America's 'hidden subsidies' for fossil fuels are worth $170 billion a year

Donald Trump wants to restrict or even abolish the US Environmental Protection Agency (EPA). In particular, he is proposing to dramatically limit the federal agency’s power to regulate carbon dioxide emissions, instead putting the onus on individual states to self-regulate.

Although it sounds like a dire strategy, and emissions will probably increase, tougher regulations in blue states like California or New York should mitigate the inevitable oil and gas boom in Texas and the Midwest.

Far more worrying than a scale back of the EPA are existing policies, which already subsidise fossil fuels to an alarming extent. US markets are currently so distorted in favour of the most polluting energy sources that scrapping climate regulations will do relatively little to increase emissions, compared to the damage that is already being done. Trump’s anti-EPA proposals – if they are ever implemented – will be comparable to throwing a match on a burning building.

Coal, oil, and natural gas – fossil fuels – are the key cause of climate change, yet they receive huge support from governments. I’ve developed a new method to extract the size of fossil-fuel subsidies by looking at how much these fuels are used by individual countries. By comparing actual energy use to a hypothetical amount a country “should” use in the absence of subsidies, we can extract the value of a country’s implicit subsidies.

These benefits go far beyond the obvious tax breaks for coal, oil and gas firms. We are dealing here with entire economies set up to favour fossil fuel consumption over more energy-efficient or renewable alternatives. This manifests itself in a wide variety of “hidden subsidies”, ranging from cheaper loans for drilling companies to subsidised mortgages which push people to build bigger houses that use more energy.

One striking example is the exemption of roadways from property tax. In the US, almost all land pays some type of property tax – even federal forests pay states for tying up land in a particular use. The land on which roads are built, however, generally pays nothing. This results in lost revenues and encourages more driving, and more petrol burning.

Add up the value of all these benefits and what do we get? In 2010, the most recent year in my analysis, fossil fuel subsidies in the US were worth a staggering US$170 billion. That amounted to 1.8% of GDP or US$1,400 per year for the average American family.

These subsidies have been rising since 1980, the earliest year I analysed, even as people became more aware of global warming. Ironically, there was an especially sharp rise just after America signed the Kyoto protocol in 1997 – an international treaty aimed at restricting carbon emissions. While probably unrelated, this nonetheless highlights that what governments say and do are two entirely different and often opposing things.

These subsidies are already contributing to higher emissions to a far greater extent than any potential EPA deregulation. Both directly and indirectly the government offers incentives to individuals and firms to use more energy and to burn more fossil fuels than they otherwise would.

Getting rid of these policies would improve efficiency and provide a reprieve to strained government budgets, while also lowering carbon emissions. My research shows that had the US eliminated all subsidies between 1980 and 2010, its emissions would have been 11% lower than they actually were. In fact, almost the entire increase in US carbon emissions over that period came from rising fossil-fuel subsidies which encouraged more energy use.

Trump’s suggestion that he may seek to eliminate the EPA and its various regulations on vehicle or factory pollution would work like yet another subsidy. However, the effects pale in comparison to the damage already done and continuing to be done by existing subsidy programs implemented over the past 20 years under presidents Clinton, Bush and Obama.

Radek Stefanski worked as a post-doctoral research fellow at the Oxford Center For the Analysis of Resource Rich Economies at the University of Oxford. This position was funded in part by a research grant paid by BP to Tony Venables and Rick van der Ploeg.