Report

Yale: The producer benefits of implicit fossil fuel subsidies in the United States

Matthew Kotchen Yale professor

A new paper published by the National Academy of Sciences finds that fossil fuels experience a direct benefit of $62 billion per year from indirect fossil fuel subsidies in the United States.

In this paper published in the Proceedings of the National Academy of Sciences (PNAS), Matthew J. Kotchen estimates the financial benefits to fossil fuel producers that arise because of implicit fossil fuel subsidies in the United States. The analysis takes account of coal, natural gas, gasoline, and diesel, along with the implicit subsidies due to externalized environmental damages, public health effects, and transportation-related costs. The direct benefit to fossil fuel producers across all four fuels is estimated at $62 billion per year.

A significant portion of these benefits accrue to relatively few companies, and specific estimates are provided for companies with the largest production. The financial benefit because of unpriced costs borne by society is comparable to 18% of net income from continuing domestic operations for the median natural gas and oil producer in 2017–2018, and it exceeds net income for the majority of coal producers. The results clarify what the domestic fossil fuel industry has at stake financially when it comes to policies that seek to address climate change, adverse health effects from local pollution, and inefficient transportation.

Matthew J. Kotchen is an economics professor at the Yale University School of the Environment. Professor Kotchen's research interests lie at the intersection of environmental and public economics and policy. Kotchen joined the Yale faculty in 2009 and has held previous and visiting positions at Williams College, University of California (Santa Barbara and Berkeley), Stanford University, and Resources for the Future.