossil fuel exploration and production subsidies…

Unburnable Carbon and U.S. Fossil Fuel Subsidies…All of the Above = More Subsidies to Fossil Fuels…Fossil Fuel Money to Congress Stymies Subsidy Reform…U.S. Fossil Fuel Production and Exploration Subsidy Highlights…Worst of the Worst: Exploration Subsidies…Giving Away Federal Lands for Cheap: Production Subsidies…Pollution Clean-Up Subsidies…Additional Subsidies to Fossil Fuels…Financing Fossil Fuel Projects Overseas: $4.1 to $6.3 billion annually…Military Expenditure to Secure Oil Supply Overseas: $10.5 to $500 billion annually…Externalities: $350 to $501 billion annually…Consumption Subsidies: $11 billion annually…

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Moving Forward: Honoring International Commitments and Protecting the Climate

It is time for the U.S. to show leadership and stop rewarding the fossil fuel industry for pushing the world toward climate disaster. In 2013, U.S. greenhouse gas emissions grew by 2 percent, a shameful and dangerous rise as our window to avoid catastrophic climate change is closing fast. As with every other nation on Earth, the ultimate climate goal of the U.S. is to reduce emissions to the extent necessary to limit global average temperature increase to 2°C. U.S. taxpayer support should be devoted to helping the country meet this challenge, not further funding the problem.

Ending the misguided U.S. All of the Above energy strategy should start by repealing the more than $21 billion dollars of giveaways to oil, gas, and coal companies from the U.S. government – especially those that encourage them to find and extract ever-increasing amounts of climate-damaging fossil fuel resources. Eliminating these subsidies is a vital step toward honoring the U.S. commitment to phase out inefficient fossil fuel subsidies and, even more importantly, to encourage clean, renewable energy sources that are our only chance of keeping climate change in check.

Appendix I: Complete List of U.S. Federal and State Fossil Fuel Exploration and Production Subsidies…Appendix II: U.S. Federal and State Fossil Fuel Consumption Subsidies…Appendix III: U.S. Export-Import Bank and Overseas Private Investment Corporation Fossil Fuel Projects…

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