Direct Indirect Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs

The document analyzes indirect fossil fuel subsidies in the U.S., which include tax breaks, abnormal accounting, royalty relief, and unpriced societal costs. It argues that many of these subsidies, often established decades ago, persist despite the maturity of the fossil fuel industry and the emergence of cleaner energy alternatives. The report highlights significant financial losses to the federal government, such as billions in foregone royalties and tax expenditures, and notes that the external costs of fossil fuel usage—including health and environmental damages—far exceed the revenue collected to mitigate them.

• Indirect subsidies, defined as foregone government revenue or tax expenditures, are significantly larger than direct subsidies, with a scale that outnumbers direct counterparts by three to one.
• Specific tax provisions for the coal industry, such as the Capital Gains Treatment of Royalties on Coal Credit, were designed in 1951 to insulate owners from high marginal income tax rates; this credit totaled $1 billion in tax expenditures from 2002 to 2008.
• The Domestic Manufacturing Deduction (IRC §199) is expected to cost the U.S. government $13.2 billion between 2010 and 2019 for the oil and gas sectors alone.
• Accounting abnormalities like percentage depletion and the immediate expensing of intangible drilling costs (IDCs) significantly reduce tax burdens; percentage depletion is projected to cost over $11 billion over the next decade, while IDCs are estimated to cost $12.4 billion over the same period.
• Failures to set price thresholds for offshore leases issued in 1998 and 1999 under the Deepwater Royalty Relief Act of 1995 have created substantial unintended subsidies, with future costs estimated up to $14.7 billion and potential additional losses of up to $53 billion over the lifetime of the leases.
• The U.S. government's take from federal onshore lands and the Gulf of Mexico is among the lowest globally, ranking lower than most of the 226 fiscal systems analyzed in a 1994 World Bank study.
• Non-climate external costs of fossil fuel usage in the U.S. for 2005 totaled $117 billion, with coal electricity generation contributing $62 billion, oil-based transportation fuels $53 billion, and natural gas for power and heat $2.2 billion.

APA

Environmental and Energy Study Institute (2011). Direct Indirect Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs. https://www.eesi.org/files/fossil_fuel_subsidies_062311a.pdf

Chicago

Environmental and Energy Study Institute. Direct Indirect Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs. 2011. https://www.eesi.org/files/fossil_fuel_subsidies_062311a.pdf.

Wikipedia

{{cite report |author=Environmental and Energy Study Institute |title=Direct Indirect Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs |date=June 2011 |url=https://www.eesi.org/files/fossil_fuel_subsidies_062311a.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{environmentalandenergystudyinstitute2011direct, author = {{Environmental and Energy Study Institute}}, title = {{Direct Indirect Fossil Fuel Subsidies: A Closer Look at Tax Breaks, Special Accounting, and Societal Costs}}, institution = {Environmental and Energy Study Institute}, year = {2011}, month = jun, url = {https://www.eesi.org/files/fossil_fuel_subsidies_062311a.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }