Category Archives: Fossil fuel subsidies

‘Stealth Bailout’ Shovels Millions of Dollars to Oil Companies – Valero gets $110 million in pandemic giveaway

Photographer: Vincent Mundy / Bloomberg

Bloomberg News, By Jennifer A Dlouhy, May 15, 2020

  •  Stimulus tax change helps translate losses into instant cash
  •  Oil companies are uniquely poised to benefit, analysts say

As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.

The rig operator is one of dozens of oil companies and contractors now claiming hundreds of millions of dollars in tax rebates. They are employing a provision of the $2.2 trillion stimulus law, called the CARES act, that gives them more latitude to deduct recent losses.

“This is a stealth bailout for the oil and gas industry,” said Jesse Coleman, a senior researcher with Documented, a watchdog group tracking the tax claims. It’s geared to companies “that have been losing money over the last few years — and now they get that money back as a check from the taxpayers. That’s exactly what the oil industry has been doing.”

relates to ‘Stealth Bailout’ Shovels Millions of Dollars to Oil Companies
Electronic drilling with cyber chairs Source: Diamond Offshore Drilling Inc.

The change wasn’t aimed only at the oil industry. However, its structure uniquely benefits energy companies that were raking in record profits in 2018 as crude prices reached $76.41 per barrel, only to see their fortunes flip a year later.

More than $1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms and contractors, according to a Bloomberg News review of recent filings with the Securities and Exchange Commission. Besides Diamond Offshore, which declined to comment, recipients include oil producer Occidental Petroleum Corp. and refiner Marathon Petroleum Corp.

Read More: Occidental Seeking Federal Lifeline For U.S. Oil Industry

Other oil companies say they didn’t lobby Congress for the change, which is widely available across all industries. “We did not request any benefit, but we are obligated to follow the tax laws as passed by Congress, which apply to all corporate manufacturers nationwide,” said Jamal Kheiry, a spokesman for Marathon, which got a $411 million benefit.

Congress embedded the tax change governing losses in the stimulus measure early on, as lawmakers moved rapidly in March to steer trillions of dollars in aid to coronavirus-ravaged workers and companies. Alongside expanded unemployment payments and payroll loan programs, lawmakers saw an opportunity to harness the tax code to help get cash flowing to companies struggling to pay rent, workers and insurance.

It “was sold as help for the little guy — help for small business,” said Steve Rosenthal, a senior fellow with the Urban-Brookings Tax Policy Center. “In the name of ‘small business,’ we’re shoveling out billions of dollars to big corporations and rich guys.”

The provision loosened rules governing how businesses deduct net operating losses — incurred when deductible expenses exceed gross income. For years, companies were able to apply those net operating loss deductions to previous tax returns as well as going forward — but Congress ruled out retroactive relief as part of the 2017 tax cut law.

Tax Law Changes May Limit Benefits of New Loss Carryback Perk

That new forward-focused approach works well when the economy is expanding, but the promise of using today’s losses as tomorrow’s deductions isn’t much help to coronavirus-battered companies with no guarantee they will survive long enough to claim them. So in the stimulus package, Congress gave businesses the chance to carry back all their losses — and claim immediate tax refunds — for five years from 2018, 2019 and 2020.

“The thought was temporarily we should bring them back so that firms that are seeing significant losses in the next year or over the past year or two can carry those back and get some short-term liquidity,” said Garrett Watson, a senior policy analyst at the Tax Foundation, a non-profit that supports pro-growth tax policies.

Traditionally, the ability to deduct net operating losses is meant to ensure companies get fair tax treatment even amid volatility, Watson said — a plus for the notoriously boom-and-bust oil industry. “You are going to see the biggest benefits for firms like oil and gas that are seeing volatile profits — and now, of course, extreme losses,” he said.

The combination of big losses now and the congressional tax changes mean it may be years before some oil companies have to pay corporate income taxes at all.

