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Fossil fuel subsidies are proving harder to end than first thought

RACHEL MARTIN, HOST:

President Biden campaigned on this climate promise.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: And I'd stop giving to the oil industry. I'd stop giving them federal subsidies.

MARTIN: But turning that promise into reality is proving difficult. NPR's Jeff Brady explains why.

JEFF BRADY, BYLINE: When President Biden proposed his first budget last spring, it zeroed out tens of billions of dollars in oil and gas subsidies. Since then, the industry successfully lobbied to keep most of them. There is one that could still be eliminated. Deep inside the 2017 tax cut law signed by President Trump, it exempts companies from paying U.S. taxes on oil and gas produced in other countries. Sujatha Bergen is with the Natural Resources Defense Council.

SUJATHA BERGEN: Since 2017, they've been allowed to generate income from drilling abroad and then bring that money back overseas and pad their pockets and pay off their shareholders, et cetera, and not pay any taxes on it.

BRADY: Bergen says subsidies should support activities governments want to encourage. Since scientists say the world must move to cleaner forms of energy to avoid the worst effects of climate change, she says this subsidy should end. And if Democrats pass the current version of a big budget bill in Congress, it would.

BERGEN: Closing this loophole, as proposed in the current version of the Build Back Better Act, is a major triumph for taxpayers and for the planet.

BRADY: Estimates for how much this subsidy is worth vary wildly. Originally, the administration said getting rid of it would bring in nearly $85 billion over the next decade. But after legislative changes, that number is lower. The industry estimates probably closer to 10 billion. That's still real money, and the oil industry is lobbying to keep it, saying there's more at stake than allegations companies are just lining their pockets.

KEN MOY: It's much more complicated than that.

BRADY: Ken Moy is a tax lawyer with the American Petroleum Institute. He says the 2017 law was designed to put a minimum tax on companies like tech firms that were keeping profits in low-tax countries. The goal was to bring that money back to the U.S.

MOY: We always brought our money back from overseas to reinvest here in both, you know, future development and current jobs.

BRADY: And Moy says the oil business is different from the tech industry. Operations are located where the crude oil exists. Companies don't pick a location just because taxes are low. So he says the exemption for oil extraction made sense then, and it still does. Removing it, says Moy, would put U.S. companies at a competitive disadvantage.

MOY: If you have a Chinese company that wants to operate in country X and you have a U.S. company that wants to operate in country X, they're going after the same resource. Economically speaking, the U.S. company will have the higher tax burden.

BRADY: As the oil and gas industry lobbies to preserve this subsidy, it's already succeeded in keeping similar ones for domestic drilling that are worth billions of dollars a year. The one mentioned most often by environmentalists is the intangible drilling cost deduction. It's more than a century old and gives companies the ability to immediately deduct well drilling costs instead of spreading them out over the life of a well. While environmentalists didn't succeed in removing this deduction yet, Bergen says they still hope to.

BERGEN: I think these subsidies' days are numbered. I think there is more and more public scrutiny about the incentives we're providing the fossil fuel industry.

BRADY: But getting rid of oil and gas subsidies requires passing legislation. And even the big budget bill that would eliminate the overseas drilling subsidy currently is stalled in Congress. Jeff Brady, NPR News.

(SOUNDBITE OF EMANCIPATOR'S "DODO") Transcript provided by NPR, Copyright NPR.