History of Fossil Fuel Subsidies

Over a century ago, the O&G industry received its first set of tax incentives. Next time you hear that renewables cannot be competitive because they receive huge subsidies, mention these, and mention that the O&G industry is one of the most profitable industries out there, all because of a century of subsidies. You might also mention that those subsidies don’t consider the deleterious impact on the health of people and the destruciton of the environment caused by burning fossil fuels. Here is a brief review of tax-related subsidies given to the O&G industry:

  1. the intangible drilling cost deduction (1916), which allows companies to write off known equipment expenses as if they are research and development investments.
  2. Next came the special percentage depletion allowance (1926), which can be used in some cases to claim tax deductions in excess of investment;
  3. deduction for tertiary injectants (1980), which allows companies to deduct some costs immediately instead of capitalizing them and depreciating the cost over the life of the investment;
  4. amortization period of geological and geophysical costs, which for smaller companies is reduced to two years;
  5. last-in, first-out accounting (1939), which allows companies to assume that the oldest (and presumably cheaper) barrels of oil remain in inventory reducing tax burdens;
  6. domestic production activities deduction (Section 199) (1980) which allows an additional deduction from the tax rate for manufacturing in the US – roughly one-third of all US corporate activity qualifies for the deduction, including oil and gas production.
  7. 2005 Amortization period for Geological & Geophysical costs;
  8. allowing the use of Master Limited Partnerships, which allow entities that are effectively corporations to avoid corporate tax rates by labeling themselves as partnerships.

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