Taxes and Subsidies
In Brief

In Brief

Oil and Natural Gas Taxes and Subsidies

The U.S. oil and natural gas industry pays taxes at effective rates far higher than most other industries. It does not receive
payments from the government to support oil and gas development and receives only a tiny percentage of government’s
applied research and development funding that goes to the energy sector. However, it is entitled to tax deductions, similar
to those enjoyed by other industries, to encourage energy production and new jobs.

Under the U.S. Department of Energy’s (DOE) definition of energy subsidies, which include direct government grants or
spending, R&D funding, specific tax deductions and electricity programs for certain groups of consumers, the oil and
natural gas industry receives less than half the subsidies received by the renewable energy industry.

A 2010 Harris Interactive opinion survey shows that Americans by a 2-to-1 margin disapprove of increasing taxes on the
U.S. oil and natural gas industry. Increasing taxes on the industry would discourage investment in energy development,
leading to fewer new U.S. jobs and more dependence on foreign energy sources.

Here are the facts about industry taxes and subsidies:

• U.S. Energy Information Administration (EIA) data show the major U.S. oil and natural gas producers paid $300
billion in income taxes between 2004 and 2008. This does not include another $60 billion in production, sales, use,
property and other non-income taxes or $350 billion in excise taxes paid on petroleum products.

• In 2009, according to the Comustat North American Database, U.S. oil and natural gas companies paid income taxes at
an effective rate (48.4 percent) that was 70 percent higher than the effective rate (28.1 percent) of the S&P Industrial
companies.

• The 2009 stimulus bill provided direct grants for renewable energy in the amount of $16.8 billion over 10 years; it
provided zero dollars for oil and natural gas.

• Special tax deductions allowed the U.S. oil and natural gas industry are often limited compared with other industries.
For example, the manufacturing tax deduction, which some in Congress have proposed eliminating just for the oil and
gas industry, is already one-third lower on a percentage basis than for other industries. Also, the depletion deduction
for oil and natural gas wells is more limited for the oil and gas industry than for other minerals mining businesses.

• According to the U.S. Energy Information Administration (EIA), oil and natural gas received $2.15 billion in energy
subsidies and support (mostly tax deductions and credits) compared with $4.88 billion for renewables. In the
subcategory of government applied energy research and development funding, it received slightly more than 1 percent
of the total.

For comparison, renewable and other electric technologies received more than 22 times as much energy R&D
funding. Ethanol and biofuels received a subsidy of $5.72 per million British thermal units of energy
produced—190 times more than oil and natural gas.
• In absolute terms, American taxpayers have spent $41.2 billion since 1980 on tax-based subsidies for ethanol, according
to the Senate Energy Committee. And, in fiscal year 2009, biofuels received federal subsidies of about $6 billion via tax
credits, according to the Congressional Budget Office (CBO). If existing federal policies continue, taxpayers’ support
for corn-based ethanol biofuels will reach about $6.75 billion per year by 2015, or more than $30 billion in the next five
years.
The oil and natural gas industry supports more than 9.2 million U.S. jobs, supplies most of the nation’s energy, and invests
hundreds of billions in new energy projects annually. It earns no more cents on each dollar of sales than the all-industry
average. It takes tax deductions other businesses take and pays (at least) its fair share of taxes.

January 2011