Jan 18, 2022 - Energy & Environment

Plugging the U.S. fossil fuel revenue gap won't be easy

Adapted from an RFF report; Note: Oil and gas includes exploration and production, pipeline transport and other midstream activities, and natural gas distribution; Chart: Sara Wise/Axios

Fossil fuel-related government revenues are slated to plummet if the U.S. deeply cuts greenhouse gas emissions, and policy tools to make up the shortfall face hurdles, a new paper finds.

Why it matters: The analysis from the nonpartisan Resources for the Future is a rare holistic look at revenue flows across levels of government — federal, state, tribal and local.

How it works: Oil, gas and coal provided an average of $138 billion annually in 2015-2020.

  • Fuel excise taxes are the biggest source (at $48b for states and $40b for the federal government annually), while others include production royalties, pipelines, local property taxes, and corporate taxes.

Zoom in: It projects revenues in scenarios consistent with holding temperature rise to 2°C or 1.5°C above preindustrial levels — benchmarks for avoiding some of the worst harm.

  • In the 1.5°C case, revenues decline 18% by 2030 and 80% by 2050. The drop is also significant under 2°C scenario, at 6% and 56%, respectively.
  • There's still some decline even absent any new policies, largely thanks to vehicles becoming more efficient and electric, the power market's move away from coal and other forces.

The big picture: The declines are not a reason to delay efforts to cut emissions, the authors say, citing the steeper costs of failure to rein in warming.

  • The broad mix of policy options to address revenue losses include carbon pricing, changing motor fuel taxes to a system based on miles traveled, ending fossil fuel subsidies and higher marginal rates.

Yes, but: None of this is easy, with the paper noting that "each option faces considerable political hurdles in the immediate future."

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