Why are they used?
Fossil fuel subsidies are more or less used to buttress the natural gas and fossil fuel industry in the US. These subsidies are simply financial support (or financial incentive) that the US government offers energy companies. They can come in the form of direct payments to companies (in the form of grants), tax breaks for companies, price regulation (artificially keeping the price of gas low to increase consumption), infrastructure support (investing in refinery or pipeline development), or Research and Development funding (grants from the government aimed at furthering research to reduce the environmental impacts of natural gas extraction). Other than simply lowering the production cost for business to output these resources, a few major reasons for these subsidies include consumer protection, economic growth protection, and Fiscal benefit. These subsidies protect American consumers by lowering the price of gas drastically. The price lowering that the American government does helps to save American consumers an estimated 203 billion dollars annually. Other than simply preventing additional costs for American citizens, the use of Fossil Fuel subsidies also contribute to job creation across the country. In Texas alone, the Hydraulic fracturing industry (that is in part propped up by these subsidies) helps to create 3.157 million jobs, and it is estimated that the elimination of Hydraulic fracturing across America would lead to the loss of 19 million jobs. It is easy to see how these subsidies are also helping to prop up the American economy as well. The continued growth of the natural gas industry (as a result from these subsidies) not only leads to more job creation, but the increased activity helps to increase trade both domestically and internationally. This is plain to see, as the US trade deficit in 2019 was 305 billion dollars lower than it would have been without oil and gas production.
Drawbacks of Fossil Fuel Subsidies
Taking all these supposed benefits into consideration, what is so wrong with using these subsidies? Other than the fact that they are helping to further the industry that plays a large role in the world’s emissions problems today, the funding for these subsidies pose an issue for Americans. In 2022, the US government gave a record high of 1 trillion dollars in fossil fuel subsidies to energy companies. Furthermore, it is estimated that yearly, American taxpayers pay 20 Billion Dollars to the fossil fuel industry. Putting the sheer amount of money that is aside, let’s observe the return on investment that all this tax revenue yields. It is estimated that the gas emissions that these companies put out are responsible for 8.7 million premature deaths annually, and costs the US 646 Billion dollars annually in environmental damages. It is also estimated that this will also reduce the US’s GDP by 3-10 percent by the end of the century. Taking all this into account, it is easy to see how the continued government investment in the fossil fuel industry will ultimately spell a worse financial future for the average American citizen. Looking at the government investment from a moral point of view as well, it is easy to see how the continued propping up of the fossil fuel industry is a bit problematic. In the words of US Senator Sheldon Whitehouse (Democrat-Rhode Island), “we are subsidizing the danger”. The IMF explains how subsidy reform will immediately yield positive results for the world by illustrating how with efficient fuel pricing (no more subsidies), there will be a drastic reduction in CO2 emissions which will lead to a decrease in global temperature. There are already some steps in place to manage things like pricing when the subsidies are no longer in effect, such as plans to introduce an automated pricing mechanism that helps to depoliticize the issue of natural gas pricing. Most important among these steps is the plan to introduce targeted cash or near-cash transfers to help the poor as well as the creation of targeted programs to help support those whose jobs would be put at stake with the pulling of subsidies from the fossil fuel industry. As a whole, the subsidies the US government is currently giving to the fossil fuel industry are costing too many American lives as well as too much money from the American people to be cost-efficient, and the continued support of this industry is what is keeping clean energy from becoming the primary source of power in the US today.
Sources:
https://www.imf.org/en/Topics/climate-change/energy-subsidies
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