9/10/2017 Forget the Paris agreement. The real solution to climate change is in the U.S. tax code.

Democracy Dies in Darkness

Wonkblog | Analysis

Forget the Paris agreement. The

real solution to climate change is
in the U.S. tax code.
By Tim McDonnell
October 2, 2017 at 11:00 AM

President Trump delivers remarks on his proposed changes to the U.S. tax code during
an event with energy workers at the Andeavor Refinery in Mandan, N.D. (Jonathan
Ernst/Reuters)

When President Trump made a speech a few weeks ago to kick off his push
for an overhaul of the tax code, he chose a telling backdrop: An oil refinery
in North Dakota, a state that over the past decade exploded from backwater
to boom town thanks to a massive spike in oil production.

"I want all of America to be inspired by what's happened in North Dakota

and the North Dakota example," Trump said. Standing with him on the
podium was Harold Hamm, the North Dakota oil billionaire who has
helped shape Trump's views on energy. So when Trump said he
wanted to "restore America's competitive edge by passing tax cuts," he
seemed to have at least one particular industry in mind: oil.

Related: [GOP tax plan would provide major gains for richest 1
percent and uneven benefits for the middle class, report says]

When the Republican tax plan came out last week, it was short on details,
leaving much of the nitty-gritty for Congress to hash out. It limits some
benefits that oil companies traditionally rely on, such as deductions for
interest payments that make it easier to raise money for expensive
infrastructure like pipelines.

But the oil industry is still calling it a win, citing proposals that would make
it easier for oil companies to recover their investments in exploration and to
shield profits earned from drilling overseas, in addition to lowering the
corporate tax rate to 20 percent.

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9/10/2017 Forget the Paris agreement. The real solution to climate change is in the U.S. tax code.

The oil and gas producers lobby group, Independent Petroleum Association
of America, called it a "positive step forward," while the American
Petroleum Institute said the reforms would "strengthen the U.S. energy
renaissance."

The tax blueprint also expands Trump's reversal of Obama-era climate

measures.

In 2009, President Barack Obama joined other Group of 20 leaders in a

pledge to eventually phase out fossil fuel subsidies.

The GOP tax plan gives little indication of keeping that commitment and
that could have significant implications for U.S. oil production and the
climate.

Already, the U.S. oil industry benefits from a dozen specialized subsidies
adding up to about $4.6 billion per year, according to a 2015 review by the
Obama administration. Among other things, the subsidies reduce the costs
of labor and equipment involved in drilling and shield some of the profits
earned on the oil itself.

Those tax breaks and other subsidies don't just help the industry a little bit.
In many cases, they determine whether it's even worth drilling in the first
place, according to a study earlier this year from the Stockholm
Environment Institute, a nonprofit research organization.

Without federal and state subsidies, nearly half of U.S. oil production
about 45 percent would be unprofitable at current prices, the researchers
found.

So, unless oil prices go rocketing up, reducing or eliminating those subsidies
would likely lead to a significant reduction in oil production over time.

In other words, tax reform can help fight climate change just not the kind
of tax reform Trump and Republicans are proposing.

In a new study Monday in Nature Energy, SEI researchers looked at newly

discovered U.S. oil fields that have not yet been put into production all
800 of them.

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9/10/2017 Forget the Paris agreement. The real solution to climate change is in the U.S. tax code.

The researchers found that about half of these undeveloped fields would
never go into production, (assuming an oil price of $50 per barrel, close to
where it is today) if oil company tax breaks are taken out of the picture.
The study is based on the current range of subsidies and doesn't account for
changes that could result from the new GOP plan.

But if the range of subsidies offered today remain, those new wells could
produce up to 17 billion barrels over the next few decades, SEI found, which
in turn would produce around six gigatons of carbon dioxide.

To meet the goal set out under the Paris climate agreement to keep warming
"well below 2 degrees C above pre-industrial levels," the United States can
emit no more than 30 to 45 gigatons of CO2 between now and 2050.

Related: [Some tax breaks are for the rich. Others for the poor.
Which are for you?]

So the oil produced as a result of subsidies could eat up 13 to 20 percent of

the U.S. "carbon budget" not that Trump, who pulled out of the
climate agreement in June, seems intent on meeting the Paris targets.

"It's very much underappreciated how these subsidies ultimately tilt the
balance to increasing oil production and increasing CO2 emissions," Peter
Erickson, the study's lead author, said in an interview.

The study found that if the price of oil were to climb above $70 per barrel,
subsidies would have less impact on production because revenue would be
high enough to justify drilling. But in that case, the subsidies just become an
additional source of profit for oil companies possibly not the best use of
taxpayer dollars given that the tax plan could cost $2.2 trillion by 2027,
according to the Committee for a Responsible Federal Budget, a watchdog
group.

"These subsidies are really a lose-lose," Erickson said.

The Republican tax proposal offers a vague promise to "modernize" tax rules
that apply only to specific industries, presumably including oil.

But if the president's enthusiasm for oil drilling in North Dakota is any
indication, that reform seems unlikely to proceed in a way that will reduce
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9/10/2017 Forget the Paris agreement. The real solution to climate change is in the U.S. tax code.

the nation's future carbon footprint.

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9/10/2017 Forget the Paris agreement. The real solution to climate change is in the U.S. tax code.

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