“We’re going to have some large losses this year,” ConocoPhillips Executive Vice President Don Wallette said in an April 30 earnings call. The company is in “a zero-tax-paying position in the U.S. and expect to remain there for quite some time,” Wallette said.

There’s no limit on how the new refunds can be used — and even bankrupt firms can get them.

Oil for Less Than Nothing? Here’s How That Happened: QuickTake

Consider Diamond Offshore. Once one of the world’s largest drilling rig contractors, it filed for Chapter 11 bankruptcy protection on April 26 after crude prices plunged along with demand for its high-tech drillships.

In a first quarter filing, Diamond, which is majority owned by Loews Corp., said it had recognized a tax benefit of $9.7 million as a result of the carryback change. In an emergency motion filed with a federal bankruptcy court May 1, the company asked for the freedom to dole out $16.7 million in cash incentives to 85 of its 2,300 full-time employees, including as much as $9.7 million for nine senior executives.

The company said at the time that deteriorating market conditions and the collapse of Diamond’s stock had made its existing equity-based bonus program “largely worthless.” The tax filing did not specify how the $9.7 million would be used.

Dozens of other oil businesses have reported reaping the benefits, including $55 million for Denver-based Antero Midstream Corp., $41.2 million for supplier Oil States International Inc. and $96 million for Oklahoma-based producer Devon Energy Corp.

Occidental Petroleum, which enlisted its employees to ask Congress to “provide liquidity to the energy industry,” said it now anticipates a cash refund of about $195 million as a result of the carryback provision and a separate change in the stimulus bill that allows the immediate refund of unused alternative minimum tax credits. An Occidental spokesperson declined to comment.

Millions in Refunds
National Oilwell Varco Inc., a manufacturer of oil and gas equipment, expects a $123 million refund by carrying back its 2019 losses and applying them to its 2014 tax filing.

San Antonio-based refiner Valero Energy Corp. recognized an extra $110 million by carrying back losses to 2015 — when the corporate tax rate was 35% instead of the current 21%.

Valero spokeswoman Lillian Riojas said that is tied to tax losses generated in the first quarter, since the company did not generate a net operating loss for federal income tax purposes in 2018 or 2019. And she said the actual refund will be dependent “not only on the company’s performance for the remainder of the year, but also on the impact” of other tax provisions.

The benefits are “turbo-charged,” said Rosenthal, with the Urban-Brookings Tax Policy Center. That’s because businesses can carry back losses to offset income at a higher corporate tax rate of 35%, before the 2017 tax cut law lowered it 14 points. “Getting those losses at 35% is very, very favorable — especially in 2020 when the losses are going to be devastatingly large.”

The filings themselves reveal only part of the picture. Private companies are able to generate tax refunds too — without disclosing it to the SEC. And while some public companies said they benefited from the tax break, they didn’t reveal by how much.

For instance, refiner Phillips 66 boasted an effective income tax rate of just 2% for the first quarter — well below the federal statutory income tax rate of 21% — partly because of the carryback. But the company did not specify the amount of its expected refund.

House Democrats Unveil $3 Trillion Aid Bill With Cash for States

Dennis Nuss, a spokesman for Phillips 66, declined to comment when reached by phone Thursday. Representatives for Oil States, National Oilwell Varco, Antero and Devon didn’t respond to messages seeking comment.

The importance of the provision hasn’t been lost on President Donald Trump’s administration. Energy Secretary Dan Brouillette recommended oil companies consider taking advantage of the expanded deduction in an April 21 interview with Bloomberg TV, calling it one of several “important liquidity tools that are going to help the industry.”

Congressional tax analysts initially estimated that the expanded loss carryback provision would cost $25 billion over 10 years — just when used by corporations. Now, some are questioning whether the final pricetag could be much higher, and Democrats are seeking to limit the value of the tax break after raising concerns it overwhelmingly helps corporations and the wealthy.

