Big Oils lust for tax loopholes

Oil prices and profits rise while big oil defends its tax loopholes

Big five oil companies' nominal profits, 2001-2010 (in billions of dollars)

Daniel J. Weiss, in a CAP cross-post.

Oil prices are high and rising at an alarming pace. After hitting a low of $38 per barrel in January 2009, the price of oil doubled to $76 per barrel just a year later. By January 2011, prices rose another 14 percent, and the average barrel now costs around $87. And there is little reason to believe this will change anytime soon, as political instability in the Middle East may cause prices to rise even further. As oil prices rise, so do Big Oil company profits. But even with their cash registers overflowing with dollars from struggling families, Big Oil is mobilizing to defeat President Obama’s proposal to invest $4 billion annually in clean energy programs by ending unnecessary tax loopholes for this highly profitable industry.

The big five oil companies””BP, Chevron, ConocoPhillips, ExxonMobil, and Shell””made a total profit of nearly $1 trillion over the past decade. The three oil companies that have reported their 2010 profits nearly doubled their profits compared to 2009 [see chart above].

Their profits closely follow the rise in oil prices from 2005 to 2008, when the average price rose from $55 to $95 per barrel. Profits for the major oil producers rose from $13 to $21 per barrel. ExxonMobil did much better than its competitors, with profits rising from $16 to $25 per barrel.

These profits are likely to grow as oil prices continue to rise. CNN reported on January 31 that “Exxon Mobil posted quarterly earnings Monday that topped Wall Street expectations, thanks to rising oil prices and increased production.” Its 2010 profit of $31 billion is nearly two-thirds higher than its 2009 profit.

And we can expect oil prices and profits to rise even more as a result of instability in the Middle East. AP reported that “growing political unrest in Egypt drove oil prices higher over the weekend, pushing benchmark crude up $3.70 to $89.34 a barrel on the New York Mercantile Exchange.” This provides nearly a $4 per barrel windfall to oil companies because the oil is worth more though the cost of producing oil remains stable and relatively low. The Energy Information Administration estimates that production costs:

… can range from as little as $2 per barrel in the Middle East to more than $15 per barrel in some fields in the United States, including capital recovery. … technological advances in finding and producing oil have made it possible to bring once-expensive deepwater Gulf of Mexico oil into production for less than $10 per barrel.

ExxonMobil, for instance, will make nearly $9 million more every day that the oil price includes Friday’s spike. Prices will rise further if this instability spreads to other oil-producing nations such as Iran, Libya, or Algeria””all of which produce much more oil than Egypt.

Rising oil prices aren’t the only factor driving bigger profits. Big Oil companies have invested a huge percentage of their profits into buying back shares of their own stock over the last few years, which helps drive up the price of the remaining shares. ExxonMobil, for instance, spent $35 billon””the equivalent of nearly 80 percent of its 2008 profits””on common stock purchases that year. It spent $700 million more on common stock purchases in 2009 than its profits of $19.2 billion. Meanwhile, ExxonMobil invested less than 1 percent in clean energy technologies the year of its record 2008 profit of $45 billion.

While Big Oil is busy raking in profits, American families are struggling with the worst economy in 80 years. One way to spur more job growth is to invest in energy efficiency and renewable energy technologies. President Obama proposed during his State of the Union address that Congress eliminate unnecessary tax breaks for Big Oil companies to pay for these investments.

“To help pay for [clean energy investments], I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. … I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

The administration estimates closing these Big Oil tax loopholes would save “approximately $4 billion per year in tax subsidies to oil, gas, and other fossil fuel producers.” These tax giveaways include the “domestic manufacturing tax deduction” that creates an incentive to keep manufacturing plants in the United States. Former CAP Senior Policy Analyst Sima Gandhi described the absurdity of extending this special tax break to Big Oil and gas companies since they cannot move an onshore or offshore oil field to another nation.

“Companies that manufacture, produce, or extract oil and gas or any primary derivative receive a manufacturing subsidy provided that the product was made in the United States. But since removing this subsidy does not affect the production of oil [in the U.S.], the subsidy does not significantly affect business decisions.”

The Congressional Joint Economic Committee determined that excluding Big Oil companies from this provision “will not increase consumer energy prices.” Oil prices rose from $42 to $90 per barrel since this tax break was created in 2004, so it did nothing to keep prices down.

The oil and gas industry argues its tax breaks are essential to its ability to create jobs, but the evidence indicates that clean energy investments are a more cost-effective job creator. A University of Massachusetts study found that investment in clean energy creates anywhere from two to four times more direct and indirect jobs compared to the same investment in oil and gas production. Investing $1 million to retrofit buildings to make them more energy efficient creates three times more jobs than a $1 million investment in oil and gas. An investment in wind energy creates two and a half times more jobs compared to the same investment in oil and gas. At a time when the federal government must reduce its spending while creating more jobs, it makes much more sense to invest tax dollars in the most cost-effective programs to increase employment.

