Science & Technology

U.S. Government Subsidies Boost Expected Profit and Development of New Oil and Gas Fields

Stockholm Environment Institute (Somerville, Massachusetts, USA) and Earth Track, Inc. Researchers in Cambridge, Massachusetts, have investigated 16 grants and exemptions from environmental regulations and are one of the first estimates of how government grants will affect new investment decisions. Provided. Gas fields for the next 10 years. The results will be published in the IOP Publishing Journal today (July 29, 2021). Environmental research letter.

Despite recurring commitments to phase out “inefficient” fossil fuel subsidies, the United States, the world’s largest current oil and gas producer, spends billions of dollars each year through a variety of aid measures. Continues to provide to the oil and gas industry. This study is one of the first studies of its kind to explain the tax incentives as well as the impact of regulatory exemptions to reduce the costs of hazardous waste and wastewater management for oil and gas producers.

“I was surprised to find that in addition to the two federal tax incentives that have existed since 1916, a lesser-recognized form of government support is also very beneficial,” said SEI scientist Ploy Achakulwisut. Is the lead author of the paper. “The general public will be responsible for the costs of services such as closing wells and disposing of hazardous waste, directly in taxes and indirectly in health.”

For their analysis, the authors of the study developed a cash flow model using Rystad Energy’s UCube database and their own assumptions about commodity prices. It then evaluated the impact of 16 subsidies and regulatory tax exemptions on projected return on investment in thousands of oil and gas production sectors expected to be developed between 2020 and 2030.

The results will either promote more mining than the subsidies (including exemptions) are economically feasible, or lead to excessive profits, depending on future oil and gas prices and the minimum rate of return required. It shows that. In the former case, subsidies will not only help contain higher greenhouse gas emissions, but will also increase air and water pollution, as well as health risks. In the latter case, they will not serve their stated economic purpose.

Example: At 2019 oil and gas prices, $ 64 per barrel of oil and $ 2.6 per mmbtu of gas, only 4% and 22% of new oil and gas resources will be subsidized. Depends. In this case, over 96% of the subsidy goes directly to excess profit. This scenario assumes that the investor requires a minimum rate of return of 10% or a “hurdle rate”.

However, if oil and gas prices are as low as in 2020, that is, $ 40 per barrel of oil and $ 2 per mmbtu of gas, more than 60% of new oil and gas resources are economically viable. Depends on subsidies to be. This scenario assumes that investors demand a higher hurdle rate of 20%. This may already be the case as the risk of oil and gas investment increases.

The authors are also investigating how subsidies to fossil fuel producers affect CO2 emissions by pushing down market prices for oil and gas and encouraging higher consumption. Under a 10% hurdle rate, subsidy-induced oil price declines will burn an additional 374 million barrels of oil in 2030, adding 150 million tonnes of CO2 emissions. I presume that there is a possibility.

“In the wake of COVID-19 (New Coronavirus Infection) Pandemic, our results show how different choices for economic recovery and tax reform can shape the US oil and gas industry and energy infrastructure in the coming years. ” Author and senior SEI scientist Peter Eriksson said. “In addition, fossil fuel subsidies are symbolic because they can be read by other countries as a sign that the United States is not taking its commitment to subsidy reform and climate change as seriously as it should be. It may have an effect. “

“Good governance requires transparency about who receives the grant,” added EarthTrack co-author Doug Koplow. “Our research helps shed light on the expected return of US oil and gas producers and the impact of subsidies on their investment decisions. Applying the same method, it is underway in other countries. We can inform you of our efforts to reform subsidies. ”The G7 government continues to provide billions of dollars in subsidies each year.

Reference: July 29, 2021 Environmental research letter..
DOI: 10.1088 / 1748-9326 / ac0a10

U.S. Government Subsidies Boost Expected Profit and Development of New Oil and Gas Fields U.S. Government Subsidies Boost Expected Profit and Development of New Oil and Gas Fields

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