In a new stimulus bill advanced Tuesday, House Democrats proposed scaling back the provision so companies could only apply losses back to 2018. Their plan also would prevent companies with “excessive” executive compensation or stock buybacks from claiming the tax break — a change that would be retroactive back to March.

Rosenthal stressed that it was logical for Congress to help businesses that were profitable before the pandemic. “But the CARES Act goes too far, tilting its benefits overwhelmingly to the wealthiest Americans,” he said in an essay. “I think Congress did not know the extent of what it was doing.”

— With assistance by Ari Natter, Laura Davison, David Wethe, Kevin Crowley, Leslie Pappas, and Rachel Adams-Heard

Letter to Congress: Stop Coronavirus Handout to Big Oil

Center for Biological Diversity, April 23, 2020

Give Pandemic Relief to People, Not Polluters

The Center For Biological Diversity and about 300 other groups sent a letter to Congress on Monday demanding that federal relief money aimed at relieving the effects of the COVID-19 crisis be directed to people directly affected by it, not fossil fuel corporations.

The fossil fuel industry, said the letter, should be excluded from receiving loans in the next COVID-19 aid package. New bills should ensure that affected workers in that industry are provided with assistance and labor protections for weathering a job transition.

“It’s a moral outrage for fossil fuel executives to try to cash in while workers and communities suffer through a pandemic,” said the Center’s Ben Goloff, a climate campaigner. “Congress needs to protect people, not a handful of profiteering polluters.”

Tell Congress to direct taxpayer-funded COVID-19 aid only to those who need it.

Coronavirus stimulus money will be wasted on fossil fuels

Low gas prices in Old Orchard Beach, Maine, on March 30. Derek Davis/Portland Press Herald via Getty Images

Oil and gas companies were already facing structural problems before Covid-19 and are in long-term decline.

As countries across the world go into lockdown in response to Covid-19, economies are in free fall. Almost every sector is taking a hit, hemorrhaging jobs and value. And almost every sector will be shaped, for years to come, by the speed, amount, and nature of public assistance it receives. There is a finite amount of time, resources, and political will available to get economies going again; not every sector will get what it wants or needs.

In short, the decisions legislators make in response to the coronavirus crisis will have an enormous influence on what kind of economies emerge on the other side.

A few weeks ago, I wrote about what an ideal recovery and stimulus package would look like. And last week I wrote about how shortsighted it is for Republicans (enabled by learned Democratic passivity) to reject aid for the struggling clean energy industry.

In this post, I want to take a look at why it is equally shortsighted for President Trump and congressional Republicans to remain so devoted to the fossil fuel industry.

The dominant narrative is still that fossil fuels are a pillar of the US economy, with giant companies like Exxon Mobil producing revenue and jobs that the US can’t afford to do without. Even among those eager to address climate change by moving past fossil fuels to clean energy — a class that includes a majority of Americans — there is a lingering mythology that US fossil fuels are, to use the familiar phrase, too big to fail.

President Trump, flanked by House Minority Leader Kevin McCarthy, left, and Chevron CEO Mike Wirth, meets with energy sector CEOs at the White House on April 3.  Jim Watson/AFP via Getty Images

But the position of fossil fuels in the US economy is less secure than it might appear. In fact, the fossil fuel industry is facing substantial structural challenges that will be exacerbated by, but will not end with, the Covid-19 crisis. For years, the industry has been shedding value, taking on debt, losing favor among financial institutions and investors, and turning more and more to lobbying governments to survive.

It is, in short, a turkey. CNBC financial analyst Jim Cramer put it best, back in late January, before Covid-19 had even become a crisis in the US: “I’m done with fossil fuels. They’re done. They’re just done.”

“We’re in the death knell phase,” he said “The world has turned on [fossil fuels].”

Cramer’s take is not yet conventional wisdom, but he’s right. Evidence in support appears in a new report from the Center for International Environmental Law (CIEL) called “Pandemic Crisis, Systemic Decline.” Let’s walk through it.

