The United States, a leading producer and consumer of energy, had its declining reserves boosted recently by new hydrocarbon discoveries in the Gulf of Mexico and by the deployment of new technologies for the extraction of shale gas and tight oil in states such as North Dakota, Ohio and Texas. The country was heavily dependent on imports of oil, which in 2013, net imports contributed 44% of the volume of its total crude-oil supply but increased domestic production in recent years has more than halved this share to just over 18% in 2021. In 2022, the United States exported around 30% more energy than imported. Higher exports were seen in petroleum products, natural gas, coal, and biomass, whereas higher imports were seen in electricity and crude oil. Overall, the United States produced almost all its total energy needs domestically in 2021 with the country maintaining its net total energy exporter status since 2019.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
United States
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
The US coal industry is entirely privately owned, with the five largest coal producers accounting for more than half of total coal production; about 40% of coal consumed in the United States is mined within federally managed lands. Most of the coal produced in the US is used for power generation (91.9% in 2021, in forms ranging from lignite to anthracite). The share of coal in electricity generation has been declining in recent years (19% in 2022) as natural gas (39% in 2022) and renewable energy (23% in 2022) play an increasingly bigger role in the country’s energy mix. The US domestic oil market is fully deregulated and open to competition. Exports of crude oil, except for small amounts of condensate, were previously banned until the 40-year policy was repealed at the end of 2015. A third of the country’s recoverable oil resources lie on federal land or in federally controlled offshore water but this share has decreased substantially in recent years as more and more shale-gas resources located on non-federal land have been developed. The US refinery network, at 125 operating and five idled as of 2022, is the largest in the world.
The US natural-gas market is large, competitive, and well-integrated with the North American markets of Canada and Mexico. After Russia’s invasion of Ukraine in February 2022, an increased momentum in commissioning new LNG liquefaction terminals in the Gulf of Mexico is taking place. More recently, there has been a repositioning of US LNG exports, with 64% of its LNG exports in 2022 going to Europe, instead of Asia. On the domestic front, the US gas industry is largely in private hands with the only public ownership seen in the distribution segment; the 950 municipally owned gas utilities account for just 7% of domestic gas sales.
The structure of the electricity-supply industry is complex and fragmented. Electricity generation is dominated by investor-owned utilities (IOUs, i.e. largely privately-owned companies), accounting for 60% of generation while independent power producers (IPPs) account for about 30%; the rest is generated by federal and municipal companies and rural electric co-operatives. Retail sales are dominated by IOUs while wholesale power purchases are primarily undertaken by power marketers and energy service providers.
Energy prices and taxes
In general, non-reticulated forms of energy are not subject to any price controls in the US. Some states, however, have the power to implement price ceilings for oil products. Electricity and natural-gas prices are generally regulated by the Federal Energy Regulatory Commission (FERC) at the wholesale level, and by state regulatory commissions at the retail level. Prices and network charges are set on a cost-of-service basis. Taxes on energy are for the most part levied by the states and the federal government with some states allowing their municipalities to levy their own. Automotive fuels in general are exempt from state sales tax, as special taxes on these fuels are levied at the state, and in some cases, local level. Rules governing the ownership of underground resources in the United States are different in that private owners of non-federal land also possess the corresponding mineral rights for sub-surface resources. This contrasts with other fossil-fuel-producing countries where sub-surface resources generally belong to the public, irrespective of whether the land above is privately held.
Figure 2. Total tax rebates and support for fossil fuels in the United States
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
Both federal and state governments provide support to the fossil fuel industry through budget transfers and tax expenditures. Recent trends in support coincide with rising fuel costs due to high inflation, increasing demand, and changes in supply in the global energy market.
There are several federal programs benefiting energy consumption such as the Low-Income Home Energy Assistance Program (LIHEAP) and the Strategic Petroleum Reserve (SPR). LIHEAP provides grants to poor households to help them pay their energy bills. Although government funding to LIHEAP doubled from 2020 to 2021 to address increased need from the pandemic and rising winter heating costs, funding returned to pre-pandemic levels in 2022. The SPR, created in 1975 to provide a secure reserve of petroleum that could be accessed quickly in the event of a major supply disruption, is also a source of support to the oil industry, as its costs are covered entirely by the federal government. In a response to increasing global gas prices due to sanction on Russian oil, the US administration announced in October 2022 that it would allow fixed-price forward purchases of crude oil to replenish the SPR and encourage short-term production. This new rule enables the Department of Energy to enter purchase contracts for future delivery at a fixed price, providing greater certainty to producers on the revenues they would generate if they increased their production of crude oil in the short term.
