New Research Paper Calls for Elimination of Fossil Fuel Subsidies

February 26, 2013
by Doug Gavel

Four billion U.S. tax dollars are used every year to subsidize the production of fossil fuels, but some lawmakers are now beginning to question the wisdom of such policy. In a new research paper, Harvard Kennedy School Assistant Professor Joseph Aldy recommends eliminating twelve of the tax provisions that historically benefit oil and gas companies doing business in the United States.

"Implementing this proposal will contribute to a leveling of the playing field among oil and gas companies, since independent producers enjoy greater tax benefits than the oil majors, and will promote the efficiency in allocating capital across the U.S. economy," Aldy writes in "Eliminating Fossil Fuel Subsidies," published by The Hamilton Project. "Since these subsidies have a very small impact on production, their removal will not materially increase retail fuel prices, reduce employment, or weaken U.S. energy security."

Aldy argues that his proposal complements efforts to simplify the tax code and may therefore be more politically palatable in Washington.

"In addition, removing U.S. fossil fuel subsidies would enable the U.S. government to make the case more effectively that large developing countries (such as China, India, and energy exporters) should phase out their fossil fuel consumption subsidies that contribute to higher oil prices in the United States," Aldy concludes.

Joseph Aldy is an Assistant Professor of Public Policy at Harvard Kennedy School, a nonresident fellow at Resources for the Future, and a faculty research fellow at the National Bureau of Economic Research. He is also the faculty chair for the Regulatory Policy Program at the Mossavar-Rahmani Center for Business and Government. His research focuses on climate change policy, energy policy, and mortality risk valuation.

Photograph of Joseph Aldy

Assistant Professor Joseph Aldy

"Implementing this proposal will contribute to a leveling of the playing field among oil and gas companies, since independent producers enjoy greater tax benefits than the oil majors, and will promote the efficiency in allocating capital across the U.S. economy," Aldy writes.


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