Oil, gas subsidies a threat to climate goals — report

Source: Hannah Northey, E&E News reporter • Posted: Tuesday, October 3, 2017

Almost half of the nation’s untapped oil reserves wouldn’t be profitable to produce without billions of dollars’ worth of state and federal subsidies, according to a new study that raises fresh economic and climate questions as Congress lurches toward tax reform.

The oil and gas sector receives at least $4 billion in federal and state subsidies, deductions, investments and transferred liability each year, a financial boost that — with a barrel of oil hovering around $50 — makes it lucrative for companies to produce oil from hundreds of untouched fields across the nation, according to a new study published in Nature Energy today.

At the current rate, U.S. oil producers are poised to pump out an additional 17 billion barrels of oil during the next few decades from undeveloped fields in North Dakota, Texas and other states, fuel that would emit 6 billion metric tons of carbon dioxide when burned, researchers found.

Such an uptick in emissions would eat into the United States’ carbon diet critical to reaching an international goal of limiting warming to 2 degrees Celsius.

“Our analysis suggests that oil resources may be much more dependent on subsidies than previously thought, at least at prices near US$50 per barrel,” wrote three researchers from the international think tank Stockholm Environment Institute and Doug Koplow, a subsidies researcher and founder of Earth Track in Cambridge, Mass. “The findings highlight an inconsistency between commitments to ambitious national and international goals to reduce CO2 emissions and subsidies to the fuels that generate those emissions.”

On the flip side, should the price of oil climb higher than $50 per barrel, researchers found subsidy-related revenues flowing directly into investors’ coffers as company profits.

Pete Erickson, a senior scientist at the Stockholm Environment Institute, a research affiliate of Tufts University and a lead author of the study, said the research provides the most detailed look to date on exactly how subsidies for oil and gas affect on-the-ground production.

Based on data maintained by the oil industry consultancy firm Rystad Energy, the study also reveals how the fossil fuel industry is padding its profits in boom times, he said.

It’s unlikely the findings will sway the Trump administration, which has questioned climate science, moved to pull the United States from the Paris accord and vowed to cut red tape for the oil and gas sector. The administration also appears on course to retain the bulk of the oil and gas sector subsidies as it moves to reform the nation’s tax code.

A tax plan the White House released last week, for example, calls for the treatment of “specific industries” to be modernized to ensure the tax code better reflects “economic reality and that such rules provide little opportunity for tax avoidance.”

Even so, Erickson said the debate around the use of taxpayer dollars to bolster a mature oil and gas industry and the climate ramifications is critical, whether or not the president engages.

“Regardless of whether the Trump administration cares about it, these subsidies in our current price environment are increasing oil production and increasing CO2, and people care about that,” he said. “There will likely be in this tax debate people questioning why these tax measures are supporting an industry that’s contributing to climate damages. I think that’s a very relevant conversation.”