Analysis

Effect of subsidies to fossil fuel companies on United States crude oil production

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Abstract

Countries in the G20 have committed to phase out ‘inefficient’ fossil fuel subsidies. However, there remains a limited understanding of how subsidy removal would affect fossil fuel investment returns and production, particularly for subsidies to producers. Here, we assess the impact of major federal and state subsidies on US crude oil producers. We find that, at recent oil prices of US$50 per barrel, tax preferences and other subsidies push nearly half of new, yet-to-be-developed oil investments into profitability, potentially increasing US oil production by 17 billion barrels over the next few decades. This oil, equivalent to 6 billion tonnes of CO2, could make up as much as 20% of US oil production through 2050 under a carbon budget aimed at limiting warming to 2 °C. Our findings show that removal of tax incentives and other fossil fuel support policies could both fulfil G20 commitments and yield climate benefits.

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Acknowledgements

The authors thank G. Metcalf and M. McCormick for helpful discussions about data and methodology, and M. Davis and E. Yehle for editing support. Support for this research was provided by the KR Foundation.

Author information

Affiliations

  1. Stockholm Environment Institute-U.S., 1402 Third Avenue, Suite 900, Seattle, WA, 98101, USA

    • Peter Erickson
    • , Adrian Down
    •  & Michael Lazarus
  2. Earth Track, Inc., 2067 Massachusetts Avenue, 4th Floor, Cambridge, MA, 02140, USA

    • Doug Koplow

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Contributions

P.E., M.L. and D.K. designed the research, A.D., P.E. and D.K. conducted the analysis, and P.E. wrote the manuscript with contributions from A.D., M.L. and D.K.

Competing interests

The authors declare no competing financial interests.

Corresponding author

Correspondence to Peter Erickson.

Electronic supplementary material

  1. Supplementary Information

    Supplementary Tables 1-3, Supplementary Methods and Supplementary References

  2. Supplementary Data 1

    Source data for figure 1