Ending $4 Billion U.S. Oil Subsidy Seen Having Minimal Impact

  • Domestic oil production could fall 5 percent by 2030
  • Eliminating subsidies wouldn’t affect demand, carbon emissions

Eliminating $4 billion of petroleum subsidies in the U.S. would have only a minor affect on oil production and demand and boost the country’s influence in advocating global climate change action, according to a report for the Council on Foreign Relations.

Withdrawing oil-drilling subsidies could cut domestic production by 5 percent by 2030, which could increase international oil prices by just 1 percent, Gilbert Metcalf, a professor of economics at Tufts University, said in the report. Local natural gas prices could rise as much as 10 percent, while both production and consumption would probably fall as much as 4 percent, according to the report.

The viability of the three main oil and gas subsidies in the U.S. has been debated for years. Environmental groups argue that eliminating state support would not only increase government revenue but also push the country toward mitigating climate change. The industry says any changes would lead to large declines in domestic production and cut many jobs. The oil price crash over the last two years has made the U.S. oil industry more vulnerable, enhancing its argument for keeping the subsidies.

Metcalf concluded that “U.S. energy security would neither increase nor decrease substantially” if the three subsidies were repealed. The effect on oil consumption would be “even less noticeable,” implying “emissions of greenhouse gases that cause climate change would not change substantially,” he said. 

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