No matter how you estimate them, would cutting these subsidies do any good? There, again, it also depends on whom you ask—and what assumptions they make. Gilbert Metcalf, the economist who arrived at the $4-billion figure, found that ditching the federal tax subsidies would only raise global oil prices by about 1 percent—the equivalent of at most two additional cents per every gallon of gasoline at the pump.
As such, he concluded the subsidies were a waste of money, because they didn’t make gas or electricity much cheaper for Americans. Their effect on global oil prices was just too small. But by the same token, he didn’t think canceling them would reduce greenhouse-gas emissions, either.
A paper published last year in Nature Energy arrived at a totally different conclusion. Though it mostly agreed with Metcalf about the domestic effects of oil subsidies, it looked at how their consequences accumulated over time. (Metcalf focused on their annual effects.) Suddenly, the subsidies seemed to have a gargantuan climate footprint: By 2050, the United States will have underwritten the drilling of an extra 17 billion barrels of oil, enough to emit over 6 billion tons of carbon dioxide.
Both papers, in other words, thought America should trash its subsidies—they just had different reasons why. They also had different ideas about how the world would respond to the change. The Nature Energy paper believes that killing U.S. subsidies would decrease emissions worldwide. Metcalf argues that other countries will just fill the hole that America left in the market.
Looking at the world as a whole in her new paper, Jewell takes the same view as Metcalf. If the United States or Europe were to kill their subsidies, she argues, then an oil- or gas-exporting country would just increase their production. “When you think about it, it makes sense because we’re operating on a globally liberalized market,” she told me.
Therefore, she proposes that climate advocates target killing subsidies in oil-exporting nations. “These countries are already facing budgetary pressures because oil prices are low,” she said. “In a place like Saudi Arabia, there’s an opportunity now. For them to decrease subsidies is kind of a win-win.”
Peter Erickson, a U.S.-based senior scientist at the Stockholm Environment Institute and one of the authors of the Nature Energy paper, said “their suggestion to focus on high-income countries is a good one, and is just good policy design if one is concerned about equity or simply efficiency.” But he takes issue with the idea that fossil-fuel subsidies don’t hurt the climate, even in the United States.
“Their conclusion that subsidy removal could reduce global carbon-dioxide emissions by 1 to 4 percent is substantial, and underscores why subsidy removal is an important climate solution,” he told me in an email. “One to 4 percent is only ‘small’ compared to the massive scale of the climate challenge at hand, a task that necessarily involves many complementary policy solutions.”