The Legacy of Subsidizing Fossil Fuels

Often lost in today's debates over whether to continue tax benefits for renewable energy is a historical perspective on the significant support the federal government has provided and continues to provide the fossil fuel industry. Tax benefits for the energy industry as a whole totaled over $20 billion in 2011, which is, and historically has been, about 2% of total U.S. tax expenditures. In general, the United States has used tax benefits to first support development of domestic fossil fuel and nuclear production for nearly a century and, more recently, to support the development of domestic renewable energy. Until 2005, virtually all energy-related tax expenditures and benefits went toward stimulating domestic oil and gas production with the amount claimed by renewable energy almost negligible. In recent years, tax benefits for renewable energy have surpassed that of fossil fuel production. For instance, in 2011, the breakdown of tax expenditures and other tax-related benefits within the energy sector was as follows: 68% to renewable energy (including ethanol and biodiesel), 15% to fossil fuels, 10% to energy efficiency programs, 4% to nuclear energy, and 2% to other. These numbers can be misleading, however, because they do not take into account the decades of continued tax benefits the federal government provided to the fossil fuel sector, which helped those industries become the dominant economic and political forces they are today. For instance, one study shows that over the period of years the federal government has supported the oil and gas industry, the average annual subsidy for that industry sector was nearly $5 billion; for nuclear, the average annual subsidy was $3.5 billion; for biofuels, the average annual subsidy was just over $1 million; and for other renewables, the average annual subsidy was $0.37 billion.