Biden's tax plan goes after the little fossil fuel subsidies, but not the big ones

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President Joe Biden has released the tax plan that is meant to
pay for his $2+ trillion infrastructure plan.


You can read the New York Times for a full breakdown. The bulk of
the revenue will come from a set of changes to corporate tax law,
raising the corporate tax rate from 21 to 28 percent, imposing a
minimum tax on global profits, and discouraging offshore tax
havens.


All that stuff is great. I just want to say a few quick things
about one of the provisions, which would roll back various fossil
fuel subsidies in the tax code.


In one sense, this is cool, and a big deal insofar as Democrats
can actually do it — they’ve been trying for years, to no end.


But in another sense, it reveals that the hue and cry over fossil
fuel subsidies in the US is somewhat of a tempest in a teapot,
more a political symbol than a real source of revenue or
decarbonization.


Direct US fossil fuel subsidies aren’t that big in the grand
scheme of things


The administration projects that closing oil and gas tax
loopholes will raise $35 billion over the coming decade.


That’s 1.4 percent of Biden’s $2.5 trillion in tax-plan revenue.


A Treasury Department report from the administration says: “The
main impact would be on oil and gas company profits. Research
suggests little impact on gasoline or energy prices for U.S.
consumers and little impact on our energy security.” (It cites
this study.)


There are two reasons the changes would have “little impact on
gasoline or energy prices.” The first is that oil is a globally
traded commodity, with prices set globally — a US company can’t
raise its prices without losing out on the global market. So it
eats any extra cost as slightly lower profits.


But the second is that $35 billion over 10 years just isn’t that
much money. Even in 2020, a truly shitty year for US oil
companies, Exxon made revenues of $181 billion. That was down
31.5 percent from $265 billion in 2019. For companies with
revenues in the hundreds of billions, experiencing market swings
of $85 billion a year, an extra $3.5 billion a year spread out
over the whole sector just isn’t going to register much.


Last year, Rep. Ilhan Omar (D-Minn.) and Sen. Bernie Sanders
(I-Vt.) introduced the “End Polluter Welfare Act,” which takes a
much more expansive view of what counts as a fossil fuel subsidy
and pulls together $15 billion a year in tax changes. That would
be $150 billion over the next 10 years — 6 percent of the revenue
Biden’s plan will raise.


(This even-more-aggressive study from Oil Change International
found $20 billion a year in subsidies, though the oil and gas
industry hotly contests some of the choices it made.)


The point is, to get to real revenue, you have to bring in
indirect fossil fuel subsidies.


The big fossil fuel subsidies are the externalities


When Greenpeace says that US fossil fuel companies get $62
billion a year in subsidies, it refers to this study, which
examines what it would take to “correct market failures brought
about by climate change, adverse health effects from local
pollution, and inefficient transportation.”


In other words, the study tallies up the oil and gas industry’s
externalities, the costs it imposes on society that are not
reflected in market prices. (And it doesn’t even include the
costs of defending global oil supply, which are substantial.)


Whether it is fair or accurate to call these unpaid costs
“subsidies” is largely a matter of semantics, or, worse,
metaphysics, but it doesn’t really matter. Fossil fuel companies
don’t pay the costs; other people do.


A 2017 International Monetary Fund study pegged the global value
of direct and indirect fossil fuel subsidies at $5.2 trillion —
that’s 6.4 percent of global GDP.


Of course, making fossil fuel companies pay those costs would
involve more than modest tax code tweaks. It would involve a new
carbon tax.


How much could that raise? A 2017 study by the Treasury
Department modeled a carbon tax that starts at $49 per metric ton
in 2019 and rises to $70 per metric ton in 2028 (not far out of
line with some popular carbon tax proposals). Over the course of
that 10 years, the tax would raise $2.2 trillion in revenue —
just about enough to fund Biden’s infrastructure plan!


It’s a perfect match. It’s notable, then, that no one on either
side of the aisle has proposed it, despite an ongoing hunt for
revenue. Carbon tax people are always saying it has bipartisan
appeal, but in practice, it seems bipartisan in that both parties
want nothing to do with it.


Anyway, Biden’s run at fossil fuel subsidies (the latest in a
long line from Dems) isn’t really about revenue.


This story is mostly about political power and social license


In every article you read about the portion of Biden’s plan that
goes after fossil fuel subsidies, you will see some version of
this: “Previous attempts to eliminate subsidies on oil and gas
met with stiff industry and congressional opposition.”


Despite the fact that $35 billion over 10 years is relative chump
change to the oil and gas industry, it fights any attempt to roll
back these subsidies like a cornered polecat. It wants to protect
its profits, but it also wants to establish that it still has
clout in Congress. It has enjoyed these tax benefits for a long,
long time, and giving them up would be a signal of its declining
influence.


It’s good for Democratic presidents to keep thrusting this issue
into the debate, if only to put Congress on record. It will
probably fall out of this bill too, if the bill passes at all,
but it will serve as something of a barometer on the pressure
fossil fuel companies can mount, even in their battered state.


In the meantime, on this question as on all others, we await the
judgment of our emperor and benefactor Joe Manchin, long may He
reign.


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How it’s going:


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