Progressive Caucus Presses for End to Fossil Fuel Subsidies

As Congress drafts reconciliation legislation, leaders of the Congressional Progressive Caucus (CPC) pressed leaders of the U.S. House of Representatives for an end to major fossil fuel subsidies that fuel pollution in communities across the country. 

The letter, signed by CPC Chair, Rep. Pramila Jayapal (D-Wash.), CPC Deputy Whip, Rep. Ro Khanna (D-Calif.), and other CPC leaders comes after more than 50 Members of Congress urged leadership to include the repeal of fossil fuel subsidies in the Build Back Better Act.

“Fossil fuel subsidies should be repealed because, instead of enhancing American energy independence or creating jobs, they simply enhance the profits of fossil fuel companies,” the members wrote.

It is hard to believe—inconceivable, really—that as the world burns and floods all around us in an unprecedented climate crisis, U.S. taxpayers are still subsidizing oil and gas companies to the tune of billions of dollars a year.  Collectively, these giveaways amount to some $188 billion over ten years.

We are literally paying polluters to harm us.

The average taxpayer may not realize that this pattern, which dates back more than a century, of giving the industry a special boost, continues today, even as the industry poisons our communities and fuels harm all over the globe.

We can stop helping industry do harm.

The top 10 U.S. oil and gas companies are worth more than $700 billion.  Despite their wealth, fossil fuel companies have long benefitted, at the taxpayer’s expense, from a host of special provisions in the U.S. tax code that lower the cost of doing business and raise their profits. Recognizing this unfair advantage, the U.S. Department of Treasury has said that these tax preferences ‘distort markets by encouraging more investment in the fossil fuel sector than would occur under a more-neutral tax system.’

Right now, Congress has a real opportunity to get rid of these handouts

A proposal in the House, as part of the reconciliation markup, would eliminate tax giveaways to a handful of oil and gas companies that are currently exempt from paying U.S. taxes on revenue earned abroad.  The proposal would also close a loophole that allows the oil and gas industry to escape excise taxes that pay for hazardous waste cleanup

But we can’t seriously transition to a clean future until Congress eliminates a raft of additional ‘fossil fuel freebies’ that fuel harmful pollution right here at home.   Eliminating just three subsidies - that allow oil and gas companies to deduct much of the cost of drilling a well in the U.S. and then recoup costs while pumping - would generate more than $27 billion over the next 10 years for critical public priorities.

Senator Ron Wyden’s (D-OR) Clean Energy for America Act would end the largest of these subsidies, and the U.S. Senate should make sure these proposals are included in its final reconciliation legislation.  House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer have also called for eliminating these handouts.  [See Schumer video at 26:15]

How These Subsidies Work

Three of the biggies include:

The “Intangible Drilling Costs” Deduction – More than a hundred years ago, Congress gave oil and gas companies special tax treatment as an incentive to explore for and develop oil wells.  It lets them immediately deduct the costs.  Getting rid of this benefit would return nearly $10 billion dollars over the next ten years.

“Percentage Depletion” – This freebie basically means taxpayers are paying oil companies to drill.  It lets oil, gas and coal companies deduct a flat percentage of the income they generate from a well (15 % of gross income from production) instead of deducting based on how much money they’ve invested in a well over its lifetime, or how much the well is worth.  The more they drill, the more they can deduct.  Again, this giveaway amounts to some $10 billion over 10 years. 

“Enhanced Oil Recovery” – When oil prices are low, companies can receive a tax credit for pumping oil and gas that cannot be recovered by gravity or water.  These ‘enhanced’ techniques are associated with pollution and will amount to $7.8 billion over the next ten years. 

As climate change-fueled wildfires burn across the west and hurricanes flood the east, it is well past time for Congress to stop funneling taxpayer dollars to oil and gas companies and supporting the pollution that devastates our communities and jeopardizes our climate.

About the Authors

Sujatha Bergen

Director, Health Campaigns, Health and Food Division

Anne Hawke

Senior Press Secretary, Federal Communications

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