How would eliminating subsidies to the U.S. oil industry affect potential oil production and CO2 emissions?

SEI policy brief

Author(s): Erickson, P. ; Down, A. ; Lazarus, M. ; Koplow, D.
Year: 2017

This policy brief, based on an SEI working paper, examines how removing subsidies to U.S. oil producers would affect potential oil production and resulting global carbon dioxide (CO2) emissions.

The analysis shows that billions of dollars in federal and state subsidies could enable large amounts of oil and gas production in the U.S. that would not otherwise be economic. At $50 per barrel, roughly the current oil price, nearly half of discovered (but not yet producing) U.S. oil would depend on subsidies to reach minimum returns acceptable to investors.

The additional oil produced due to subsidies would emit 8 billion tonnes of CO2 once combusted, about 1% of the world's remaining carbon budget to keep warming under 2°C, the goal the U.S. committed to under the Paris Agreement. At $50 per barrel, more than half of subsidy value would go directly to oil company profits, diverting considerable taxpayer resources from other possible uses. The share going to profits would increase to 98% if prices return to levels around $100 per barrel.

Eliminating U.S. oil production subsidies would avoid inefficient spending while avoiding substantial climate harm, both directly (reducing oil production) and indirectly (reinforcing an emerging political norm away from fossil fuel development).

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