In total, JCT [Joint Committee on Taxation] estimates the value of the value of fossil fuel tax expenditures at approximately $11.8 billion for the five-year period of 2022-2026. The tax expenditures denoted as de minimis and the ones not quantified are not included in this estimate.
This is from “Statement of Ted Gayer,” before the U.S. Senate Committee on the Budget hearing on “Who Pays the Price: the Real Cost of Fossil Fuels,” May 3, 2023. Gayer is the president of the Niskanen Center.
The whole thing, which is only 7 pages long, is worth reading.
Here’s what I find striking: how low the numbers are. They average $2.4 billion annually. This is strikingly from so many claims we often hear that fossil fuels are subsidized by hundreds of billions annually. The number Gayer comes up with is just 1.2 percent of $200 billion.
Moreover, nowhere in his testimony does he mention gasoline taxes. In 2020, state and local governments collected $53 billion in revenue from taxes on motor fuels. Of course, it is true that most of these revenues go to road building and maintenance.
The pic above is from his testimony, and covers one of the 4 types of “tax expenditures” that Gayer discusses.
READER COMMENTS
Andrew_FL
May 9 2023 at 6:42pm
90% of the world’s fossil fuel subsidies are given by the governments of Saudi Arabia, Iran, Venezuela, Algeria, Egypt, Indonesia, Kuwait, Libya, Malaysia, and Qatar. The United States is scarcely worth mentioning in comparison, as we’d be much further down the list.
Thomas Hutcheson
May 10 2023 at 8:16am
Yes, and most are subsidies to consume fossil fuels, not to produce them.
Walid Matar
May 11 2023 at 1:08am
Hello Andrew,
Oil subsidies in Saudi Arabia, unlike some of the other countries you mention, are implict. They take the form of a domestic price that is higher that domemstic production cost – so no direct subsidy – but lower than the international market price. This means they represent forgone revenues.
As this paper highlights, this means Saudi subsidies should be lower than those estimated by the prevailing methods.
I’d be happy to take this discussion privately.
Best,
steve
May 9 2023 at 7:47pm
I would look at this as a low end estimate. It looks like it concentrates on tax expenditures and does not count direct subsidies and doesnt look like it covers international monies though I could have missed that. Link goes to site that claims total is much higher, though they are likely ideologically different than Gayer who used to work for the AEI. At any rate, they do itemize so you can decide if you think their choices are legit.
That said there is a red flag here for me. If we really want to know what fossil fuels cost we have decades of data to look at. Instead Gayer is looking at potential costs 3 years from now.
http://priceofoil.org/content/uploads/2017/10/OCI_US-Fossil-Fuel-Subs-2015-16_Final_Oct2017.pdf
Steve
Vivian Darkbloom
May 10 2023 at 2:59am
On the other side of the coin, it is estimated that the US collects *annually* $138 billion from fossil fuels through various taxes. It seems odd to me that you concentrate solely on the “tax expenditure” side of the balance sheet as a “low estimate” while completely ignoring the tax revenue side. All the way from producer to consumer, fossil fuels are probably the most heavily taxed consumption item in the US. Is it really fair to say this industry is a net beneficiary of government subsidies?
https://www.rff.org/news/press-releases/us-revenues-from-fossil-fuels-responsible-for-138-billion-annually-expected-to-fall-regardless-of-climate-action/
steve
May 10 2023 at 11:38am
Sure, but then how do you count the cost of building roads? Absent the building and maintenance of roads able to handle traffic at high speeds there wouldn’t have been such a market for fossil fuels. This will need to be replaced if and when EVs are more common. I think that the costs of roads should come at least partially from vehicle usage whether ICE or EV so would just leave this out, granting that EVs will have a temporary advantage here.
If you look at the itemized list at the link above it doesnt look like Gayer accounts for lots of subsidies. The billions of dollars the industry received in the Deep Water Relief Act, Dual Capacity Taxpayer deduction, letting oil companies deduct damages when they have oil spills, accelerated depreciation for pipelines and how do we count the Strategic oil reserves? Then there is coal where land can be leased for below market costs if mining coal (Powder River Basin), the Black Lung Trust Fund to cover what the coal industry cannot, deducting exploration costs from income tax and lots of others.
Steve
robc
May 10 2023 at 12:58pm
Gas taxes are a horrible way to fund roads. There are two big problems:
First, EVs, duh. Second, off-road vehicles shouldn’t be paying the gas tax.
My preferred solution:
First split roads and streets into separate categories. Streets should be turned over to the local POA (or a special street POA created where one doesn’t exist) to handle maintenance costs going forward.
