Letter to Hon. Joseph DeCorolis, Administrator of the US Energy Information Administration - Congressman Krishnamoorthi Calls For A Federal Review Of Whether Fossil Fuel Subsidies Actually Reduce Gas Prices For Consumers In Response To Oil Companies Reporting Record Profits

Letter

Dear Administrator DeCarolis:

Federal tax preferences for fossil fuel companies currently cost the federal government billions of dollars in lost revenue annually, and with oil prices at near historic highs--and oil companies reporting historic profits--it begs the question: what are we getting for our money? Therefore, in order to best allocate taxpayer resources, I respectfully request data on the projected impact of federal fossil fuel tax preferences on oil production and oil prices.

According to the Treasury Department's FY22 Revenue Proposals, tax incentives for domestic fossil fuel production will cost the federal government around $35 billion over the next 10 years. Additionally, oil and gas companies also benefit from large tax subsidies on foreign investment, including an exemption on income earned from foreign oil and gas extraction and a 50% deduction on foreign oil related income. Together, the Treasury estimates that these tax incentives for international fossil fuel production will cost the U.S. government $84.8 billion in lost revenue over the next 10 years. Finally, barring oil & gas companies from using the Last-In, First-Out (LIFO) accounting method could save the government another $7 billion per year. Although not exclusively used by the oil industry, the LIFO method disproportionately benefits oil companies, and in 2015, the Treasury estimated that eliminating this method would save the government $76 billion in lost tax revenue over 10 years. Altogether, these tax incentives for fossil fuel companies cost the government an average of $12 to $19 billion per year.

However, despite this immense federal subsidy, recent modelling by researchers at the Stockholm Environment Institute and Earth Track has found that the impact of these subsidies on oil production and oil prices is limited, even more so when oil prices are high, as they are now, and new oil wells have a high expected rate of return. Similarly, earlier research by former Deputy Assistant Treasury Secretary for Environment and Energy, Gilbert Metcalf, suggests that ending subsidies for fossil fuel companies would have a minimal effect on oil production and global oil prices. With oil now trading at around $100/barrel, instead of lowering retail gas prices, federal fossil fuel tax subsidies are going almost entirely toward oil producers' profits.

As the nation's premier source of rigorous, impartial energy data and analysis, I respectfully request that the Energy Information Administration provide my office with an updated analysis of the impact of federal fossil fuel subsidies on current oil production and oil prices, taking into account the current price of oil. Given the enormous toll that current fossil fuel prices are taking on my constituents, this requested analysis is time sensitive. Therefore, I request this analysis by May 16, 2022. My staff and I look forward to your timely response.

Sincerely,

Raja Krishnamoorthi

Member of Congress

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