In 2021, American taxpayers supported the US fossil fuel industry to the tune of at least $9.5 billion, according to the Fossil Fuel Subsidy Tracker, a platform monitoring such trends.

Yet despite repeated calls for their removal, tax breaks for companies that the nation depends on for energy and fuel — and whose products account for most US greenhouse gas emissions — are unlikely to be going away anytime soon.

"It's extremely difficult to make headway on this," Michael Ross, a political science professor with the University of California, Los Angeles, said in an interview. "It's much easier to block changes than to enact them and to play defense than offense when it comes to changing the tax code."

President Joe Biden views the tax breaks as money lost for the US Treasury and as undermining his efforts to cut dependence on fossil fuels. The president is again proposing to phase out a host of subsidies in the US tax code that benefit oil and gas companies.

The White House projects in its 2024 budget proposal that the subsidy repeals would boost federal tax receipts by $31 billion over 10 years. The largest subsidy, known as the "percentage depletion" for oil and gas wells, has been on the books since 1926.

Democrats in the US House and Senate are also pushing legislation to sunset such tax provisions.

"We no longer need to promote more fossil fuel developments with tax breaks — oil is one of the most profitable products on the planet," US Rep. Earl Blumenauer said. In March, the Oregon Democrat reintroduced his End Oil and Gas Tax Subsidies Act, legislation he has sponsored several times over the past decade.

Blumenauer said in an interview that no Republican has come out in support of the bill and he does not expect the GOP-controlled US House to allow it to go to a vote. "It's not going to be easy, but one day the stars will align and we'll eliminate this waste of public money that makes the planet worse."

Subsidies on the rise

Like elsewhere in the world, US support for natural gas, petroleum and end-use electricity generated by coal and natural gas-fired plants rose in 2021, according to the most recent data available on the Fossil Fuel Subsidy Tracker. The platform is managed by the Organisation for Economic Co-operation and Development and the International Institute for Sustainable Development. It relies on data from several sources that track such subsidies.

Only the coal industry saw a dip in subsidies in 2021 in the US, likely because the country's fleet of coal-fired power plants continues to shrink. The coal industry still captured nearly $3.6 billion in tax breaks between 2019 and 2021, the data shows.

Estimates for subsidies vary widely depending on the methodologies used and how a subsidy is defined. The Fossil Fuel Subsidy Tracker cautions that it may be underestimating total subsidies because capturing and quantifying all the support that fossil fuel industries get through taxes or other government support is difficult.

Sen. Bob Menendez (D-NJ) projected when he first introduced his Close Big Oil Tax Loopholes Act back in 2010 that it would eliminate more than $21 billion in subsidies from the five largest US oil and gas companies over 10 years. He reintroduced the bill in November 2022 along with a second bill known as the Use it or Lose it Act. The latter would impose fees on oil and gas operators that do not make use of their leases on federal land.

A Republican filibuster killed Menendez's original "loopholes" bill in 2010, and there is no more appetite for such reforms today, observers said.

"You have two political parties that cannot agree on anything, and here you need the House, the Senate and the president united on a controversial topic," Johannes Urpelainen, a professor at Johns Hopkins University and a nonresident senior fellow with the Brookings Institution's Center on Regulation and Markets, said in an interview. "And there are a lot of states that are still quite dependent on fossil fuels."

Proposed tax reforms 'penalizing' industry

As in years past, the oil and gas industry has come out fighting against efforts to cancel tax benefits they say companies need and deserve.

Aindriú Colgan, the American Petroleum Institute's director of tax and trade policy, said the term "subsidy" is a pejorative term suggesting that US oil and gas companies are getting government handouts when they are just using tax breaks similar to what other industries get.

"I think the majority of the American public is uninterested in penalizing an industry that has provided them with low-cost power to help reduce their energy and fuel bills," Colgan said in an interview. "Keep in mind that our industry also is pouring billions of dollars a year into carbon capture and sequestration, hydrogen, biofuels, sustainable aviation fuels and so on. Removing expensing provisions will limit the amount of money they can invest in these new technologies."

The most significant tax breaks for the oil and gas industry that would go away under Biden's proposed budget are the so-called "percentage depletion deduction," which would save taxpayers nearly $14 billion over 10 years, according to White House estimates. Doing away with "intangible drilling cost expensing" would save another $8.5 billion over 10 years.

Critics of the tax breaks say they make little sense for an industry that raked in record profits in 2022.

"There's been so much talk about reducing the national debt; this could be a way to increase our tax revenue," Sujatha Bergen, a health campaigns director for the Natural Resources Defense Council, said in an interview. "It's a very commonsense solution from almost every vantage point except for the fossil fuel industry. But I think we have our work cut out for us, especially in this Congress."

Global pledges fail to deliver

The International Monetary Fund, International Energy Agency, World Economic Forum, G-7, G-20 and leading economists have said for years that fossil fuel subsidies must go. In late 2021, nearly 200 nations agreed at the climate summit in Glasgow, Scotland, to the "phase-out of inefficient fossil fuel subsidies."

But such commitments soon took a backseat after Russia threw energy markets into disarray with its invasion of Ukraine, prompting policymakers to intervene to keep consumer prices in check.

By 2022, global fossil fuel consumption subsidies had doubled from 2021 to reach an all-time high of more than $1 trillion, the International Energy Agency reported in February. The agency does not yet have country-level data for 2022.

Some research suggests that climate-minded policymakers may have more success focusing on promoting alternatives to fossil fuel sources than on controversial subsidy reforms.

Ross, the UCLA professor, recently co-authored a National Academy of Sciences study exploring why policymakers have difficulty removing subsidies and taxes for gasoline, using data from 155 countries spanning 1990 to 2015. He and the other researchers found that 87% of subsidy reforms were reversed within five years because of consumer protests, rising oil prices or other challenges.

When it comes to the tax breaks for US oil and gas companies that Biden and the Democrats in Congress are targeting, the effects on consumers would be less obvious, Ross said.

"If there are taxes on pumping oil, people aren't going to see those directly," Ross said. "They'll be largely diffused through the supply chain."

Even so, Ross predicted that companies will fight any effort to raise their tax burden and will find ways to block changes in the tax laws. Instead, the market will eventually change the dynamics, Ross and other experts predicted.

Fossil fuel tax subsidies will gradually go away as the world shifts to less carbon-intensive resources, Urpelainen said, "but I think it's going to be a very slow process."

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