How the Government Funds Big Oil
Have you ever wondered…
Why climate science was squashed for years?
Why there is no wide push to switch to green energy despite it being cheaper, more reliable, more powerful, and less dangerous?
Why people even PRAISE fossil fuels?
Well, it mostly comes down to oil subsidies from the government that allow Big Oil companies to continue to propagandize us into believing these lies.
Let’s get to the root of what oil subsidies are and why they’re holding us back from climate progress.
What is a subsidy and why are they used?
According to Merriam-Webster, a subsidy is “a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public.”
Wikipedia further explains that even stimulus checks can be considered government subsidies since they are designed to help stimulate the economy. That’s what it all comes down to: stimulating the economy with our taxes.
How long have they been around? Well, Britannica states that “Subsidies have a long history in all nations. They were extensively employed by governments during the mercantilist period preceding the Industrial Revolution, when it was thought that the accumulation of gold through a favourable balance of trade required the protection of domestic manufacturers.”
In 1845, the first mail subsidy was paid to help aid mail shipped across the oceans.
One of the biggest subsidies in US history was the Agricultural Adjustment Act of 1933, a United States federal law of the New Deal era designed to boost agricultural prices by reducing surpluses. The government bought livestock for slaughter and paid farmers subsidies not to plant on part of their land. If you want to hear more about what the US government did with excess corn in particular, check out last week’s post about biofuels.
Speaking of biofuels…
The Oil Boom and the First Oil Subsidies
The combustion engine was first created using ethanol, a biofuel. But the oil boom of the late 1800s and early 1900s led to the combustion engine being redesigned to take fossil fuels. The US government invested in this new technology, as did car manufacturers. Fossil fuels pack more energy per liter compared to biofuels, and with the start of World War I, the US government wanted to latch onto this new technology.
So, in 1916, the first major oil subsidy from the US government was put in place. According to Mother Jones, “a new tax provision allows oil companies to write off dry holes as well as all ‘intangible drilling costs’ in their first year of exploration. Over the next 15 years, oil and gas subsidies will average $1.9 billion a year in today’s dollars.”
Then, in 1926, Congress introduced the “depletion allowance,” which still exists today. At first, it was 27.5%, a truly random number admitted Texas Senator Tom Connally. He just wanted to get rich, and it worked. For decades, different administrations tried to get this number lower or slashed completely. In 1969, the allowance was lowered to 23%. It was lowered again in 1975 to 15%, which is where it sits today. Check out the full timeline here from Mother Jones.
This “depletion allowance” is, according to Wikipedia, “The oil depletion allowance in American (US) tax law is a tax break claimable by anyone with an economic interest in a mineral deposit or standing timber.[citation needed] The principle is that the asset is a capital investment that is a wasting asset, and therefore depreciation can reasonably be offset (effectively as a capital loss) against income.”
They continue by saying that “the oil depletion allowance has been subject of interest because one method (percentage depletion) of claiming the allowance makes it possible to write off more than the whole capital cost of the asset.”
The downside to oil subsidies
Besides making rich men even richer, there are countless problems with oil subsidies when it comes to equity and the environment.
Eliminating fossil fuel subsidies would reduce the health risks of air pollution. Why? Well, subsidies are literally encouraging companies to extract more oil and refine it into usable fuel, and it does keep prices lower, which encourages us, the consumers, to consume more. Subsidies are literally paying humans to pollute ourselves. American Progress states that “in 2023, the International Monetary Fund estimated that eliminating fossil fuel subsidies globally would avoid 1.6 million premature deaths annually and raise government revenues by $4.4 trillion.”
As for the economy, according to Wikipedia, “Fossil fuel subsidies are a negative carbon price and use government money that could be spent on other things. The International Monetary Fund says that by encouraging excess energy use, it can make countries more vulnerable to variations in international energy prices. However, some governments say that the subsidies are necessary to shield citizens from such variation. According to the International Energy Agency (IEA), phasing out fossil fuel subsidies would benefit energy markets, climate change mitigation, and government budgets.”
Oil subsidies are largely why we can’t switch to green energy. Our World in Data states that “to transition away from fossil fuels to clean sources, the clean alternatives need to be cheaper. The fact that fossil fuels are subsidised makes this transition much harder. Clean alternatives don’t just have to be cheaper than fossil fuels; they need to be cheaper than fossil fuels with subsidies.”
Something you may not have suspected, the plastics have a huge link to oil subsidies. Why? Well, plastic is MADE from fossil fuels, more on that here. Since that makes plastic fit into the extraction category explained above for subsidies and also the depletion allowance, that means that companies that make plastic are welcome to all of these “benefits,” too. Though plastics get their own subsidies around the globe, too, they also directly benefit from fossil fuel subsidies.
Why can’t the subsidies just go away?
Well, the easiest answer is oil lobbying which could be an entire post all on it’s own. Let me know if you want a post on that topic!
But, here’s a quick bit from American Progress: “President Trump’s pro-oil and -gas and anti-renewable policies make good on his promises to fossil fuel executives, who donated millions to Donald Trump’s 2024 campaign after hearing assurances that he would repeal environmental regulations and expand access for drilling on public lands.9 The fossil fuel industry spent more than $150 million to lobby the federal government in 2024, including for expansion of tax deductions for oil and gas exploration and other priorities that often come at the expense of renewable energy.10 But the Trump administration’s actions to block support for renewables, while continuing to boost funding for fossil fuels, will have major consequences for energy affordability, reliability, and pollution.” This most certainly happens across the aisle, which is why we didn’t see much progress under recent democratic administrations either. As long as the oil industry can stay rich, they’re going to keep bribing out politicians. Ensure you are voting for candidates who do not take Big Oil money!
Politicians are also scared of their voters, especially those who work in oil and gas. They are worried that cutting subsidies would cut jobs. If they cause people to lose jobs, they lose votes, and they lose power. The only thing they love more than power is money, and they are both powerful motivators for our lawmakers.
But probably the stickiest situation is that fossil fuels rule our economy. It is how we manufacture goods, grow food, transport food, and transport ourselves, just to name a few. If subsidies were to be slashed overnight, it would have a cascading effect on the economy and the cost of living for everyday Americans, while Big Oil execs would be a-okay. This is why a slow phase-out is necessary as we build a green grid.
What to do with the money instead?
Many suggest that the money still goes to the fossil fuel companies.Instead of using the money to make a profit, they would have to use that money to properly clean up old drilling and mining sites or use the money to transition to more green energy. For example, coal mines. The Breakthrough Institute states that, “Open or inadequately sealed mine shafts and slopes can lead to gas leaks, groundwater pollution, erosion, mine fires, and subsidence problems. States and tribes have estimated total unfunded costs for the reclamation of eligible sites at approximately $10.7 billion to date, and as of November 2018, the unappropriated balance of the Abandoned Mine Reclamation Fund was approximately $2.3 billion.”
They have similar suggestions for the oil industry: “’ Orphan’ oil and gas wells are wells that have been abandoned by companies that cannot pay to remediate them, a problem that is exacerbated whenever oil and gas prices plummet. These wells pose a threat to the environment, as they can leak methane into the atmosphere and can cause groundwater contamination. Not all states have effective programs to pay for plugging wells, and even in states that have incorporated adequate requirements, the backlog of orphan wells is still an issue.”
Well, now we know how these subsidies work. If you want a post on oil lobbying (which is inextricably linked to subsidies), let me know!
As always, remember that your small actions make a big impact in the long run :)
Emma
