New York State Budget Climate and Environment

State Lawmakers Push to Scale Back Fossil Fuel Subsidies

The state spends $1.6 billion a year subsidizing oil and gas. Lawmakers are trying to eliminate about one-fifth of that spending.

Sam Mellins · December 23, 2021

Senate Finance Committee Chair Liz Krueger says she hopes Hochul will include the bill in the executive budget. | NY Senate

Published in partnership with The American Prospect.

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Published in partnership with The American Prospect.

Two years ago, New York passed a law that committed the state to slashing its net carbon emissions to zero by midcentury. Doing so will require a rapid transition towards renewable energy. But each year, New York taxpayers continue to shower about $1.6 billion a year—nearly as much as New York State’s entire spending on environmental protection in 2021—subsidizing the sale and consumption of fossil fuels.

As policymakers struggle to find the funds to achieve the state’s clean energy goals, those dirty energy subsidies are receiving renewed scrutiny. A bill sponsored by Senator Liz Krueger (D-Manhattan), the chair of the chamber’s powerful Finance Committee, and Assemblymember Kevin Cahill (D-Rockland) would repeal or reduce nineteen subsidies, saving the state an estimated $336 million each year.

The biggest subsidies targeted by the legislation date back decades. A $119 million credit exempting airline fuel from sales and use taxes has been on the books since 1965. Another $65 million credit exempting liquid gas from the petroleum tax was enacted in 1990.

Krueger says the subsidies have long escaped criticism simply because they’ve been around for so long. “Nobody used to ever look at the items built into the tax code over 50, 60 years,” she told New York Focus and the Prospect. “They go in once and they just stay there by default.”

A “draft scoping plan” approved on Monday by the Climate Action Council, a 22-member body charged with charting a course to decarbonize New York’s economy, gestured at the need to eliminate fossil subsidies by 2050, but otherwise punted on the issue.

If New York does scale back its fossil fuel subsidies even modestly, it will be an outlier nationally.

The federal government provides an estimated $20 billion a year in fossil fuel subsidies, in large part through two tax breaks that have existed for about a century. Several administrations have targeted the breaks, but industry support has kept them alive.

Thanks to the Infrastructure Investment and Jobs Act, federal fossil fuel subsidies are likely to grow, with a potential $25 billion in new fossil fuel subsidies included in the bipartisan bill that was signed into law in November.

Meanwhile, some of New York’s peers—conservative states like Texas, but also Democrat-controlled New Jersey and New Mexico—are considering increasing state funding of natural gas infrastructure and other fossil fuel projects.

Political prospects

The Krueger/Cahill bill is pared back from an earlier version that put all of the state’s fossil fuel subsidies on the chopping block. That legislation passed the Senate in July 2020, but then stalled in the Assembly, where it never came to a vote in the Governmental Operations committee, let alone on the Assembly floor.

A sticking point for Kenneth Zebrowski, the chair of that committee, was the potential elimination of New York’s largest fossil fuel-related tax credit: a roughly $700 million-a-year tax credit on home heating fuel claimed by many New York households. “The Assemblyman has said that increasing costs on the consumer is inappropriate,” Chris Bresnan, Zebrowski’s chief of staff, told New York Focus.

The new bill doesn’t touch the home heating tax credit, instead targeting less politically volatile subsidies. “We believe they are the low-hanging fruit. They are the ones that you’re not going to get in a huge battle right away over,” Krueger said.

The bill would do away with about twenty percent of total fossil fuel subsidies in New York, by value. It is more aggressive than its earlier version in one respect, however: it would eliminate the subsidies it targets immediately, rather than after three years.

Environmental groups throughout the state—including Earthjustice, Indivisible NY, Food and Water Watch, the New York Public Interest Research Group, chapters of the Sunrise Movement, 350.org, and the Audubon Society—are planning to make the bill a priority in the coming legislative session.

Industries benefiting from the state’s largesse are likely to push back. A spokesperson for Airlines for America, a trade and lobbying association, argued that the airline fuel tax break is important for the industry’s recovery.

“With New York’s airports experiencing well below pre-pandemic passenger volumes – with passenger volumes down 50 percent from pre-pandemic levels through the first 11 months of 2021, significantly deeper than the 32 percent decline nationwide – now is not the time to increase costs to airlines,” the spokesperson said.

State disclosure records from 2021 show that the Aviation Management Association of New York, the Independent Power Producers of New York, the New York State Electric and Gas Corporation, and Airlines for America all retained lobbyists on the bill. Airlines for America lobbied Senate Democrats’ central staff on the bill, and the Aviation Management Association lobbied Krueger and staff at the state’s Department of Transportation. All except Airlines for America declined to comment or did not respond to requests.

Still, the lobbying effort was relatively tame by Albany’s standards. That likely reflected a lack of focus from legislative leaders on passing the bill in the 2021 session, according to Michael Kink, executive director of the Strong Economy for All coalition and a longtime progressive lobbyist and advocate in Albany.

That’s likely to change in 2022. “This year, there’s going to be a huge huge fight over all corporate subsidies, including fossil fuel subsidies,” Kink said. “I think what you were seeing last year was more like spring training. This year you’re going to see hand to hand combat.”

One challenge for the bill’s proponents will be to sell its urgency. During the 2021 legislative session, as the costs of COVID-19 relief programs and expected lost tax revenue threatened to leave the state with a $15 billion cash shortfall, the bill was framed as a way to help patch the budget hole. But federal aid included in the American Rescue Plan and higher-than-expected tax revenues meant that the budget situation was less dire than predicted.

The key person proponents need to convince is Governor Kathy Hochul, who occupies the driver’s seat in New York’s executive-dominated budget process.

“The fate of it is tied to how the new governor views the issue generally, and certainly also whether she thinks she needs the revenues,” said Blair Horner, the executive director of the New York Public Interest Research Group. “Next year is not going to be a revenue-tight year, since the federal money is still in play.”

Krueger says she hopes Hochul will include the bill in the executive budget, a first draft of the state’s budget that is published in January and generally sets the tone for subsequent negotiations.

“If that is not successful, we’ll also work to get it passed freestanding after the budget,” Krueger said. “But there’s an obvious reason to think about it in context of the budget. It is a revenue generator.”

She’s discussed including the bill in the executive budget with Hochul and her advisors, Krueger said, but hasn’t yet gotten a firm answer either way. “We’re working at it,” she said.

Avi Small, a spokesperson for the governor, said that “Governor Hochul is committed to taking bold action to tackle the climate crisis,” but declined to comment on the bill or the issue of fossil fuel subsidies.