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How The Oil Lobby Greases Washington's Wheels

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OIL INDUSTRY
AP

Clout in Washington isn't about winning legislative battles -- it's about making sure that they never happen at all. The oil and gas industry has that kind of clout.

Despite astronomical profits during what have been lean years for most everyone else, the oil and gas industry continues to benefit from massive, multi-billion dollar taxpayer subsidies. Opinion polling shows the American public overwhelmingly wants those subsidies eliminated. Meanwhile, both parties are hunting feverishly for ways to reduce the deficit.

But when President Obama called on Congress to eliminate about $4 billion a year in tax breaks for Big Oil earlier this year, the response on the Hill was little more than a knowing chuckle. Even Obama's closest congressional allies don't think the president’s proposal has a shot.

"I would be surprised if it got a great deal of traction," Senator Jeff Bingaman (D-N.M.), chairman of the Senate energy committee, told reporters at the National Press Club a few days after Obama first announced his plan.

Rep. Earl Blumenauer (D-Ore.), co-author of a House bill that closely resembles Obama's proposal, nevertheless acknowledges that it has slim chances of passing. "It will be a challenge to get anything through the House that includes any tax increase for anyone under any circumstance," he told The Huffington Post.

The list goes on: "It's not on my radar," said Frank Maisano, a spokesman for Bracewell Giuliani, a lobbying firm with several oil and gas industry clients. "It's old news and it's never going to happen in this Congress. It couldn't even happen in the last Congress."

Indeed, the oil and gas industry's stranglehold on Congres is so firm that even when the Democrats controlled both houses, repeal of the subsidies didn't stand a chance. Obama proposed cutting them in his previous two budgets as well, but the Senate -- where Republicans and consistently pro-oil Louisiana Democrat Mary Landrieu had more than enough votes to block any legislation -- never even took a stab at it.

Now that the House is controlled by the GOP, Obama's proposal is deader than an oil-soaked pelican. Over the last decade in particular, the Republican Party's anti-tax policies and pro-drilling campaign rhetoric have become nearly indistinguishable from those of Big Oil.

"Obama's been proposing to get rid of these subsidies since his first budget in February 2009," said Tyson Slocum, director of the energy program for the consumer watchdog group Public Citizen. "The obstacle has been the petroleum industry. The American Petroleum Institute has dug in their heels and is fighting tooth and nail to retain these subsidies."

The American Petroleum Institute (API) is the industry's enormously powerful lobbying and trade association.

"API is very focused on making sure that we have a voice in policy debates," said Martin Durbin, the organization's executive vice president for government affairs. "Certainly I hope we're having some role in the debate here."

Is he pleased at the industry's success in heading off this particular debate? "I feel that we are successfully getting the point across, successfully educating policy-makers about the importance of our industry throughout the economy," he said.

Even before Obama's 2011 State of the Union address, API president Jack Gerard used his "State of American Energy" speech to cast the repeal attempt as a tax increase and a job-killer. "The way I see it, our policy-makers are at a crossroads," Gerard said. "They face two choices: One leads us forward and promotes jobs, investments, revenue and growth -- or one that takes us backward, threatening the progress we've made and closing the door on future opportunities."

Gerard was speaking to a receptive audience. As Time noted, "Republican Fred Upton, the new chairman of the House Energy and Commerce Committee, was in the front row of the audience for Gerard's speech." Upton did not return calls for comment.

A PAMPERED INDUSTRY

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?"

ENERGY GIANTS ANTE UP

With so much public opposition, why do subsidies remain? You might as well ask why there is no carbon tax, or why there was no significant reform legislation passed after the BP oil spill.

The answer is that one of the many things the industry can do with its fat pocketbook is hire a veritable army of sharp lobbyists and back them up with big wads of cash in the form of campaign donations and spending. The end result is that the industry has a remarkable ability to get its way on Capitol Hill.

According to the Center for Responsive Politics' website, the oil and gas industry has spent more than $1 billion on lobbying since 1998, including a jaw-dropping $147 million just last year.

For comparison's sake, $147 million is about equivalent to the total budget of 100 congressional offices. That's more than the $103 million spent in 2010 by the financial service industry, another potent lobbying force -- but considerably less than the $240 million spent by the pharmaceutical industry. Among major industries, Opensecrets.org ranked Big Oil fifth in terms of lobbying dollars spent, behind only Big Pharma, electric utilities, business associations and insurance.

The oil and gas industry used its $147 million to employ 788 individual lobbyists in 2010 -- some 500 (or almost two thirds) of whom, according to Opensecrets.org, are former federal employees who came through the revolving door particularly well versed in the ways of government.

All told, that's well more than one oil and gas lobbyist per member of Congress out there on the Hill arming allies with talking points and briefing books, spinning the undecided and pressuring the opposition.

And there's more of them every year. Consider the trendlines. As recently as 2004, the oil and gas industry spent about $52 million a year in lobbying; by 2009, that figure was up to $175 million -- or a 300 percent increase in just five years.

The industry backs up its extraordinary lobbying effort with lavish spending on political campaigns. Candidates associated with oil and gas companies made about $15 million in direct campaign donations during the 2010 mid-term election cycle ($26 million during the 2008 presidential cycle).

The industry was also responsible for more than $10 million in donations through its political action committees, or PACs, in the 2010 cycle.

The trendlines are notable here, as well. In the early ’90s, oil and gas campaign spending favored Republicans over Democrats by about a 2 to 1 margin: For every $1 the industry gave to Democrats, it gave Republicans $1.78. But starting in the 1996 election cycle (think Al Gore), that changed dramatically. Now, for every $1 the industry gives Democrats, it gives Republicans about $3.35.

Among the top oil and gas industry donors in the 2010 cycle, Koch Industries and ExxonMobil head the list. And Opensecrets.org's top 20 list of oil and gas money recipients is 4 to 1 Republican.

In addition to contributions to individuals and PACs, there's the whole new world of spending opportunities opened up by recent Supreme Court rulings that essentially blew a hole through the post-Watergate campaign finance laws.

Super PACs are groups that can now accept unlimited contributions, though they must disclose their contributors. Opensecrets.org calculates that companies with interests in the energy sector combined to give more than $5.6 million to Super PACs in the 2010 cycle.

Former Bush political guru Karl Rove's American Crossroads group, for one such Super PAC. It spent $21 million on political advertising in the 2010 cycle; oil and gas interests contributed just over $3 million of that amount.

The recent court rulings also opened the way for nonprofit groups to spend unlimited amounts of money on political campaigns -- and unlike the Super PACs, they don't have to disclose their donors. All they have to do is report how much they spent.

These groups, led by the U.S. Chamber of Commerce, reported $140 million in campaign spending in the 2010 cycle, the vast majority of which went to support conservative causes. There's no way to know how much of that money came from Big Oil.

Adding yet more firepower to its lobbyists’ arsenal, API announced last month that it will start funding political campaigns directly through a new PAC of its own -- in addition to what its member organizations give already.

"API is very focused on making sure that we have a voice in policy debates," said its spokesman, Durbin. "We're always looking at ways to improve the way we do our jobs here. This just adds one more tool to leverage our ability to get the point across about the critical nature of this industry."

One more thing: According to another study by the Center for Responsive Politics, oil and gas industry holdings are some of the most popular investments among lawmakers and their spouses, and in recent years have grown in value, offering a bundle of potential conflicts of interest problems.

"Without question, among all the different industries that lobby the federal government, that make campaign contributions, oil and gas is right at the top of the top," said CRP's Dave Levinthal. "They can invest incredible resources into the political process that make so much of a difference in Washington, at the cost of a fraction of a faction of their haul."

And it's not just the breadth of their efforts -- it's the ferocity and the effectiveness.

Last month, one of the House's nine freshmen Democrats, Rep. William Keating of Massachusetts, tried to tack a subsidy repeal onto a continuing budget resolution. He failed, by a 73 vote margin, with not a single Republican voting in favor and 13 Democrats voting against the measure.

Keating said he considers that vote a testament to the power of the oil and gas lobby. "It's incredible to me. It would be my Exhibit A," he said. "Because we're sitting here in the midst of a budget deadlock, we're sitting here cutting Head Start programs, police, fire, border security, reading teachers -- we're sitting here cutting the basics, and there's just this refusal to even consider subsidies for the oil companies."

There's no business or economic argument for them, Keating said. "These are profitable businesses right now. This isn't a situation where you're trying to provide capital for businesses that need it, or trying to provide assistance to get a small business off the ground. It's not for economic development. It's not for job creation. It's not to enhance the middle class. So why is it there?"

The answer, Keating said, has to be the industry's political clout. "I used to be a district attorney. Many times you begin an investigation by eliminating everything else. So I've been trying to eliminate every other possible reason, and I'm left with that."

The money the industry spends influencing legislation and elections looks enormous -- until you compare it with what it buys. "If you look at $4 billion [in subsidies] annually, compared to say $200 million for lobbying and campaign spending," said Daniel J. Weiss, director of climate strategy for the Center for American Progress Action Fund, "that is a 20-to-1 payoff."

And maintaining subsidies is only a small part of what the oil industry lobby has accomplished. Last session, the industry also blocked cap-and-trade legislation and staved off any action in response to the BP oil spill. Right now, it's fully occupied trying to defund the Environmental Protection Agency and roll back regulations across the board.

UNBREAKABLE TAX BREAKS

Two of the big tax breaks Obama wants to roll back were created generations ago to provide incentives for what was then a nascent industry. One, which covers the "expensing of intangible drilling costs," is a nearly 100-year-old credit intended to help make up for the losses associated with all the "dry holes" that were a common occurrence back then. Modern extraction science has made them something of a rarity. The other sweetener, called the "percentage depletion for oil and natural gas wells," dates back to 1926. (See this Congressional Research Service report for more details.)

As anachronistic as those two seem today, it's the third big tax break Obama wants eliminated that may be even more outrageous: a massive giveaway jammed into a 2004 bill that was supposed to create manufacturing jobs.

Back in 2004, the World Trade Organization had repeatedly declared American export tax incentives illegal, so Congress set out to replace them with an income tax deduction for domestic manufacturing. The oil and gas industry managed to get its nose under that tent flap.

John Buckley, a former Democratic chief tax counsel for the House Ways and Means Committee, remembers exactly how it happened. "That was Bill Thomas," Buckley said, referring to the California Republican and then-chairman of the Ways and Means Committee, and a great friend of the oil industry. "It was that simple."

Oil and gas companies were specifically precluded from taking the export subsidy Thomas's bill was replacing. "So it was hard to justify," Buckley said. But Thomas rammed it through nonetheless. Thomas, who now works at the K Street lobbying and law firm Buchanan Ingersoll & Rooney, could not be reached for comment.

When Democrats retook the House three years later, they mounted a serious effort to repeal oil and gas subsidies. H.R. 6, the sixth in a series of promised bills, was known at the time as the "Ending Subsidies for Big Oil Act of 2007." It passed the House by a vote of 264 to 163 -- including 36 Republicans.

But by the time it made it out of the Senate and was signed into law by Bush -- some 11 months later -- it was known as the "Energy Independence and Security Act of 2007" -- in which the big oil subsidies lived on.

Despite considerable Republican support, the bill couldn't get 60 votes in the Senate as long as it included the subsidy repeal -- which, as in Obama's current proposal, was paired with tax breaks for renewable energy sources. The second of two cloture votes was particularly close (59 to 40) and only failed because two Democrats -- Sens. Mary Landrieu of Louisiana and Arlen Specter of Pennsylvania -- voted with Big Oil.

Once the repeal provisions were jettisoned, the bill passed overwhelmingly.

The lesson of that vote -- and the Senate's failure to take up the hard-fought cap and trade legislation passed by the House in 2009 -- combined to make last session's House Democrats more wary of angering oil interests for the sake of legislation that would eventually be scrapped.

"It was very difficult to be able to produce a majority for something that wasn't going anyplace in the Senate," Blumenauer explained.

Democrats this session have formally introduced legislation in both Houses to repeal the subsidies. A House bill co-sponsored by Blumenauer, Rep. Ed Markey (D-Mass.) and others aims to cut about $40 billion in oil and gas subsidies over five years. It follows the general outlines of Obama's plan, but would leave the subsidies intact for small, independent companies.

A Senate bill introduced by Sen. Robert Menendez (D-N.J.) and others would eliminate about $20 billion in subsidies over ten years.

There are two conceivable ways there might be some movement in the near future: Obama could demand some revenue increases as part of a larger deficit-reduction deal with Republicans. Alternately, some Democrats hope the oil subsidy issue will draw attention from some Tea Party Republicans the same way ethanol subsidies have. So far, however, there are no signs of movement on either front.

Keating said the issue transcends party lines -- or at least it ought to. "I'm not going to say it's just a partisan issue -- although by definition, having no one on the Republican side vote for it would qualify," he said. "This should be something that everyone agrees to, regardless of what party. So if there's Democrats that wouldn't cut here, then they're in the same position of trying to justify something that's not justifiable."

Ben Schreiber, a climate and energy tax analyst for Friends of the Earth, sees a moment of reckoning ahead. "As we see deeper and deeper budget cuts, and people are more aware of what they're losing, the reality of billions of dollars in handouts to the oil and gas industry is going to be less and less palatable," he said. "It's one thing in a vacuum, but when it comes to a question of educating our children or billions in tax breaks for the oil industry, that choice becomes much harder."

"Ultimately, what would really make a difference would be long-term campaign finance reform," said Weiss, the energy expert at the Center for American Progress. "Because if you remove Big Oil's money from the electoral system, then you've reduced one of their major pressure points.

"Short of that," he said, "it's going to be public outrage about high gasoline prices."

Public Citizen's Slocum was more prescriptive. “For there to be any change, Democrats will need to make their public case much more assertively,” he said. They will need to start pounding away with populist messages about high gas prices, and making sure the public makes the connection that, “Hey! The oil companies ought to pay their fair share," he said.

Slocum's conclusion: "It's going to take a counter to the American Petroleum Institute."

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Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to his RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.

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