Abstract:

For more than a century, the U.S. federal government has subsidized the production of fossil fuels through the tax code. These tax expenditures – amounting to de facto government spending – lower the cost of investment and increase the revenues from fossil fuel production. However, research shows that the subsidies do very little to increase U.S. fossil fuel production, because the impact of subsidy use on investment decisions depends on other factors such as technological improvements in oil and gas drilling, shifts in energy demand in the global energy market, production decisions by the Organization of the Petroleum Exporting Countries, and unsettling political events in the Middle East. Without achieving much, if any, useful economic impact, fossil fuel subsidies are transferring about $4 billion annually from the pockets of taxpayers into those of fossil fuel producers.

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