Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts
A new study published in the peer-reviewed journal Nature Energy found that 50 percent of new oil production in America would be unprofitable if not for government subsidies. The study, performed by researchers at the Stockholm Environment Institute and Earth Track, Inc., found that, at prices of $50 per barrel, light oil produced by hydraulic fracturing (“fracking”) was heavily dependent on subsidies.
In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.
In addition, the study highlights what this additional fossil fuel production means for impacts to the climate:
“…continued subsidies for oil investment could produce oil (and associated gas) that, once burned, will yield CO2emissions equivalent to nearly 1 percent of the remaining global carbon budget for all sectors of all economies.”
At current oil prices, perhaps the most effective “keep it in the ground” strategy might be to stop subsidizing oil production.
But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply “transfer payments” to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors.
While this study provides valuable insight into how subsidies affect oil production and the climate, it notes that its conclusions are not unique. The authors point out: “As others have found regardless of the oil price, the majority of taxpayer resources provided to the industry end up as company profits.”
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