I see people on LinkedIn throw out statements like “What about the subsidies for big oil.” Well, I’m not very familiar with these so I started googling. The information was overwhelming.
I tried ChatGPT to get a consolidated answer. I was surprised with the output although there are many estimates that contradict each other. In any event, the numbers are staggering.
Tax Provisions
Percentage Depletion Allowance
Description: Enables companies to deduct a fixed percentage of their gross income from oil and gas wells to account for the reduction of a resource’s reserves. Unlike standard cost depletion, this can exceed the capital costs invested.
Estimated Value: $1.5 billion annually.
Enhanced Oil Recovery Credit
Description: Provides a tax credit for costs associated with tertiary recovery methods to extract additional oil from older wells. These methods typically involve injecting substances like carbon dioxide to increase pressure and stimulate production.
Estimated Value: Specific annual estimates are not commonly reported but are included in the overall tax break estimates.
Marginal Well Production Credit
Description: Offers a tax credit to encourage production from marginal wells, which are less productive and more expensive to operate. This credit aims to maintain production levels from wells that might otherwise be abandoned.
Estimated Value: Approximately $100 million annually.
Intangible Drilling Costs (IDC) Deduction
Description: Allows companies to deduct most of the costs associated with drilling new wells domestically from their taxable income in the year these costs are incurred. These costs include wages, fuel, repairs, and supplies.
Estimated Value: $1.6 billion annually.
Master Limited Partnerships (MLPs)
Description: Allows oil and gas companies to structure themselves in a way that combines the tax benefits of a partnership with the liquidity of publicly traded securities. MLPs are exempt from corporate income taxes.
Estimated Value: $1.6 billion annually.
Direct Subsidies and Support
Fossil Energy Research and Development
Description: Funding provided by the Department of Energy for research and development projects aimed at improving fossil fuel technologies, including carbon capture and storage (CCS) and advanced energy systems.
Estimated Value: Around $500 million annually.
Financial Mechanisms
Royalty Relief
Description: Temporary relief from paying royalties on federal lands to encourage production, especially in high-cost or low-production areas.
Estimated Value: Varies annually; estimated to reduce federal revenue by several hundred million dollars annually.
Domestic Manufacturing Deduction (Section 199)
Description: Originally allowed companies to deduct a percentage of their income derived from domestic production activities, including oil and gas extraction.
Estimated Value: $1 billion annually.
What am I missing? I'm sure there are experts out there that have a better view on this subject.
Would you consider these 2 as forms of subsidy:- 1) funding regional wars/conflicts to ensure oil&gas keeps flowing? eg the war in Iraq? 2) being permitted to use the shared atmosphere as a dumping ground for all the emissions without any cost/charge to do so?