Fossil fuels are furiously lobbying for, and receiving, largesse from the US government

The UK-based think tank InfluenceMap recently did an analysis that tracks corporate lobbying in the face of the Covid-19 crisis. It found that, across the globe, the oil and gas sector has been the most active in lobbying for interventions, seeking, as CIEL summarizes, “direct and indirect support, including bailouts, buyouts, regulatory rollbacks, exemption from measures designed to protect the health of workers and the public, non-enforcement of environmental laws, and criminalization of protest, among others.” In Canada, Australia, and the UK, the industry is arguing that it must be subsidized and deregulated in order to survive.

In the US alone, the industry is seeking access to a range of stimulus funds, relief from a variety of pollution regulations, and use of the strategic petroleum reserve to bolster prices. Journalist Amy Westervelt is tracking at least a dozen other lobbying efforts.

The petrochemical and plastics industry, which is in large part an extension of the oil and gas industry, is exploiting the crisis as well. It has lobbied the federal government to declare an official preference for single-use plastic bags and suggested that more fresh produce should be wrapped in plastic.

The virus has not slowed down the Trump administration’s attempts to assist the industry. It is gutting fuel economy standards, which, by its own estimation, will increase pollution and eliminate 13,500 jobs a year. The EPA has dramatically eased the enforcement of pollution regulations and moved forward with its “secret science” rule, which will make it more difficult to understand and address the health impacts of air pollution — and more difficult to study the coronavirus.

The petrochemical industry has lobbied the federal government to declare an official preference for single-use plastic bags.  Timothy A. Clary/AFP via Getty Images

President Trump delivers a speech on energy sector jobs at the Shell Chemicals Petrochemical Complex in Monaca, Pennsylvania, on August 13, 2019.  Jeff Swensen/Getty Images

During a supply glut driven by historically low prices, the Interior Department is rushing to lease federal land for oil and gas development, despite an anemic response, rock-bottom prices, and calls from conservative and taxpayer groups to suspend leasing in the face of the coronavirus.

The administration seems determined to bail out struggling shale gas companies, despite that overleveraged, debt-ridden sector being long overdue for a shakeout. (For more on that, check out Amy Westervelt’s reporting at Drilled.)

Trump is negotiating with Saudi Arabia and Russia on oil supply cuts, and has the Department of Energy buying up billions of tons of oil for the strategic petroleum reserve, all to try to boost the price of oil to help struggling oil majors. A group of GOP senators is lobbying for fossil fuel companies, including coal companies, to be eligible for the small-business recovery fund.

Last week, EPA Administrator Andrew Wheeler announced that the administration, in defiance of an enormous body of evidence and recommendations from EPA scientists and staff, will not tighten restrictions on soot pollution. And on Friday, Wheeler announced that the EPA will weaken standards on mercury and other toxic metals from fossil-fueled power plants, again in opposition to the scientific consensus, based on rigged cost-benefit analysis that deliberately excluded most benefits.

Across the board, the administration is doing everything it can to help fossil fuels. But it’s a mug’s game. The industry is faltering for reasons that well predate Covid-19.

Fossil fuels were already facing structural problems before the coronavirus

US coal is in terminal decline, for reasons I’ve written about many times before. No amount of stimulus money or weaker pollution regulations can save it.

But on the surface, things look different for oil and gas. Thanks to fracking, production has been booming for the past decade, vaulting the US ahead of Saudi Arabia and Russia to become the the world’s leading oil and gas producer.

And the same goes for petrochemicals and especially plastics, which have been forecast to be the main drivers of rising petroleum demand in coming years. The industry has issued rosy projections of plastics’ growth and invested $200 billion in new petrochemical and plastics infrastructure.

But dig below the surface and things don’t look so good.

First, fracking was a financial wreck long before Covid-19 hit. US fracking operations have been losing money for a decade, to the tune of around $280 billion. Overproduction has produced a supply glut, low prices, and an accumulating surplus in storage.

