Biden’s First 100 Days: The End of Fossil Fuel Subsidies

By Anna St. Clair

After considerable pressure from environmental activists in the Sunrise Movement and other organizations, during his campaign, Joe Biden said he would eliminate fossil fuel subsidies. Now that he has been elected, this must be a central part of his presidency if he is to be taken seriously as a climate president.

Even if Democrats do not regain control of the Senate, this should be a legislative priority that can guide other executive action or legislation. No matter what, Biden’s administration can create a regulatory environment that is unfavorable to bank investment in fossil fuels, and they should support removing financial aid for the fossil fuel industry in any future COVID-19 stimulus bills.

What are fossil fuel subsidies and why are we spending so much money on them?

Fossil fuel subsidies are government policies that lower the costs of fossil fuel production, raise the sale price of oil, gas and coal for producers, or lower the cost that consumers pay.

Some estimates put U.S. fossil fuel subsidies at $20 billion per year, but the real number could be much higher. In contrast, over the last decade, the renewable energy sector received, on average, $7.5 billion per year. The Trump administration has done considerable damage by phasing down subsidies for wind and solar energy, with the solar industry’s investment tax credit set to drop from 30% to 10% by 2021 for commercial buildings and eliminated entirely for residences. The wind industry’s investment tax credit is also set to phase out completely.

Our priorities are clearly not in order. But how did we get to a point where the government is subsidizing so much oil, coal and gas production despite the overwhelming evidence that fossil fuels are making the planet inhospitable?

How we got here

In many cases, fossil fuel subsidies have been granted as temporary measures to boost American energy production during times of war, oil shortages or economic downturns. However, they stuck around much longer than intended. Coal companies can still take advantage of a measure passed in 1950, originally enacted to help fund the Korean War, that allows them to avoid tax increases. The percentage depletion allowance, which today makes crude oil and gas one of the most tax-advantaged financial investments, was first introduced in 1913 and allowed oil companies to deduct 5% of oil production income from their taxes. In 1926, Congress raised it to more than a quarter of income (27.5%). Senator Connally, who sponsored the bill, later admitted, “We could have taken a 5 or 10 percent figure, but we grabbed 27.5 percent because we were not only hogs but the odd figure made it appear as though it was scientifically arrived at.”

Since the depletion allowance is based on what is produced, not the cost of a drill site, in many cases total tax deductions can exceed initial costs. Today, the allowance has been removed for large producers and reduced to 15% for small oil producers.

In contrast, the production tax credit, which was a per-kilowatt-hour subsidy for generating wind power, was phased out at the end of 2019. Solar subsidies for consumers come in the form of a tax rebate, making solar panels impossible for those who cannot afford the upfront cost of installation or who do not file for income tax.

This is to say nothing of all the informal subsidies that the fossil fuel industry receives in the form of interstate highways, car-centric urban planning, and defunded rail and public transportation. When it comes to transit, prioritizing car infrastructure effectively eliminates choice for many people. When the bus comes once an hour, if at all, a car becomes a necessity for getting anywhere on time. If someone was presented with a free, accessible, and frequent bus in a city where cars are only allowed on certain streets, versus the cost of owning and maintaining a car, which do you think most people would “choose?”

Subsidies are rigging the game for failing fossil fuel companies

While many politicians want people to believe that fossil fuels are good for jobs and the economy, the fossil fuel industry is facing a host of challenges. New solar and wind power is today cheaper than new coal, nuclear and natural gas projects. There is a persistent myth that fossil fuels remain dominant because of the market. But markets do not exist in a vacuum; all markets are guided and regulated by government and institutions, and both play a vital role in determining which businesses and products succeed and which do not.

The government is paying the fossil fuel industry in the form of subsidies, and the industry in turn is ruthlessly lobbying politicians on both sides of the aisle to keep these subsidies and to prioritize fossil fuels ahead of any alternatives. True invisible-handers believe the market will somehow find a solution for climate change in spite of all this, but the “free market” has already been co-opted by polluters. The market incentives them to continue polluting.

Without subsidies, oil and gas would be even less attractive on the market compared to renewable energy options. Oil and gas companies today are struggling, not only because the future of their product is in jeopardy due to climate change, but also because the COVID-19 pandemic has caused oil prices to hit record lows. And they are not creating jobs. According to a report by the accounting firm Deloitte, over 100,000 oil and gas jobs have been lost due to the COVID-19 pandemic and most are not coming back anytime soon. Can someone inform the Republicans that the government is spending tax dollars on an inefficient industry that doesn’t create jobs and is overall a drain on society?

If our economy and markets only function when we’re producing and consuming toxic substances, then there is something fundamentally wrong with the system. The solution is to change our market systems and incentives, not become slaves to the “whims” of the market, which we know is controlled through decisions made by governments to favor corporate interests.

An energy transition is necessary, possible and popular

Voters want renewables, so elections aren’t the obstacle to our energy transition. A Fox News poll found that 68% of voters favor increasing government spending on green and renewable energy. Our energy transition is failing because our governments refuse to take action and are being held hostage by fossil fuel lobbyists.

Republicans and moderate Democrats ask, “Where will the money for the Green New Deal come from?” We can start by generating up to $20 billion in tax revenue through the elimination of fossil fuel subsidies. Right now, the fossil fuel industry is on corporate welfare life-support. If we are to avert climate catastrophe, the Biden presidency must end these subsidies immediately and instead provide meaningful financial support for renewable energy.

The sky was an apocalyptic color over large swaths of the country last summer on top of a record breaking Atlantic hurricane season. There is no time to wait. We at the Sunrise Movement demand Biden do what is needed and end fossil fuel subsidies as soon as possible.