Roads should be tolled (or privatized and tolled).
Thomas L Hutcheson
May 10 2023 at 10:24pm
There should be separate use and congestion charges for road and street use. Use should be vehicle and road class specific.
steve
May 10 2023 at 10:43pm
1) EVs- There arent that many right now so they have an advantage. However, if there is anything the govt is good at it is figuring out ways to tax people. If we keep something like the gas tax, essentially a tax based on miles driven, that should be just as easy to do with an EV as an ICE car.
Steve
robc
May 11 2023 at 11:33am
The best part of my solution is we don’t have to worry about it. The individual POAs can handle street usage as they see fit. Residential neighborhoods would either become gated, handling traffic that way, or just not worry about it, outside traffic is too small to worry about, and gates are expensive.
Business streets wouldn’t want to toll as they want to encourage use. It would be a cost of doing business.
The market would handle it.
Roads, which are designed for high speed travel between distant points, would best be tolled, either by the government owners or private owners. Pay for use.
I am a believer in 55+ and 25-. Streets should be designed for travel at under 25 mph. Roads should be designed for 55 mph or greater. And there is minimal (if any) need for anything in between.
Thomas L Hutcheson
May 10 2023 at 11:39am
My point of comparison would be how far is the current set of taxes and subsidies from a tax on CO2 emissions. For example, it might be that gasoline used in automobiles is net CO2 emissions-taxed about right (if it were not used as a second best road user charge) but coal extraction for electricity generation us net CO2 emissions undertaxed. “Under/over does not seem very enlightening to me.
nobody.really
May 10 2023 at 4:19pm
As of 2014, governments taxed alcoholic beverages–and especially distilled spirits–more heavily per gallon.
Thomas Hutcheson
May 9 2023 at 8:46pm
Yes, the larger incentive for fossil fuels production is the absence of a tax on the net emissions of combusting the fuels.
Jon Murphy
May 10 2023 at 6:43am
The presence of the rather substantial gas tax indicates your statement is likely incorrect.
Thomas Hutcheson
May 10 2023 at 11:44am
Possibly for gasoline used as vehicle fuel. [It is not a vey good road user charge, anyway.] But over/under seem like a pretty inadequate framework for optimal taxation of activities that oxidize carbon atoms and release the CO2 into the atmosphere.
Geoffrey N Brand
May 10 2023 at 10:57am
The majority of the items listed above are not subsidies, but rather reflect the choice between expensing in the first year versus spreading out the cost over several years. This is because oil and natural gas wells typically experience significant drops in production volumes soon after initial production, followed by a leveling out period. In accordance with sound accounting principles, it makes more sense to match expenses with revenues and costs by taking the expenses in the first year. Additionally, the oil and gas industry is subject to some of the highest taxes in the U.S., including severance taxes and federal royalties. Therefore, it is inaccurate to claim that the industry is receiving subsidies.
David Henderson
May 10 2023 at 2:45pm
Nicely reasoned. Thanks, Geoffrey.
Thomas L Hutcheson
May 10 2023 at 10:31pm
If “firms” are to be taxed at all (instead of just as collection agents for owners’ incomes), investment should be expensed to make the “income” tax more like a progressive consumption tax.
Jose Pablo
May 11 2023 at 11:30am
The industry is receiving subsidies, that’s a pretty accurate statement since the industry is, you know, receiving subsidies.
Whether or not “the industry” is financing its fair share of the subsidies it is receiving is another consideration that deserves a more careful analysis.
Every industry in the US is taxed. The argument that the fossil fuel industry is paying more than its fair part should first define a “tax base” (the value added by that particular industry sounds like a good candidate) and then show that the fossil fuel industry is paying a tax rate above the average tax rate for other industries.
You are very far to provide enough data to sustain your point (which could still be true).
On the other hand, since the “fair rate” of subsidies that any industry should be receiving is precisely zero, the fact that the fossil fuel industry is receiving subsidies is much easier to prove. And it is.
Jose Pablo
May 11 2023 at 11:35am
It does not seem to be coal subsidies in the Statement of Ted Gayer.
This means that it is not about fossil fuel subsidies, just about oil subsidies or, alternatively, that state and local politicians from Pennsylvania don’t know the ropes of their business (which I find very unlikely)
steve
May 11 2023 at 5:31pm
If you read the list at my link public property has been sold at below market rates to coal mines, clearly a subsidy. Clean up from shut down mines has also been publicly financed. I suspect that is one of the reasons Gayer chose to concentrate on looking at projected numbers into 2025 and not look at already existing data. Lets him avoid those kinds of numbers.
Steve
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