State governments also provide support to the fossil fuel industry. Most new measures in 2022 provided energy price support through tax cuts and suspensions. For example, five states – Connecticut, Florida, Georgia, Maryland, and New York – suspended fuel tax collections. Additionally, Colorado, Illinois, and Kentucky halted planned increases in gas taxes until 2023. These efforts were in place to assist all energy users with high fuel prices.
One state, Alaska, also provided an energy relief payment in addition to their distribution from the annual Permanent Fund dividend. This measure applied to all eligible Alaskans to combat high inflation and gas prices.
The fiscal cost of support measures for fossil fuels in United States was estimated at USD 14.03 billion in 2022 (Table 1). Fifty-six per cent (56%) was directed at end user beneficiaries, as opposed to 43% directed to firms. Support was mainly given out in the form of tax expenditures (USD 10.72 billion) accounting for 76% of the total fiscal cost of support measures. Direct transfers amounted to USD 3.31 billion.
The fiscal cost of support measures for fossil fuels has increased by 51% since 2017. Since last year, tax expenditures have increased by 42%, from USD 7.69 billion to USD 10.72 billion and direct transfers decreased by -39%, from USD 4.52 billion to USD 3.31 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
6.641 |
8.102 |
8.829 |
7.203 |
7.687 |
10.718 |
|
Direct transfers |
2.659 |
2.351 |
2.745 |
3.105 |
4.520 |
3.315 |
|
Total |
9.301 |
10.453 |
11.574 |
10.308 |
12.207 |
14.033 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Fuel tax suspension - Georgia |
1.664 |
(Started in 2022) |
1.664 |
|
|
Excess of Percentage over Cost Depletion |
0.960 |
0.440 |
0.520 |
|
|
Sales Tax Exemption for Natural Gas and Electricity for Residential Sector |
0.784 |
0.684 |
0.100 |
|
|
Direct transfers |
||||
|
Low-Income Home Energy Assistance Program |
1.487 |
1.416 |
0.072 |
|
|
Fossil Energy R&D |
0.945 |
0.732 |
0.213 |
|
|
Alaska Energy Relief Payment |
0.396 |
(Started in 2022) |
0.396 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Fuel tax suspension - Georgia |
The USD 0.291/gallon tax on motor fuel and USD 0.326/gallon tax on diesel were suspended from March to May 2022. The suspension was extended by executive order until 10 January 2023. |
|
Excess of Percentage over Cost Depletion |
Under normal income-tax rules, cost depletion provides that expenses that are capitalised into the basis of mineral properties be recovered (i.e. deducted) over time as resources are extracted from the wells or mines. This is because “depletion, like depreciation, is a form of capital recovery” (CRS, 2012: 129). Under percentage depletion, producers can, however, recover the capitalised costs by claiming as a depletion allowance a fixed percentage of revenue from the property. Over time, the sum of these deductions can be several times the original cost of the investment. For crude-oil and natural-gas properties, the percentage ranges from 15% to 25% and, except in the case of marginal wells, the deduction may not exceed 100% of the net income from the property. In addition, the percentage depletion deduction for oil and gas properties may not exceed 65% of the taxpayer’s overall taxable income. Only independent producers and royalty owners (as opposed to integrated oil companies) qualify for percentage depletion |
|
Sales Tax Exemption for Natural Gas and Electricity for Residential Sector |
The Texas Tax Code exempts certain uses of natural gas and electricity from the sales tax that normally applies to most sales of goods and services in the state. Qualifying uses include processing a product for sale; exploring for or producing and transporting a material extracted from the earth; agricultural operations; gas and electricity used by an electric utility; gas and electricity used in residences; and gas and electricity used in timber operations. Exempting intermediate inputs from sales tax is generally not considered as tax expenditure. In this case, the exemption serves to prevent the cascading of taxes on the final sale of the product considered. |
|
Low-Income Home Energy Assistance Program |
This Federal programme was originally created in 1981 to help low-income households pay their energy bills. It covers the costs associated not only with heating, but also cooling to ensure that states located in warmer areas equally gain access to federal funding. Being a block grant programme, the federal government uses a complex formula to allocate total funding for LIHEAP among the different states. The states then have some discretion in administering the grants. Home energy assistance is often provided in-kind to households as payments can be made directly to energy providers or landlords. |
|
Fossil Energy R&D |
This programme provides funding for research and development projects related to fossil energy such as fuel conversion or coal liquefaction. Its creation dates to the late 1980s, but the programme recently gained importance with the 2009 American Recovery and Reinvestment Act (ARRA), which provided significant extra funding. |
|
Alaska Energy Relief Payment |
This one-time measure in 2022 provides additional support to Alaskans for energy relief due to high inflation and gas prices. Eligible Alaskans will receive the energy relief in combination with the annual Permanent Fund dividend. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.