CIEL reports:

Since 2015, over 200 drillers have gone bankrupt, with 32 declaring bankruptcy in 2019. At the beginning of 2020, the industry continued to struggle as natural gas prices remained low due to sluggish demand growth. By the end of the first quarter, another seven drillers had declared bankruptcy, six additional drillers had their credit outlook downgraded, and several major banks had written down the expected value of many drillers’ reserves. A recent analysis from Rystad Energy indicated that, at prevailing oil and gas prices, almost all new fracking wells drilled would lose money.

Even as its prospects grow dimmer, the enormous debt the industry has taken on over the years is coming back to bite it. Some $40 billion will come due this year alone, and around $200 billion in the next four years. In the hours after this article was first published on April 20, oil futures for May fell to negative prices. Mind-boggling.

Second, both oil and gas prices were persistently low leading into 2019. Due to oversupply and mild winters in the US and Europe, there is a glut of both natural gas and oil, such that the entire world’s spare oil storage is in danger of being filled. Many big oil deals in “frontier countries” with as-yet-unexploited reserves, like Guyana, Argentina, and Mozambique, are falling through as low prices drag on.

Third, renewable energy and electric vehicles are threatening oil and gas’s dominance in both transportation, which represents 70 percent of global demand, and electricity. Natural gas’s status as a “bridge fuel” in the power sector is in increasing doubt; since 2014, orders for new gas turbines (to generate power) have fallen by half. As for transportation, a recent report from the international banking group BNP Paribas concluded that “the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline.”

An electric car at a charging station in Bavaria, Germany, on March 26, 2020.  Sven Hoppe/picture alliance via Getty Images

Fourth, oil and gas majors are revealing their own weakness by writing down assets — effectively conceding that certain reserves cannot be profitably exploited. In 2019, Chevron wrote down $11 billion worth; Spanish oil company Repsol recently wrote down $5 billion worth. Exxon Mobil, after adding Canadian tar sands assets to its books in 2017, reversed course and wrote down 3.2 billion barrels last year.

Fifth, financial institutions — “institutional and retail investors, banks, insurers, and credit rating agencies” — are catching wind of fossil fuels’ weakness and beginning to back away. Many, like Wells Fargo, BlackRock, the European Investment Bank, and the World Bank Group, are restricting investments in carbon-intensive projects. As of March 2020, asset investors worth $12 trillion had declared that they would divest from fossil fuels.

As financial institutions divest, the ones still invested in carbon-intensive projects face increasing vulnerability to lawsuits charging them with ignoring material risks. “As the risks of investing in the oil and gas sector become ever more apparent,” CIEL writes, “more and more investors subject to fiduciary duties will likely choose to steer clear of these companies.”

Like these other dismal trends, the financial turn from fossil fuels was underway well before Covid-19. Over the past decade, companies in the sector have spent more on stock buybacks and dividends than they have brought in through revenue, leading to a greater and greater debt burden. Declining confidence in the sector has made it the worst-performing sector on the S&P Index.

The Dow Jones Index (black line) vs. the Dow Jones Oil & Gas Index (blue line), as of April 17, 2020.  S&P Dow Jones Indices

Finally, plastics, the great hope of the oil and gas sector, do not appear to be growing fast enough to justify the industry’s optimistic projections. Much of the US plastics industry is geared for export, but countries across the world (127 and counting) are adopting restrictions on single-use plastics. The most recent such restrictions were adopted by China, the world’s largest plastic producer and consumer. Plastics, like oil and gas, are suffering from the dual malady of overexpansion and underconsumption.

As an example that encompasses all these structural problems, CIEL cites Exxon Mobil. The company’s plan for growth involves growth in its petrochemical operations, which is now in doubt; fracking in the Permian Basin, which is now in doubt; and expanding oil production in Guyana, which is now (owing to political instability) in doubt.

