Effect of subsidies to fossil fuel companies on United States crude oil production

Attributed Authors: Peter Erickson, Adrian Down, Michael Lazarus and Doug Koplow Published: Oct 2017

Countries in the G20 have committed to phase out ‘inefficient’ fossil fuel subsidies. However, there remains a limited understanding of how subsidy removal would affect fossil fuel investment returns and production, particularly for subsidies to producers. Here, we assess the impact of major federal and state subsidies on US crude oil producers. We find that, at recent oil prices of US$50 per barrel, tax preferences and other subsidies push nearly half of new, yet-to-be-developed oil investments into profitability, potentially increasing US oil production by 17 billion barrels over the next few decades. This oil, equivalent to 6 billion tonnes of CO2, could make up as much as 20% of US oil production through 2050 under a carbon budget aimed at limiting warming to 2 °C. Our findings show that removal of tax incentives and other fossil fuel support policies could both fulfill G20 commitments and yield climate benefits.

The study covers some new ground methodologically.  Rather than reporting just the aggregate national figures for the costs of subsidies, we were able to do highly granular assessments of eligibility for particular fields and integrate multiple types of subsidies from both state and federal governments into our assessment of subsidy impacts. 

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Tags: oil subsidies, hurdle rate, subsidy dependency, climate change