US President Joseph Biden proposed eliminating a slew of tax benefits for oil, natural gas, and coal producers in favor of electric vehicle and other low-carbon energy alternatives as part of his $6 trillion budget for the next fiscal year.
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Repealing the measures will save the government $35 billion over the next 10 years and raise an additional $86 billion by reforming the taxation of foreign fossil fuel income, according to Biden administration estimates.
The Department of the Treasury said the tax preferences that Biden wants to slash "distort markets by encouraging more investment in the fossil fuel sector than would occur under a more-neutral tax system."
"This market distortion is detrimental to long-term energy security and is also inconsistent with the administration's policy of supporting a clean-energy economy, reducing our reliance on oil, and reducing greenhouse gas emissions," Treasury said May 28 in an explanation of the fiscal 2022 budget.
"Moreover, the subsidies for oil, natural gas, and coal must ultimately be financed with taxes that cause further economic distortions including underinvestment in other, potentially more productive, areas of the economy."
The budget proposal outlines the administration's priorities and merely serves as a starting point for Congress, which is ultimately responsible for writing and passing appropriations bills to fund the federal government.
The Biden administration proposed repealing the: pass-through exemption from corporate income tax for partnerships that derive at least 90% of gross income from natural resources; use of percentage depletion for oil and gas wells; expensing of intangible drilling costs; capital gains treatment for royalties; enhanced oil recovery credit; $3.90/b credit for marginal oil wells; expensing of exploration and development costs, and other tax incentives.
The Senate Finance Committee has already taken aim at fossil fuel tax preferences in the Clean Energy for America Act, which moved out of committee May 26. The panel voted 14-14 along party lines, but Democrats have the authority to move legislation to the Senate floor. It remains uncertain whether the measure gets a vote by the full Senate remains uncertain.
Barry Russell, president of the Independent Petroleum Association of America, said eliminating the tax provisions imperils future energy security and will return the US to reliance on foreign energy supplies.
Collin Rees, a senior campaigner with Oil Change International, said the group was pleased to see such a strong commitment to ending "fossil fuel giveaways" featured prominently in Biden's budget and American Jobs Plan.
"Ending deadly fossil fuel subsidies is enormously popular with the American public, and a key piece of our fight against climate chaos," Rees said.