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Can Ending Fossil Fuel Subsidies Pay for Beto O'Rourke's Climate Plan?

The Democratic candidate's first policy proposal calls for an end to tax breaks for the fossil fuel industry.
Beto O'Rourke

Beto O'Rourke released a climate change policy proposal on Monday.

Beto O'Rourke released a proposal Monday outlining his plan to slash carbon emissions and finally wean the United States off of fossil fuels. It's the first major policy proposal from the Democratic candidate and former congressman from Texas, who has made addressing climate change a pillar of his candidacy from the outset.

The plan calls for a $5 trillion investment over 10 years in green infrastructure and innovation in energy, agriculture, and industry, to reach zero emissions in the next 30 years. According to the proposal, O'Rourke would work with Congress to develop a "legally enforceable" standard for reaching zero emissions by mid-century, which means setting a price on carbon—something Congress has so far failed to do despite repeated attempts since the 1990s. The $5 trillion proposal would be catalyzed by an initial $1.5 trillion investment, which his campaign says would be funded by "structural changes to the tax code" that end corporate tax breaks for fossil fuels and other industries.

It's an ambitious—and expensive—plan. According to corporate tax experts, there are plenty of opportunities to raise substantial sums of money by closing loopholes in the current tax law.

"The 2017 tax act, through its omission of true tax reform, really does leave a lot of opportunities available to Congress, starting in 2020, to broaden the tax base in a way that could raise a substantial amount of money," says Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy. The Trump administration's tax legislation, known as the Tax Cuts and Jobs Act, did little to close corporate tax breaks enjoyed by oil and gas and other industries, according to Gardner, "and in fact made some of the biggest tax breaks even bigger."

The U.S. government has a long history of subsidizing the nation's fossil fuel industry. In the last 100 years, the federal government has given the industry roughly half a trillion dollars in tax breaks. The government has allowed the industry to write off everything from "intangible drilling costs" to lost royalties to a large portion of their gross revenue. When this gross revenue deduction was approved in 1926, it allowed companies to deduct 27.5 percent, because "the odd figure made it appear as though it was scientifically arrived at," according to the Texas senator who sponsored the legislation.

In 2009, recognizing the role of fossil fuels in climate change, the U.S., along with the rest of the G7—the group of developed countries with the largest economies—agreed to phase out subsidies for fossil fuels. In 2016, the G7 set a deadline of 2025. Still, the U.S. gives the oil and gas industry more than $26 billion in tax breaks every year, and, in 2018, the country ranked last in the Natural Resources Defense Council's G7 Fossil Fuel Subsidy Scorecard, which tracks the G7's progress toward eliminating fossil fuel subsidies.

Indeed, according to Gardner, there has been a "slow but steady increase in the amount of tax breaks available to oil and gas and other types of industries," since the Tax Reform Act of 1986, which closed several loopholes. When asked how this trend squares with the U.S.'s commitment to phase out fossil fuel subsidies, Gardner was blunt. "It doesn't," he says. "Nothing that's been done to the tax code in the last couple of years, certainly not the 2017 act, is going to help us comply with any international agreements seeking to move us away from fossil fuels."

O'Rourke plans to take executive action "on day one" to cut emissions and re-enter the Paris agreement. But he can't implement every element of the proposal alone: He would have to work with Congress on a variety of his policies, including corporate tax reform.

It's hard to speculate on how successful that effort would be without more details on which loopholes he plans to close, Gardner says. "There hasn't been a presidential candidate in the last quarter century who has been opposed to the broad principle of closing corporate loopholes," he says. "The real question is which tax breaks are you going to get rid of and how much is going to be brought in by doing so? Until those questions are answered, I think it's simply too soon to comment on the validity of the plan."

In addition, many loopholes are not industry specific, which means some of the same tax breaks that the oil and gas industry enjoys benefit the alternative energy industry as well. Both industries can take advantage of the depreciation deduction, for example—one of the largest tax breaks for corporations, and one that the Trump administration's tax overhaul made larger—which allows corporations to write off the costs of investments in machinery or equipment before it wears out.

According to Gardner, it's worth re-evaluating any corporate tax break, regardless of its primary beneficiaries. "All too often, these tax breaks exist not because they achieve a social policy goal that we all would agree on, but because the lobbyists for the companies that it benefits have convinced Congress that they need these tax breaks," Gardner says. "There's been very little critical evaluation of whether these tax breaks achieve their advertised purpose."