Taxpayer handouts for oil companies have proven to be ineffective. Domestic oil production has continued to decline since the early 1970s in spite of multiple, generous tax subsidies. Gandhi reports that “the Treasury Department estimates that ending subsidies will affect domestic production by less than one half of 1 percent.”

President George W. Bush, a former oil man, noted in 2005 that high oil prices have eliminated any remaining reason for tax breaks. “With $55 oil we don’t need incentives to the oil and gas companies to explore. There are plenty of incentives.”

Oil and gas production can be a risky, dangerous business that provides an essential fuel for the American economy. The Big Oil companies deserve to make a profit. But it makes little economic sense for these same companies to receive billions of dollars in tax breaks while they benefit from rising oil prices that take a huge bite from families’ wallets.

President Obama noted in his State of the Union that “the first step in winning the future is encouraging American innovation.” Some special interests such as the U.S. Chamber of Commerce believe that America cannot meet this challenge, saying the “administration has [an] unrealistic approach on energy.”

We believe that we can innovate, compete, and grow if we make investments in the clean energy technologies of the future. Eliminating tax loopholes for enormously profitable oil companies to provide incentives and seed capital for investors in this $2 trillion industry is essential to our economic recovery and competitiveness.

— Daniel J. Weiss, in a Center for American Progress cross-post.

18 Responses to Big Oils lust for tax loopholes

  1. Mike Roddy says:

    Of course we should get rid of oil industry subsidies, and there is no argument to the contrary unless you believe that oil company stockholders need more money.

    If Senators like Rockefeller and Nelson again vote Republican on this, Reid should tell them to just go ahead and join the other party.

  2. Mulga Mumblebrain says:

    We are now witnessing the unraveling of the ‘Invisible Hand’ myth of the vulgar acolytes of Adam Smith. The notion that competing interests mysteriously always produce the optimal result was always silly, but they got away with it for centuries because there was the immense wealth of Africa and Asia to be looted by colonialism, the vast productive capacity of the Americas to be unleashed once the indigenous were exterminated and the relentless march of technology to exploit.
    Unfortunately we have clung, or rather have been forced to cling to this 18th century faery story far beyond its usefulness to the vast majority. Certainly it’s a convenient fable for the rich, the sole beneficiaries these days of really existing market capitalism. But as a modus operandi when amidst peak oil, peak coal, peak phosphorus, peak fisheries etc, generalised ecological collapse and financial implosion into a black hole of utterly unrepayable debt, it’s a recipe for civilizational if not species suicide. The dreaded ChiComms, who, quaintly, believe that the Government ought to govern, rather than the rich kleptocrats, are, I believe, humanity’s last, if not necessarily best, hope. The US system of rule by insatiably greedy psychotics mediated through a class of entirely bought political stooges and a ruthless, amoral media, must produce a crash. You don’t need to be a rocket surgeon to see that.

  3. Jeff Huggins says:

    Being Honest About The Score So Far

    The score so far:

    Big Oil:
    Wins — many
    Losses — none
    Overall — undefeated

    Democratic Party Policy and Effectiveness:
    Wins (in relation to climate change and Big Oil) — practically none
    Losses — many

    An assessment of the trust I have that the Obama Administration will actually get serious about pursuing the elimination of the Big Oil tax breaks — beyond just using the request as a political gesture to try to out-gesture the Repubs — and will actually achieve the elimination of these tax breaks: Almost Nil.

    My “faith” in present approaches is low and dwindling. Can anyone explain to me why I’m mistaken in that assessment? Please!

    What are the actual concrete plans to do away with these tax breaks — beyond complaining about them and putting the GOP in a pickle (which never seems to bother them, because they are realizing they can get away with utter nonsense)? What, concretely and publicly, is President Obama going to actually do to have these tax breaks eliminated? What, concretely and publicly, are leading Democrats going to actually do to have these tax breaks eliminated? What, concretely and publicly, are CAP and John P going to actually do to have these tax breaks eliminated? How many times do we in the public, in the audience, hear about a concrete “target-of-the-moment” or “aim-of-the-moment” (e.g., these days, it’s the elimination of these tax breaks to Big Oil) and then watch and wait and wonder as the aim gains less and less attention, becomes nothing more than a point of showy rhetorical political debate (to please the masses?), and then suffers an inauspicious, subtle, slow death, away from the spotlight?

    And then we all hear about the “next” aim! We are told, in essence, not to worry or wonder that the last big aim went down to defeat. The politicians look at us (after they haven’t tried hard at all) and then tell us to still be happy, have hope, stick with them, and “redouble” our efforts. Meanwhile, they white-wash, smile for the camera, hesitate to even dare mention the phrases ‘climate change’ and ‘global warming’, compromise (what would have been) effective policies and principles to the point where they’re beyond recognition, and so forth.

    So I ask, What the heck is going on? To ask questions of people who can, and should be able to, answer them: What specifically will CAP do, and will John P do, to bring increasing attention to these tax breaks and to prompt — to PUSH, if necessary — President Obama, the Dems, and everyone to actually do away with these tax breaks? I appreciate the great info in this post, but (going forward) can we get concrete about tactics?

