A study explores how externalizing costs and inefficient pricing benefit US fossil fuel companies. Current fossil fuel pricing in the United States fails to account for various external costs to society, including climate-change-related damages, adverse health effects from pollution, congestion-based travel delays, and road damage. As a result, fossil fuel producers receive higher prices than they would if these costs were internalized, creating an implicit subsidy. Matthew Kotchen estimated the value of this implicit subsidy specifically for US producers of coal, natural gas, gasoline, and diesel. Between 2010 and 2018, the value of this subsidy to all producers averaged $62 billion per year. Because the number of fossil fuel producers is relatively small, this subsidy translates into a large benefit for individual companies. Among the largest domestic producers, the benefits ranged from tens of millions of dollars to more than $1.5 billion in 2018 alone. For 2017-2018, the benefit was equal to 18% of net income from US operations for the median oil and gas producer, and exceeded net income for most coal producers. The results highlight the extent to which fossil fuel companies stand to lose from stricter regulatory reform and may also affect policymakers' views of additional subsidies, according to the author.
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Article #20-11969:
"The Producer Benefits of Implicit Fossil Fuel Subsidies in the United States," by Matthew J. Kotchen.
MEDIA CONTACT:
Matthew J. Kotchen,
Yale University, New Haven, CT;
tel: 805-450-6389;
email: <matthew.kotchen@yale.edu>