Federal Fossil Fuel Subsidies and Greenhouse Gas Emissions: A Case Study of Increasing Transparency for Fiscal Policy

Abstract

Growing international pressure to curb greenhouse gas (GHG) emissions has focused attention on existing policies that may, either by design or by effect, subsidize fossil fuel production and consumption. This paper reviews existing studies of fossil fuel subsidies within the United States, as well as assessments of the potential impact of subsidy reform on GHG emissions. Evaluating the differences across the studies, it highlights the most important disparities in subsidy definition and valuation in order to clarify the conclusions that can be drawn from this body of work. For example, these studies place the costs of fossil fuel subsidies between $2.6 and $121 billion.

We then present some of the tools used to provide transparency in environmental regulation. If subsidies were exposed to the same transparency as federal environmental regulations, there would be a central registry, akin to the Code of Federal Regulations, where basic information about subsidies could be found. In addition, proposed subsidies would be subject to the same kind of public justification requirements to which proposed regulations are subject. Such public disclosure would likely improve governmental decision making about subsidies, engage the public in that decision making, and lead to the reduction or elimination of the most damaging or least effective subsidies.

Keywords: subsidies, climate change, administrative law, Framework Convention on Climate Change, regulation, taxation, environmental law

JEL Classification: K20, K29, K32, O20, O21, Q20, Q25, Q30, Q40