United States
The United States, a leading producer and consumer of energy, had its declining reserves boosted recently by new hydrocarbon discoveries in the Gulf of Mexico and by the deployment of new technologies for the extraction of shale gas and tight oil in states such as North Dakota, Ohio and Texas. The country was heavily dependent on imports of oil, which in 2013, net imports contributed 44% of the volume of its total crude-oil supply but increased domestic production in recent years has more than halved this share to just over 18% in 2021. In 2022, the United States exported around 30% more energy than imported. Higher exports were seen in petroleum products, natural gas, coal, and biomass, whereas higher imports were seen in electricity and crude oil. Overall, the United States produced almost all its total energy needs domestically in 2021 with the country maintaining its net total energy exporter status since 2019.
The US coal industry is entirely privately owned, with the five largest coal producers accounting for more than half of total coal production; about 40% of coal consumed in the United States is mined within federally managed lands. Most of the coal produced in the US is used for power generation (91.9% in 2021, in forms ranging from lignite to anthracite). The share of coal in electricity generation has been declining in recent years (19% in 2022) as natural gas (39% in 2022) and renewable energy (23% in 2022) play an increasingly bigger role in the country’s energy mix. The US domestic oil market is fully deregulated and open to competition. Exports of crude oil, except for small amounts of condensate, were previously banned until the 40-year policy was repealed at the end of 2015. A third of the country’s recoverable oil resources lie on federal land or in federally controlled offshore water but this share has decreased substantially in recent years as more and more shale-gas resources located on non-federal land have been developed. The US refinery network, at 125 operating and five idled as of 2022, is the largest in the world.
The US natural-gas market is large, competitive, and well-integrated with the North American markets of Canada and Mexico. After Russia’s invasion of Ukraine in February 2022, an increased momentum in commissioning new LNG liquefaction terminals in the Gulf of Mexico is taking place. More recently, there has been a repositioning of US LNG exports, with 64% of its LNG exports in 2022 going to Europe, instead of Asia. On the domestic front, the US gas industry is largely in private hands with the only public ownership seen in the distribution segment; the 950 municipally owned gas utilities account for just 7% of domestic gas sales.
The structure of the electricity-supply industry is complex and fragmented. Electricity generation is dominated by investor-owned utilities (IOUs, i.e. largely privately-owned companies), accounting for 60% of generation while independent power producers (IPPs) account for about 30%; the rest is generated by federal and municipal companies and rural electric co-operatives. Retail sales are dominated by IOUs while wholesale power purchases are primarily undertaken by power marketers and energy service providers.
In general, non-reticulated forms of energy are not subject to any price controls in the US. Some states, however, have the power to implement price ceilings for oil products. Electricity and natural-gas prices are generally regulated by the Federal Energy Regulatory Commission (FERC) at the wholesale level, and by state regulatory commissions at the retail level. Prices and network charges are set on a cost-of-service basis. Taxes on energy are for the most part levied by the states and the federal government with some states allowing their municipalities to levy their own. Automotive fuels in general are exempt from state sales tax, as special taxes on these fuels are levied at the state, and in some cases, local level. Rules governing the ownership of underground resources in the United States are different in that private owners of non-federal land also possess the corresponding mineral rights for sub-surface resources. This contrasts with other fossil-fuel-producing countries where sub-surface resources generally belong to the public, irrespective of whether the land above is privately held.
Both federal and state governments provide support to the fossil fuel industry through budget transfers and tax expenditures. Recent trends in support coincide with rising fuel costs due to high inflation, increasing demand, and changes in supply in the global energy market.
There are several federal programs benefiting energy consumption such as the Low-Income Home Energy Assistance Program (LIHEAP) and the Strategic Petroleum Reserve (SPR). LIHEAP provides grants to poor households to help them pay their energy bills. Although government funding to LIHEAP doubled from 2020 to 2021 to address increased need from the pandemic and rising winter heating costs, funding returned to pre-pandemic levels in 2022. The SPR, created in 1975 to provide a secure reserve of petroleum that could be accessed quickly in the event of a major supply disruption, is also a source of support to the oil industry, as its costs are covered entirely by the federal government. In a response to increasing global gas prices due to sanction on Russian oil, the US administration announced in October 2022 that it would allow fixed-price forward purchases of crude oil to replenish the SPR and encourage short-term production. This new rule enables the Department of Energy to enter purchase contracts for future delivery at a fixed price, providing greater certainty to producers on the revenues they would generate if they increased their production of crude oil in the short term.
State governments also provide support to the fossil fuel industry. Most new measures in 2022 provided energy price support through tax cuts and suspensions. For example, five states – Connecticut, Florida, Georgia, Maryland, and New York – suspended fuel tax collections. Additionally, Colorado, Illinois, and Kentucky halted planned increases in gas taxes until 2023. These efforts were in place to assist all energy users with high fuel prices.
One state, Alaska, also provided an energy relief payment in addition to their distribution from the annual Permanent Fund dividend. This measure applied to all eligible Alaskans to combat high inflation and gas prices.
The fiscal cost of support measures for fossil fuels in United States was estimated at USD 14.03 billion in 2022 (Table 1). Fifty-six per cent (56%) was directed at end user beneficiaries, as opposed to 43% directed to firms. Support was mainly given out in the form of tax expenditures (USD 10.72 billion) accounting for 76% of the total fiscal cost of support measures. Direct transfers amounted to USD 3.31 billion.
The fiscal cost of support measures for fossil fuels has increased by 51% since 2017. Since last year, tax expenditures have increased by 42%, from USD 7.69 billion to USD 10.72 billion and direct transfers decreased by -39%, from USD 4.52 billion to USD 3.31 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.