Subsidies take various forms, ranging from tax breaks to regulatory advantages. The Environmental and Energy Study Institute calculated that the federal government funds $20 billion every year in fossil fuel subsidies. While most taxes are levied by Congress, the Biden Administration could take two actions through the executive branch to put further pressure on the industry:
- Ensure oil and gas companies pay government penalties. Natural resource damages are currently tax deductible. In 2015, the DOJ entered a settlement with BP over the Deepwater Horizon Spill for $20.8 billion in damages. However, the settlement was tax-deductible, and BP was able to write off $15.3 billion of the penalty as “natural resource damages payments, restoration and reimbursement of government costs.” Under President Biden, the DOJ could eliminate this loophole and deny tax deductions for corporate actors that reimburse the federal government for certain cleanup related costs.
- Stop maintaining shipping lanes on rivers. The federal government spends over $700 million each year constructing and maintaining shipping lanes on rivers, which are often used for the transportation of oil and gas. Under President Biden, the federal government may require companies, including heavy users such as oil and gas companies, to fund all or a portion of the construction and maintenance of these shipping lanes.
President Biden has also expressed his intent to reform oil and gas tax subsidies. In Congress, the Biden Administration could seek to reduce two tax credits:
- An intangible drilling costs deduction which allows producers to deduct a majority of their costs from drilling new wells. The Joint Committee on Taxation, a nonpartisan panel of Congress, has estimated that eliminating this deduction could generate $13 billion over 10 years.
- The percentage depletion tax break, which allows independent producers to recover development costs of declining oil gas and coal reserves, could also be stricken, or reduced. The Joint Committee on Taxation estimated that eliminating this tax break could generate approximately $12.9 billion in revenue over 10 years.
