The Fiscal Implications of the US Transition Away from Fossil Fuels
This working paper estimates the fiscal risk posed by the energy transition for governments dependent on fossil fuels, while examining policies to address this risk to revenues.
The need to reduce greenhouse gas emissions requires curtailing coal, oil, and natural gas production and consumption. However, these fuels are major revenue sources for governments. Here we develop a novel estimate of the revenues generated by fossil fuels for all governments in the United States, then estimate how those revenues change under three stylized policy scenarios through 2050: business-as-usual, 2°C, and 1.5°C. We estimate that fossil fuels generate $138 billion annually for all US governments and that these revenues are likely to decline even in the absence of new climate policy. Petroleum product taxes are the largest source and decline under all scenarios. Oil and gas production, the second largest, is relatively stable under the BAU and 2°C scenarios but declines rapidly under the 1.5°C scenario. Under all scenarios, coal revenues decline rapidly, approaching zero by 2040 under the 1.5°C and 2°C scenarios. Recent estimates of climate damages easily exceed the revenue losses described in this analysis, highlighting the need for policymakers to adopt emissions reduction strategies while also addressing revenue shortfalls, which will be concentrated in certain regions. The policy tools to accomplish both goals are relatively straightforward, but implementing them will require overcoming considerable political challenges.
Daniel Raimi is a fellow and director of the Equity in the Energy Transition Initiative at RFF where he works on a range of energy policy issues with a focus on tools to enable an equitable energy transition.
Gilbert E. Metcalf
Gilbert E. Metcalf is a university fellow at RFF. His current research focuses on policy evaluation and design in the area of energy and climate change.
Sophie Pesek is a research analyst for the Climate Risks and Impacts and Adaptation and Resilience programs at RFF.
Press Release — Jan 13, 2022
US Revenues from Fossil Fuels, Responsible for $138 Billion Annually, Expected to Fall Regardless of Climate Action
Fossil fuels provide substantial revenue to the US federal government and many states, tribes, and localities—but changes to government tax policies can help replace declining revenue and help communities adapt.
Common Resources — Jan 13, 2022
More Than Just Jobs: Assessing the Public Finance Implications of the Energy Transition
When assessing the potential benefits and costs of the energy transition, most elected officials, advocates, and media outlets focus on jobs. But another economic issue may be just as important in the energy transition: public finance.
Media Highlight — May 16, 2022
Associated Press: "In US, States Struggle to Replace Fossil Fuel Tax Revenue"
This widely syndicated story features findings from a January 2022 working paper about the fiscal implications of the energy transition and quotes the paper's lead author, Fellow Daniel Raimi.