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House-Senate Joint Committee on Taxation:

Tax Preferences for Fossil Fuels

5 Years

10 Years

VI. Eliminate Fossil Fuel Preferences

Billions of dollars per year

Total of Eliminate Fossil Fuel Preferences

$17.6

$30.3

A. Eliminate Oil And Natural Gas Preferences

$26.1

$38.1

1. Repeal enhanced oil recovery ("EOR") credit

$0.4

$0.4

2. Repeal credit for oil and gas produced from marginal wells

 

 

3. Repeal expensing of intangible drilling costs

$10.0

$13.1

2019 version: Expensing of exploration and development costs: Oil and gas

$2.4

 

4. Repeal deduction for tertiary injectants

$0.0

$0.1

5. Repeal exception to passive loss limitations for working interests in oil and natural gas properties

$0.1

$0.3

6. Repeal percentage depletion for oil and natural gas wells

$5.1

$12.1

2019 version: Excess of percentage over cost depletion: Oil and gas

$2.4

 

7. (repealed in 2018)

 

 

8. Increase geological and geophysical amortization period for independent producers to seven years

$0.9

$1.3

B. Eliminate Coal Preferences

$1.1

$3.1

1. Repeal expensing of exploration and development costs

$0.4

$0.8

2. Repeal percentage depletion for hard mineral fossil fuels

$0.4

$0.8

3. Repeal capital gains treatment for royalties on disposition of coal or lignite

$0.2

$0.4

4. Repeal use of the domestic manufacturing deduction for the production of coal and other hard mineral fossil fuels

$0.1

$0.3

5. Repeal exemption from the corporate income tax for publicly traded partnerships with qualifying income and gains from activities relating to fossil fuels

$0.0

$0.8

Sources:

Most lines are potential revenue from report JCX-15-16, 3/24/2016

jct.gov/publications.html?func=startdown&id=4902

2019 "Tax Expenditures" are more recent data, which may correspond to the earlier lines, from report JCX-55-19, 12/19/2020

jct.gov/publications.html?func=select&id=5

Explanations are available from the bipartisan EESI; the biggest are listed below:

eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs

Intangible Drilling Costs Deduction (26 U.S. Code 263. Active). This provision allows companies to deduct a majority of the costs incurred from drilling new wells domestically.

Percentage Depletion (26 U.S. Code 613. Active). Depletion is an accounting method that works much like depreciation, allowing businesses to deduct a certain amount from their taxable income as a reflection of declining production from a reserve over time. However, with standard cost depletion, if a firm were to extract 10 percent of recoverable oil from a property, the depletion expense would be ten percent of capital costs. In contrast, percentage depletion allows firms to deduct a set percentage from their taxable income. Because percentage depletion is not based on capital costs, total deductions can exceed capital costs. This provision is limited to independent producers and royalty owners.