All these doubts are converging as Moody’s recently revised the company’s outlook to negative. It fell out of the S&P’s top 10 for the first time, its stock hit its lowest price in a decade, the rapid rise of renewables and electric vehicles rendered billions (and perhaps soon trillions) of dollars of its assets worthless, and it is keeping shareholders happy with debt-financed dividends. The Institute for Energy Economics and Financial Analysis found that over the past decade, Exxon Mobil has spent $64.5 billion more on payouts to stockholders than it earned in free cash flow. That can’t go on much longer.

Again: All of these structural trends predate Covid-19. But the global lockdown in response to the virus has accelerated all of them.

Oil and gas are caught in a historic downturn

Into this already dismal situation for fossil fuels came the virus and the subsequent lockdown. The vertiginous plunge in consumer demand has hit every sector of the economy, but oil and gas, already facing oversupply and persistent low prices, were particularly vulnerable.

“Oil, gas, and petrochemical stocks have been affected more rapidly and much more deeply than almost any other sector,” CIEL writes. “The oil and gas sector lost more than 45% of its total value from the beginning of January to early April 2020.”

The already declining stocks of Exxon Mobil, Royal Dutch Shell, and Occidental Petroleum were sent tumbling even faster. In July 2014, Exxon stock hit a high of $107; as of early April 2020, it was at $42, its lowest level in decades.

Transportation represents 70 percent of petroleum consumption, but no one is moving. Rystad Energy estimates that as of March 2020, global traffic is down 40 percent. As lockdowns remain, that number will likely drop further.

Air travel has been the fastest-growing source of demand for transport fuels, but no one is flying. “In the final week of March 2020,” CIEL writes, “commercial air traffic was almost 63% lower than in 2019.”

Christina Animashaun/Vox

Public health officials warn that there could be periodic outbreaks for months or even years. Meanwhile, there are rapid advances being made everywhere in the infrastructure, technology, and practices of working remotely, from home. It’s entirely possible that auto and air travel won’t reach their pre-virus levels in the US for years, if ever.

Travel by ship is also taking a hit. Cruise ships, beset by a series of viral horror stories, have suspended operations and many analysts doubt they will ever fully recover.

Meanwhile, oversupply, exacerbated by the drop in demand, is taxing the nation’s storage capacity — the International Energy Agency says global capacity is about 85 percent full. “Nearly all observers have concluded that at projected levels of demand destruction,” CIEL writes, “the total global capacity for storing unneeded oil and gas will soon be exceeded.” At that point, many producers will be forced to simply shut down operations and write-downs will accelerate.

On top of all this has come a price war between Saudi Arabia and Russia, competing for the shrinking supply left over by the US supply glut. Global oil prices were at $69 per barrel in January 2020. The price of a barrel of Canadian tar sands oil appears headed into negative prices, as are Texas oil and natural gas in some parts of the US, for May futures (June prices are higher). The so-called OPEC+ group of oil-producing nations (OPEC + Russia) recently agreed to a 10 million barrel a day cut in production, but analysts agree that it is unlikely to be sufficient to stabilize prices.

Freight trains filled with oil in Krasnodar, Russia, on April 14. As supply exceeds demand and oil prices fall, oil producers find themselves confronted with storage challenges.  Igor Onuchin/TASS via Getty Images

When storage capacity runs out, producers are forced to pay people to take oil off their hands. (Raise your hand if you had “negative oil prices” on your 21st-century bingo card.) Even if storage doesn’t completely run out, it will be close to full, serving to suppress prices, for years. Petrochemicals and plastics don’t have it much better, with major investors delaying or dropping out of projects left and right.

“In the medium term,” CIEL writes, “the prospect of a full recovery for many of these revenue streams is, at best, uncertain, and, in many cases, unlikely.” Fossil fuels and petrochemicals could struggle for years.

And even if they eventually manage to achieve something like their pre-virus trajectory, that trajectory was sloping downward. As CIEL summarizes: “the pandemic exposes and exacerbates fundamental weaknesses throughout the sector that both predate the current crisis and will outlast it.”

