How Joe Biden Can Cut Off the Fossil Fuel Industry’s Federal Funding

by Alexander E. Kaufman (Huffington Post/Yahoo! News) ... The 11-page Evergreen Action memo highlights the limits of what the Biden administration can do unilaterally. At least a dozen ideas proposed in the document require Congress to act, including nearly all steps to cut off financial benefits to fossil fuel producers.

There’s the intangible drilling deduction, which lets oil companies deduct the cost of drilling new wells from their year-end tax bills, valued at $1.59 billion annually or $13 billion over the next 10 years. There are roughly $530 million in deductions for royalty payments to foreign governments for drilling overseas, and as much as $8.8 billion over the next 10 years in incentives for using captured carbon emissions to extract the dregs from oil wells. Then there’s the “first out, last in” accounting trick that allows companies to reduce their tax bills by selling off the most expensive fossil fuel reserves first, artificially reducing the inventory on which they pay taxes by an estimated $1.7 billion per year. All that would require lawmakers to enact new statutes.

So, too, would blocking oil and gas companies from using a tax structure known as Master Limited Partnership, or MLPs, which are exempt from corporate income tax. Nearly three-quarters of MLPs were fossil fuel companies as of 2016, according to data from the nonprofit Oil Change International, representing some $1.6 billion in lost annual tax revenue.

Congress would also need to give Biden the authority to yank existing drilling leases on federal lands, though the president’s advisers ― either recognizing their limitations or tempering activists’ expectations ― showed little appetite for that on Wednesday.

“The opportunity for states to continue to accrue royalties from coal and natural gas that’s properly done on federal lands can continue,” Gina McCarthy, Biden’s national climate adviser, said during a White House press briefing.

That doesn’t mean there’s no hope for legislation. Rep. Ilhan Omar (D-Minn.) and Sen. Bernie Sanders (I-Vt.) proposed a bill last year to strip fossil fuel companies of subsidies. The Evergreen Action memo calls on Biden to champion some version of that proposal.

With Democrats in control of both chambers of Congress, Biden could also press allies to pass the bill Sen. Jeff Merkley (D-Ore.) and Rep. Nanette Barragán (D-Calif.) introduced last spring to permanently block the federal government from aiding fossil fuel companies during a crisis like the coronavirus pandemic by taking steps such as slashing royalty rates owed for drilling on public lands.

Among the executive orders Wednesday was a directive to agency heads to “identify steps” to “promote ending international financing of carbon-intensive fossil fuel-based energy” through the U.S. Export-Import Bank, the federal government’s main overseas financing arm. That language seems to leave open the door to natural gas projects and other lower-carbon fossil fuel infrastructure.

Evergreen Action’s proposal goes further, calling for an end to all fossil fuel financing.

The group urges Biden to “examine appropriate repayment from oil corporations for the costs to the U.S. Treasury for protecting their shipping lanes ― and thus their profits,” pointing to the $81 billion per year the nonprofit Securing America’s Future Energy estimates the military spends defending global oil supplies. READ MORE

Excerpt from grist:First, the Biden administration could make sure that fossil fuel companies have to pay up when facing government penalties. In 2015, for instance, the Justice Department reached a settlement with BP over the Deepwater Horizon oil spill, promising that the company would have to pay $20.8 billion in damages for leaking oil all over the Gulf of Mexico. But the settlement turned out to be tax-deductible, meaning that BP could write off $15.3 billion of the penalty. Under a Biden administration, the Justice Department could close that kind of loophole, Rees said.

The federal government also spends upwards of $700 million every year maintaining and constructing shipping lanes on rivers around the U.S., often for the transport of oil and coal. That, Rees says, could also be cut down if the Biden administration moves to eliminate support of fossil fuels. The government could also stop new low-cost leasing in publicly owned lands in the Powder River Basin of Wyoming and Montana, where coal companies are getting a big financial break on mining.

The biggest effect of Biden’s new order might not be the money itself. “The dollars at stake here are not going to hurt the industry,” said Andrew Logan, the senior director of oil and gas at Ceres, a sustainability nonprofit. While a few billion dollars looks big in the aggregate, spread across the entire U.S., it probably isn’t enough to hurt a particular company or project. But the executive order could damage the industry’s image. “What they really don’t want to do is become the next tobacco,” Logan said. Dwindling support for fossil fuels could lead banks and investors to steer clear of oil and gas companies in the future.

Rees says that environmental activists have pushed the elimination of fossil fuel subsidies from a niche cause to a voter demand. Last year, the Democratic National Committee faced backlash after quietly removing mention of oil and gas funding from its party platform. (At the time, Biden’s press secretary confirmed that the candidate still supported canceling government support for fossil fuels.)

Biden’s orders are also a big shift from the Obama years, when the name of the game was an “all of the above” energy strategy that didn’t specifically target fossil fuels. Now, pressured by activists, the federal government is much more openly hostile to oil and gas. As part of the same executive order on Wednesday, for example, Biden also promised that the U.S. would work to end international financing of fossil fuel projects. There’s “this increasing recognition that the fossil fuel industry is not our friend,” Rees said. READ MORE