Analysis from the US Office of Management and Budget (OMB) shows that federal subsidies for coal in the United States will be reduced significantly between 2011 and 2020, provided the budget can be passed through Congress.
Four coal tax preferences are being reduced: Expensing of Exploration and Development Costs, Percent Depletion for Hard Mineral Fossil Fuels, Royalty Taxation, and Domestic Manufacturing Deduction for Hard Mineral Fossil Fuels. Collectively, the reduced subsidies are expected to amount to US$2.3 billion over the whole span. The repealing of these provisions is justified as follows: “To foster the development of a clean energy economy and reduce our dependence on fossil fuels that contribute to climate change, the Administration proposes to repeal tax provisions that preferentially benefit fossil fuel production.” They also argue that: “Repealing fossil fuel tax preferences helps eliminate market distortions, strengthening incentives for investments in clean, renewable, and more energy efficient technologies.”
This is just a start. The OMB explains that these subsidies represent less than 1% of annual domestic coal revenues, so the impact of eliminating them would be modest. Given the huge negative externalities associated with coal (particularly habitat destruction, health impacts, and climate change), coal producers and users should be facing Pigovian taxes rather than receiving subsidies. Still, this is undeniably a step in the right direction. That said, the OMB does cite an OECD study which concluded that eliminating all fossil fuel subsidies in G20 countries could reduce global greenhouse gas emissions by 10%.
Here’s hoping these components of the budget don’t get killed by some senator from Appalachia.