Fossil-fuel firms receive US subsidies worth $31bn each year, study finds

The US currently subsidizes the fossil-fuel industry to the tune of nearly $31bn per year, according to a new analysis.

That figure, calculated by the environmental campaign group Oil Change International, has more than doubled since 2017. And it is likely a vast understatement, due to the difficulty of quantifying the financial gains from some government supports, and to a lack of transparency and reliable data from government sources, the group says.

These handouts pose a massive barrier to decarbonization, says the new report, which experts have long warned is urgently necessary to avert the worst consequences of the climate crisis.

“These subsidies allow for new production that would not otherwise occur,” said Collin Rees, US program manager at Oil Change International and the primary author of the new analysis. “They also, to an enormous extent, go to lining the pockets of shareholders and investors and fossil fuel executives.”

For the analysis, Oil Change International totaled up tax breaks, lower rates to acquire land and other resources, direct appropriations, and other financial support from the US and government-funded groups, using the definition of fossil fuel subsidies established by the World Trade Organization.

All told, US subsidies allow the sector to receive stunning 30,000% returns on investments, the authors found.

The Guardian has contacted the American Petroleum Institute, the nation’s fossil-fuel lobbying group, for comment.

Among the biggest subsidies the US offers oil companies, the report found, is a federal tax rule allowing corporations to credit taxes and royalties they pay to foreign governments on overseas income against their domestic tax bills, to avoid being taxed twice.

Another major support measure is a tax credit for capturing carbon, which is often framed as a climate solution but is primarily used to extract hard-to-reach reserves in a practice known as enhanced oil recovery.

Amid pressure from campaigners and United Nations climate experts, at least 53 countries reformed their fossil-fuel subsidies between 2015 and 2020, according to the Swiss research group Global Subsidies Initiative.

In 2021, Joe Biden also vowed to begin eliminating subsidies for planet-heating energy sources.

“Unlike previous administrations, I don’t think the federal government should give handouts to big oil,” Biden said following his inauguration in 2021.

Yet the US is moving in the wrong direction on the issue, the new report found: Trump’s signature tax-and-spend bill, which the president signed in July, is poised to hand fossil-fuel companies an additional $4bn per year across the next decade, the analysis found.

Among the biggest supports for the oil industry in the megabill are expanded credits for carbon capture and a lowering of already sub-market royalty rates for coal, oil and gas production on public lands. Those enhanced supports could end up being even more valuable to the oil industry in later years, Rees says.

Another provision in the bill, for which oil companies lobbied, can allow those companies to avoid the corporate minimum tax which Biden established during his presidency.

Redirecting all US fossil-fuel subsidies to social programs could vastly improve life for ordinary Americans, the report says, for instance by providing 3 million families with Snap benefits annually, helping 54 million households install solar panels within a decade, or sending 3 million children to Head Start early learning programs.

Though US government supports for fossil fuels are esoteric and complex, they have massive implications for the nation’s relationship with polluting energy companies, said Rees.

“We’re dealing with technical legislative language and components of the tax code, but despite that, I think it’s important to understand that subsidies are political statements,” he said. “They are political choices about what we’re choosing to support as a country.”