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Report: Subsidies Tilting Scale Toward More Drilling

Researchers say nearly half of all known U.S. oil reserves are dependent on subsidies. (Natalie Maynor/Flickr)
Researchers say nearly half of all known U.S. oil reserves are dependent on subsidies.
(Natalie Maynor/Flickr)
October 9, 2017

LINCOLN, Neb. -- As Washington grapples with rebooting the nation's tax code, a new report makes a compelling argument for eliminating tax breaks for the fossil fuel industry.

Peter Erickson, senior scientist and the study's lead author, said market forces - like current oil prices - would prevent industry from tapping reserves that scientists warn need to stay in the ground to prevent the most catastrophic impacts of climate change. But taxpayer-funded subsidies are tilting the scale in favor of more drilling.

"Just these subsidies that we looked at would bring on about 6 (billion) or 7 billion tons of CO2,” Erickson said. "That's about 20 percent of all the oil that we could produce between now and 2050."

The study, by the Stockholm Environment Institute and Earth Track, found nearly half of all known U.S. oil reserves are dependent on subsidies.

Erickson explained pollution from those reserves would put a big dent in the nation's carbon budget, the total amount of fuel that can be burned while keeping global temperatures below dangerous levels. Industry groups have argued that tax breaks are necessary to keep and create jobs.

Researchers found that when oil prices are down, tax breaks prop up returns for investors. And Erickson said when prices go up, the subsidies flow directly into a company's overall profits.

"These dollars are not going to greater wages or to greater jobs,” Erickson said. "Most of the value of these subsidies goes directly to corporate profits, over and above what they already need in order to employ people on the ground."

He said tax breaks could be used to create jobs in industries with better long-term prospects. He pointed to last week's announcement by General Motors to switch to 100 percent electric vehicles, and China's decision to ban cars that use diesel.

"The way we structure our tax code really reflects our priorities as a country,” Erickson said. "Are we going to subsidize things that give us a better future, or are we going to subsidize the old industries that are creating lots of pollution?"

The prospect for cutting subsidies remains uncertain. A separate report by Oil Change International found that in the 2015-2016 election cycle, oil, gas and coal companies invested $354 million in campaign contributions and lobbying, and got nearly $30 billion in federal subsidies - a return of more than 8,000 percent.

Mary Kuhlman, Public News Service - NE