Effect of government subsidies for upstream oil infrastructure on U.S. oil production and global CO2 emissions

The study finds that at oil prices of $50 per barrel, U.S. government subsidies make nearly half of discovered, not-yet-producing oil fields profitable, potentially adding 20 billion barrels of production. This would result in approximately 8 billion tonnes of CO2 emissions, representing about 1% of the remaining global carbon budget to limit warming to 2°C. The analysis highlights that while subsidies significantly drive production at lower prices, they primarily function as transfers to industry profits at higher prices (e.g., $100 per barrel). The most impactful subsidy identified is the immediate expensing of intangible drilling costs (IDCs).

• At oil prices of $50 per barrel, subsidies increase the amount of profitable discovered but not-yet-producing oil from 24 billion barrels to 43 billion barrels, an increase of nearly 80 percent.
• Subsidies potentially enable the production of an additional 20 billion barrels of oil, which would emit 8 billion tonnes of CO2 upon combustion.
• The 8 billion tonnes of CO2 emissions resulting from subsidy-dependent oil represent approximately 1% of the remaining global carbon budget to keep warming under 2°C, and potentially up to a quarter of the U.S. share of the oil production carbon budget through 2050.
• The impact of subsidies on production is highly sensitive to oil prices; at $100 per barrel, nearly all discovered fields are economic without subsidies, meaning subsidies primarily increase industry profits rather than production levels.
• At $50 per barrel, 53% of the total subsidy value (in net present value terms) flows to projects that would have been profitable even without government support, representing a transfer of taxpayer funds to company profits.
• The immediate expensing of intangible drilling costs (IDCs) is the most significant subsidy affecting project internal rates of return (IRR), boosting Permian Basin IRRs by nearly 7 percentage points on a production-weighted basis.
• State-level subsidies in Texas, including limited bonding, road maintenance provision, and severance tax exemptions for enhanced oil recovery, collectively increase project IRR by more than 2 percentage points.
• The share of subsidy-dependent oil varies by region; at $50 per barrel, the highest percentage of subsidy-dependent resources is found in the Gulf of Mexico (73%), followed by the Williston basin (59%), the Rest of the U.S. (46%), and the Permian basin (40%).

APA

Erickson, P., Down, A., Lazarus, M., & Koplow, D. (2017). Effect of government subsidies for upstream oil infrastructure on U.S. oil production and global CO2 emissions. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-02-US-oil-and-gas-production-subsidies.pdf

Chicago

Erickson, Peter, Adrian Down, Michael Lazarus, and Doug Koplow. Effect of government subsidies for upstream oil infrastructure on U.S. oil production and global CO2 emissions. Stockholm Environment Institute, 2017. https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-02-US-oil-and-gas-production-subsidies.pdf.

Wikipedia

{{cite report |last1=Erickson |first1=Peter |last2=Down |first2=Adrian |last3=Lazarus |first3=Michael |last4=Koplow |first4=Doug |title=Effect of government subsidies for upstream oil infrastructure on U.S. oil production and global CO2 emissions |publisher=Stockholm Environment Institute |date=January 2017 |url=https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-02-US-oil-and-gas-production-subsidies.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{erickson2017effect, author = {Erickson, Peter and Down, Adrian and Lazarus, Michael and Koplow, Doug}, title = {{Effect of government subsidies for upstream oil infrastructure on U.S. oil production and global CO2 emissions}}, institution = {Stockholm Environment Institute}, year = {2017}, month = jan, url = {https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-02-US-oil-and-gas-production-subsidies.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }