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How The Oil Lobby Greases Washington's Wheels

Oil Industry

First Posted: 04/06/11 06:38 PM ET Updated: 06/06/11 06:12 AM ET


In January, Obama previewed his 2012 budget proposal during his State of the Union address. "I'm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies," he said. "I don't know if you've noticed, but they're doing just fine on their own."

The line got a laugh, and then Obama pointed out the trade-offs of giving public support to a powerful private interest: "Instead of subsidizing yesterday's energy, let's invest in tomorrow's." he said.

With the actual budget proposal came more details: a list of tax breaks that, if eliminated, would generate $43.6 billion of additional revenue over the next 10 years. Two of the biggest breaks date back nearly a century, to a time when a young, untested industry needed incentives to drill.

The API, after adding in the cost of some other proposed measures (including reinstating Superfund taxes and repealing two accounting gimmicks that would affect other industries as well), concluded that Obama's FY 2012 proposed budget could cost the oil and gas industry $90 billion over the next decade.

The loss of subsidies would affect the industry's bottom lines, but would hardly, as Rep. Joe Barton (R-Tex), recently suggested, start driving companies out of business.

That's because Obama was right; the oil companies are doing just fine. The big five -- BP, Chevron, ConocoPhillips, ExxonMobil and Shell -- made a combined total profit of nearly $1 trillion over the past decade, with ExxonMobil clearing $31 billion in profits this past year alone.

And it's hardly the case that the oil industry needs added incentives to drill. Former oilman George W. Bush made that point as clearly as anyone when he leveled with members of the American Society of Newspaper Editors in a 2005 address: "I will tell you with $55 [a barrel] oil we don't need incentives to oil and gas companies to explore," he said. "There are plenty of incentives."

Slocum, of Public Citizen, concurs: "With prices around $100 a barrel, it is asinine to suggest that $4 to $6 billion a year collectively is driving decisions about whether or not to pursue extraction opportunities in the U.S.," he said. "It is market prices that are driving investment decisions."

While the oil industry warns that repealing the subsidies -- in addition to costing jobs -- would lead to higher gas prices, that too is hardly evident. Fuel costs largely reflect the price of oil, and that price has little to do with how much it costs to produce it. According to a U.S. Energy Information Administration survey, between 2007 and 2009, major U.S.-based oil companies spent an average of $29.31 to produce a barrel of oil. About one third of that amount went for extraction and taxes, and two thirds for exploration and development -- precisely why those companies are making such a killing when prices are $100 a barrel or more.

Rather than production costs, the price of oil is set by the global market, and is affected by multiple factors. Those can include financial speculation and geopolitical fears that lately have been causing wild price swings. The repeal of a few billion dollars in subsidies isn't enough to make more than a small ripple in an approximately $3 trillion-a-year global market.

Blumenauer argues that subsidies aren't appropriate for any well-established industry. Instead, he says, they should be used to support developing ones. "What's happened over the years, as the oil industry matured, as the giants consolidated into global players, and as the price of oil has been on a pretty steady upward trajectory -- with some hiccups along the way -- is that there ceased to be any rationale for providing these tax subsidies other than they were in the code and they benefited some of these companies."

By contrast, he points out: "The rationale for providing tax subsidies for emerging technologies and energy sources now makes perfect sense for solar, wind, and geothermal -- where helping them come to scale would help provide a better balance to our energy choices."

Oil and gas subsidies don't appear to wash with the general public, either. In a February NBC/Wall Street Journal poll that proffered suggestions for things that might be cut or eliminated as a way to reduce the current federal budget deficit, "eliminating tax credits for the oil and gas industries" was considered acceptable by a whopping 74 percent of Americans. Nearly 50 percent called it "totally acceptable." The only policy proposals that were more popular were raising taxes on the rich, eliminating earmarks, and canceling unnecessary weapons systems.

The API says it has gotten very different signals from people.. Durbin said API's own polls show otherwise. "If you ask people, 'Should we take away unfair advantages to Big Oil,' then of course they'll say yes," he said. "If you ask a straight question, as we do... you get a much different answer." API's poll question asked "Do you support or oppose increased taxes on America's oil and natural gas industry?"

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