United States: Fossil Tax Breaks
Photograph by George Steinmetz, National Geographic
Drilling rigs are seen here lying in wait in Cheyenne, Wyoming, in 2001, but they've had little time to idle in recent years. The United States is amid an oil and natural gas boom, and its dependence on foreign energy imports is the lowest in 16 years.
(Related: "U.S. Oil Fields Stage "Great Revival," But No Easing Oil Prices")
Economists and historians will likely debate for years the reasons for this revival: How much was due to favorable free market conditions—and how much due to a helping hand from government?
Case in point: Texas, birthplace of the shale gas boom, bestowed more than $1 billion in state severance tax exemptions on the natural gas industry in 2010, according to a survey of fossil-fuel subsidies in OECD member countries.
Although most developed countries do not have the kind of direct and universal consumption subsidies seen in the big oil-exporting nations, tax breaks and other supports lessen the cost of production and consumption. In 2009, the G20 ("the group of 20" nations including the largest economies in the world), committed to phasing out these subsides. But no one had ever catalogued just how large this burden was. So OECD embarked on a first-of-its-kind inventory, and last fall produced its first reports. Although the OECD cautioned that the value and budget impact of subsidies varies widely from state to state (and did not even total the figures), the United States had the largest supports, totaling about $15 billion in 2010.
With G20 leaders meeting today in Los Cabos, Mexico, environmentalists around the world plan demonstrations and a "twitterstorm" to raise awareness of fossil fuel subsidies. But global economic woes are likely to dominate the summit agenda.
U.S. tax breaks, such as the expensing of exploration and development costs, make up about $5 billion of U.S. fossil fuel subsidies. President Barack Obama's proposed 2013 budget would eliminate many of these, yet the proposed cuts are likely to be met with resistance in Congress. Measures that favor home-grown fossil fuel are a tradition as old as the American Republic. Soon after Congress was established and George Washington was sworn in as the first president in 1789, lawmakers enacted a 10 percent tariff on imported coal to give the domestic industry a leg up over British producers; it was the first U.S. fossil-fuel subsidy, but far from the last.
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