It’s a welcome move for environmentalists and Democrats, who have long requested an end to fossil fuel subsidies. In fact, a clean energy tax proposal promoted by Democrats on the Senate Finance Committee late last month aims many of the same favorable provisions for oil and gas firms as Biden.
However, oil and gas organizations say removing those tax provisions would be a tremendous blow to the industry, particularly for smaller producers operating on thin profit margins. The effect would be even bigger when coupled with regulatory moves such as Biden’s leasing pause and other budgetary fiscal provisions that propose boosting taxes on fossil fuel companies, according to the groups.
“It’s, by our calculation, a $143 billion targeted tax increase on our industry, which is the largest offered by any president in their budget proposal by far,” stated Aindriu Colgan, tax and trade policy manager at the American Petroleum Institute.
“It’s roughly six times as much as all of the net corporate tax cuts in the [Tax Cuts and Jobs Act] combined,” he went on, referring to legislation passed throughout the Trump administration that cut the corporate tax rate.
Biden’s fiscal year 2022 budget request would scrap 13 tax provisions especially benefiting the fossil fuel industry. Overall, the Treasury Department estimates excluding the provisions would save the federal government $35 billion over 10 years.
“These oil, gas, and coal tax preferences distort markets by encouraging more investment in the fossil fuel sector than would occur under a more neutral tax system,” the Treasury Department announced in a document describing the budget’s revenue proposals.
The agency further said that the market distortion is “detrimental to long-term energy security and also inconsistent with the Administration’s policy of supporting a clean energy economy, reducing our reliance on oil, and reducing greenhouse gas emissions.”
The dismissal of the fossil fuel tax provisions is part of Biden’s proposal to distinctly boost spending to check climate change as part of his infrastructure plans and the broader budget. That includes extending and expanding tax incentives for renewable energy, carbon-free nuclear power, carbon capture and storage, and additional clean energy technologies.
Environmentalists and some environmental economists see eliminating the fossil fuel tax breaks and sustaining clean energy tax incentives as two sides of the same coin.
The fossil fuel tax breaks were “designed for a time period when it was considered in the national interest to promote more fossil production domestically for national security reasons,” announced Matthew Kotchen, a professor of economics at Yale University.