PennFuture Reports

Pennsylvania Fossil Fuel Subsidies: An Overview

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Executive Summary
Pennsylvania taxpayers may not know they are subsidizing the production and use of fossil fuels. In fact, Pennsylvania is subsidizing fossil fuels at a cost of almost $2.9 billion per year.1,2 Use of these fuels burdens taxpayers with additional non-monetized externalities such as air, land and water pollution and the associated negative human health and property impacts. Since many of these subsidies were passed years or decades ago, Pennsylvania’s current policymakers may not all be aware that these subsidies exist or understand their cumulative impacts.

The federal government has long subsidized the production and use of fossil fuels to the tune of billions of dollars per year, and to the considerable benefit of these extremely profitable and mature industries. Federal level subsidies reduce the amount of taxable income that fossil fuel companies are required to report to Pennsylvania for state taxes. Further, Pennsylvania tacks on additional subsidies such as tax breaks and grant programs that benefit the use or production of fossil fuels. With respect to energy, there is no free and competitive market, least of all in Pennsylvania.

The state's fossil fuel subsidies come primarily in the form of tax exemptions, with only a handful of applicable tax credits and grant programs. There are exemptions for the use of fossil fuels, such as exempting gasoline purchase from Sales and Use Tax, which make these fuels more attractive by lowering their costs to the consumer. There are also exemptions that benefit distributors of fossil fuels, such as exempting natural gas sales from the Gross Receipts Tax, thereby reducing the tax burden on distribution companies, and increasing their profitability. Producers of fossil fuels also enjoy subsidies, like the Sales and Use Tax exemption for the purchase of mining equipment, which reduces costs to coal mining companies and increasing profitability. Ironically, Pennsylvania subsidizes the purchase of pollution control equipment to help users of fossil fuels pay for the cost of cleaning the air and water fouled by these very fossil fuels.

This preliminary overview of Pennsylvania’s fossil fuel subsidies is intended to promote discussion and perhaps even a reexamination of Pennsylvania’s overall incentive strategy with respect to energy. This report should be read as an introduction to the issue of Pennsylvania’s fossil fuel subsidies; additional research and analysis is required.