Biden's tax plan goes after the little fossil fuel subsidies, but not the big ones
(If you’d rather listen than read, just click play above.)
President Joe Biden has released the tax plan that is meant to pay for his $2+ trillion infrastructure plan.
You can read the New York Times for a full breakdown. The bulk of the revenue will come from a set of changes to corporate tax law, raising the corporate tax rate from 21 to 28 percent, imposing a minimum tax on global profits, and discouraging offshore tax havens.
All that stuff is great. I just want to say a few quick things about one of the provisions, which would roll back various fossil fuel subsidies in the tax code.
In one sense, this is cool, and a big deal insofar as Democrats can actually do it — they’ve been trying for years, to no end.
But in another sense, it reveals that the hue and cry over fossil fuel subsidies in the US is somewhat of a tempest in a teapot, more a political symbol than a real source of revenue or decarbonization.
Direct US fossil fuel subsidies aren’t that big in the grand scheme of things
The administration projects that closing oil and gas tax loopholes will raise $35 billion over the coming decade.
That’s 1.4 percent of Biden’s $2.5 trillion in tax-plan revenue.
A Treasury Department report from the administration says: “The main impact would be on oil and gas company profits. Research suggests little impact on gasoline or energy prices for U.S. consumers and little impact on our energy security.” (It cites this study.)
There are two reasons the changes would have “little impact on gasoline or energy prices.” The first is that oil is a globally traded commodity, with prices set globally — a US company can’t raise its prices without losing out on the global market. So it eats any extra cost as slightly lower profits.
But the second is that $35 billion over 10 years just isn’t that much money. Even in 2020, a truly shitty year for US oil companies, Exxon made revenues of $181 billion. That was down 31.5 percent from $265 billion in 2019. For companies with revenues in the hundreds of billions, experiencing market swings of $85 billion a year, an extra $3.5 billion a year spread out over the whole sector just isn’t going to register much.
Last year, Rep. Ilhan Omar (D-Minn.) and Sen. Bernie Sanders (I-Vt.) introduced the “End Polluter Welfare Act,” which takes a much more expansive view of what counts as a fossil fuel subsidy and pulls together $15 billion a year in tax changes. That would be $150 billion over the next 10 years — 6 percent of the revenue Biden’s plan will raise.
(This even-more-aggressive study from Oil Change International found $20 billion a year in subsidies, though the oil and gas industry hotly contests some of the choices it made.)
The point is, to get to real revenue, you have to bring in indirect fossil fuel subsidies.
The big fossil fuel subsidies are the externalities
When Greenpeace says that US fossil fuel companies get $62 billion a year in subsidies, it refers to this study, which examines what it
