Despite a high-profile pledge from U.S. President Joe Biden’s to eliminate US$31 billion in fossil fuel subsidies, the country’s oil and gas industry is still lining up for billions in financial support under the national climate plan it once opposed.
Biden included the subsidy measure in a US$6.9-trillion budget plan, released Thursday, that was immediately interpreted as a challenge to congressional Republicans and the opening lines of Biden’s re-election pitch.
“The President is committed to ending tens of billions of dollars of federal tax subsidies for oil and gas companies,” the White House said in a budget fact sheet. The proposal “saves $31 billion by eliminating special tax treatment for oil and gas company investments, as well as other fossil fuel tax preferences.”
The Reuters news agency estimates total fossil subsidies in the U.S. at $10 to $50 billion per year.
But oil and gas companies still stand to gain billions of dollars in subsidies under Biden’s signature climate legislation, the 2022 Inflation Reduction Act, the Financial Times writes.
Although the bill mostly funds a vast, ambitious menu of energy efficiency and renewable energy manufacturing and deployment efforts, it “also includes generous incentives for a set of lower-carbon technologies and fuels where oil and gas executives argue they hold a big advantage,” the Times explains. “Oil companies are starting to plough cash into projects to capture and lock away carbon dioxide, to retool refineries for making biofuels, and produce low-emission hydrogen, all supported by the IRA’s green subsidies.”
And there’s been no indication the administration is tampering with the controversial Section 45Q tax credit [pdf], a controversial subsidy for carbon capture and storage (CCS) technology that was strengthened under the IRA.
“The oil industry and the coal industry see this as a way to keep their industries going,” David Schlissel, an analyst with the Institute for Energy Economics and Financial Analysis, told The Energy Mix in March, 2021. “So they green-wrap it as a way to save produced CO2.”
Now, after the U.S. fossil lobby initially opposed Biden’s climate plan, “oil companies are moving into position to take advantage of the IRA,” and “analysts expect activity to accelerate, both as a growth opportunity and a way for companies to soothe investor concerns about the industry’s future amid a push to decarbonize the economy,” the Financial Times says. “Big oil companies with sizeable tax liabilities could also underpin green energy development by buying other groups’ clean energy tax credits, which are now transferable under the IRA.”
“I think we’re very well positioned there,” ExxonMobil CEO Darren Woods told investors last month. “This is not a game for start-ups. These are large, world-scale projects that require the kind of project expertise that we have, require the kind of size and balance sheet capacity that we have.”
Thursday’s budget measure “would repeal a host of credits that oil giants currently enjoy such as an enhanced oil recovery credit [and] a credit for gas produced from marginal wells,” Yahoo! Finance reports. “The proposal would also touch other areas important to the energy sector from drilling costs and geological amortization to expensing of mine exploration costs.”
Ending a tax credit that recognizes the depletion of oil and gas wells would save U.S. taxpayers nearly $14 billion over 10 years, the news story states.
The White House fact sheet chided U.S. fossil companies for failing to invest in their own operations, despite astronomical profits over the last year.
“Even as they benefit from billions of dollars in special tax breaks, oil companies have failed to invest in production,” it said. “In 2022, they realized record profits and cut their investment as a share of operating cash flows to the lowest levels in decade, while undertaking record stock buybacks that benefited executives and wealthy shareholders.”
The fossil industry pushed back on the subsidy cut, with the Independent Petroleum Association of America calling it a “direct attack on America’s smaller independent producers who develop most of the nation’s gas and oil wells.”
“if I were from Texas, I would describe this as a mom-and-pop oil company subsidy and if this didn’t exist, they would be driven out of the business by the big companies,” agreed Peter Van Doren, a senior fellow at the libertarian Cato Institute. “That’s probably actually true, but does this change the price of gasoline for consumers? And the answer is no.”
Some news analysis pointed out that the White House budget is just a proposal, not a measure the Biden administration has the authority to pass without support from both the House of Representatives and the Senate. Yahoo! Finance says Republicans have already signalled the package “is going nowhere on Capitol Hill,” while oilprice.com writes that the fossil subsidy measure “does not exactly stand a great chance of succeeding in Congress given Republicans’ weight after the latest midterms.”
But the budget proposal will still be “very much in character for this administration, which has targeted the oil and gas industry for being an oil and gas industry, then for not producing enough oil, and most recently for booking record profits on last year’s price surge and not investing these in more production,” the oilprice post complains.
In Ottawa, a leading climate and energy transition organization urged Finance Minister Chrystia Freeland to follow Biden’s lead in her upcoming federal budget.
“The Government of Canada has promised to eliminate all fossil fuel subsidies, not just tax breaks. Yet the government continues to funnel tens of billions of dollars to oil and gas companies,” resulting in nearly $2 billion in foregone revenue each year, Julia Levin, associate director, national climate at Environmental Defence Canada, said in an emailed statement.
“Minister Freeland should borrow a page from Biden’s playbook and make sure her upcoming budget eliminates all tax subsidies for oil and gas companies.”