Wasting stimulus money on fossil fuels makes no sense, so Trump will probably do it

Slowly but surely, the world is beginning to take global warming seriously, shifting attention and investment to materials and sources of energy that do not produce greenhouse gas emissions. As more and more jurisdictions, institutions, and investors turn away from fossil fuels, explicitly citing climate change, those left holding carbon-intensive assets will become targets of increasingly intense legal and civic activism holding them responsible for the damages.

CIEL concludes with recommendations to investors, frontier countries, and local communities: Take heed of fossil fuels’ long-term weakness when making decisions about the future. CIEL also argues that public officials “should not waste limited response and recovery resources on bailouts, debt relief, or similar supports for oil, gas, and petrochemical companies.”

Given the well-established inclinations of Trump and congressional Republicans, that recommendation is likely to fall on deaf ears, at least in the US. If Democrats do not muster the courage to stop them — and it does not seem they will — the GOP is likely to continue showering the fossil fuel industry with favors while dismissing aid to the clean energy industry as frivolous.

President Trump Signs Coronavirus Stimulus Bill In The Oval Office
President Trump signs the $2 trillion stimulus bill on March 27, 2020. Not a crew likely to turn their backs on fossil fuels.  Erin Schaff-Pool/Getty Images

At best, they can slow down the transition to clean energy a bit. They cannot stop it. Adding stimulus money to fossil fuels’ already subsidy-rich diet will allow a little more pollution and a little more damage to public health for a little longer, but it’s only a delay. Meanwhile, other countries will be establishing a commanding position in some of the biggest growth industries of the 21st century.

It would be a shame to emerge from this crisis still clinging to the past rather than facing, and preparing for, the future.


Update, April 20, 4 pm ET: After this article was first published, oil futures fell to negative prices.

Fossil subsidies hit a ‘staggering’ $5.7 trillion in 2017

By IMF staff and Tim Dickinson, May 9, 2019
Repost from The Energy Mix; Full story: International Monetary Fund and Rolling Stone
skeeze / Pixabay

Global fossil fuel subsidies were expected to total US$5.7 trillion in 2017, and U.S. subsidies in 2015 exceeded the country’s profligate military spending, according to analysis released earlier this month by the International Monetary Fund.

In a summary of its May 2 working paper, the IMF places 2015 subsidies across 191 countries at $4.7 trillion, or 6.3% of GDP, including $1.4 trillion from China, $694 billion from the U.S., $551 billion from Russia, $289 billion from the European Union, and $209 billion from India.

“The numbers are quite staggering,” said IMF Managing Director Christine Lagarde, “fiscally, but also in terms of human life, if there had been the right price on carbon emission as of 2015.” The IMF’s working paper summary states that “efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28% and fossil fuel air pollution deaths by 46%, and increased government revenue by 3.8% of GDP.”

With subsidies brought under control, Lagarde added, “there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.” The summary notes that “about three-quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85% of global subsidies.”

Rolling Stone compares U.S. subsidies to the $599 billion budget the country’s bloated military received in 2015. “To offer a sense of scale, Pentagon spending accounted for 54% of the discretionary [U.S.] federal budget in 2015,” the magazine writes. “In comparison to another important, but less well-funded part of the federal budget, fossil fuel subsidies were nearly 10 times what Congress spent on education. Broken down to an individual level, fossil fuel subsidies cost every man, woman, and child in the United States $2,028 that year.”

The fossil industry and its “stooges in public office” routinely argue “that making consumers pay for the full impacts of fossil fuel use would cripple the economy,” Rolling Stone adds. “The IMF experts call bullshit on this idea, revealing that the world would, in fact, be more prosperous. Eliminating subsidies for fossil fuels would have created global ‘net economic welfare gains’ in 2015 of ‘more than $1.3 trillion, or 1.7% of global GDP,’ the study found,” with the calculation based on reduced environmental damage and higher government revenues after factoring in consumer losses due to higher energy prices.