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


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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Fig. 1: Effect of subsidies on new project economics at US$50 per barrel.
Fig. 2: Average effect of each subsidy at US$50 per barrel.
Fig. 3: Subsidy-dependence as a function of oil price.

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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.

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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.

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Correspondence to Peter Erickson.

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Supplementary Tables 1-3, Supplementary Methods and Supplementary References

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Erickson, P., Down, A., Lazarus, M. et al. Effect of subsidies to fossil fuel companies on United States crude oil production. Nat Energy 2, 891–898 (2017).

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