    Although I appreciate (a lot) what CAP does and is doing, I periodically feel this feeling: CAP is in Washington. Washington is failing. Aims arise and then disappear. Policies are proposed and then compromised to death — and usually never even voted upon. We hear rhetorical political statements — and then nothing happens. Then we’re told it’s OK.

    The Who — I’ve seen ’em several times, including way back when at Winterland — sing famously “won’t get fooled again!” But it feels to me as though we are getting fooled again, and again, and again.

    So, at a minimum, I’d like to hear (from Obama, from the Dems, from CAP, from the climate organizations, and etc.) about the concrete and specific plan — one that is designed TO BE SUCCESSFUL for once — for getting rid of these tax breaks for Big Oil. And I find it a bit frustrating to even have to ask for that, because (after all) eliminating these tax breaks should be a “no brainer” and will hardly shift our actual CO2 emissions at all, by itself. The very thought that the “next big battle” is over tax breaks that shouldn’t exist in the first place, while we’ve lost the larger battles on almost all other fronts for now, is itself depressing.

    Do Obama and the Dems actually have a plan to TRY HARD, and a plan THAT WILL SUCCEED, to get rid of these tax breaks? If so, then what is it? Is CAP convinced that it is excellent and will work? If not, then what would CAP have the Dems do, concretely?

    I’m sorry to have to ask these questions, but really: What is going on? Do we Dems lack the wisdom to be effective, or do we lack the motivation to be effective, or do too many of us think that it’s all a political game rather than a real-life situation will real stakes involved?

    Someone tell me if I’m wrong, and if so, why.



  4. From a 2008 article:

    In a time of skyrocketing oil prices and profits, why did the George W. Bush administration in 2005 authorise an additional 32.9 billion dollars in new subsidies over a five-year period?

    “Those are very good questions,” said Doug Koplow of Earth Track, Inc., an independent energy information research organisation in Boston, Massachusetts.

    “I don’t have a good answer other than to say we’ve been subsidising American oil companies since 1918,” Koplow told IPS.

  5. Chris Winter says:

    Study after study shows these oil-company subsidies to be unnecessary. Now the CJEC shows that ending them won’t raise consumer energy prices and will bring in approximately $4 billion more to reduce the deficit. This should be a no-brainer yes vote for Republicans.

    should be

    Back in June, Senator Bernie Sanders introduced an amendment to H.R. 4213, the “American Jobs and Closing Tax Loopholes Act.” The amendment would have cut oil company subsidies by $35 billion over ten years, applying the savings to debt reduction and efficiency programs. It failed 35-61. No Republican voted for it.
    Climate bill architects Kerry, Lieberman vote against repealing oil industry tax breaks
    By Sahil Kapur — Wednesday, June 16th, 2010

  6. Solar Jim says:

    $4 billion is spit in the wind, although these outrageously unjust tax breaks should end. Historic subsidies of all three types (direct, indirect and external) for US “fuels” are measured in many trillions of dollars.

    I would suggest, the way to eliminate countless perverse subsidies, resulting in a tragic “energy system,” is to nationalize all fuels, phase the industry out over one generation, and then make King CONG illegal (burning coal, petroleum, or fossil methane or fissioning uranium). This would be in concert with a jobs renaissance for economic sustainability, including steady-state eco-economics. The reasons for this transformation would include climate crisis, social liabilities and plutocratic indemnification that should be unconstitutional.

    We need to begin removing carbon dioxide from air, yet globalized corporations are helping to accelerate massive carbon contamination that is on schedule to destabilize the entire world’s civilization and all that we love.

    Only some kind of revolution can save us now. Thank you Egypt. The USA had one of those long, long ago. Now we are corrupt, fiscal frauds selling fossils as “energy.” Our country doesn’t know the meaning of the word.

  7. Mond from Oz says:

    We face a cluster of converging issues: the inevitable ( and probably exponential) rise in the price of oil; the predicted 40% increase in world population by 2050; the unreliability of cropping and food supplies in a regime of oil-based fertiliser shortage, and rising transport costs, plus the effects of extreme weather events and the many other adverse consequences of global warming.

    Why aren’t we screaming? Well, some of us are, but we’re drowned out by big money politics. Perhaps too, we are seeing here the convergence of tragic (in the true dramatic sense of that word) flaws in the character of our species: greed, aggression, and gullibility.

    It’s a big theme guys, but where are the Tolstoys, the Chekovs, the Arthur Miller? Where is Wagner now that we need him in the final Gotterdammerung?

  8. Prokaryotes says:

    Brent crude surged to $100 a barrel on Monday for the first time since October 2008

  9. espiritwater says:

    From Lester Brown’s new book, “World on the Edge”:

    John Beddington, chief scientist advisor to the U.K. government, said the world faces a convergence of crises by 2030 (food shortages, water shortages, costly oil and climate change)… a “Perfect Storm”.

    However, J. Porritt, former chief of the U.K. Sustainable Development Commission, wrote in the “Guardian” that he expects this “Perfect storm” to occur around 2020.

    Lester Brown says, “My sense is that this “perfect storm” or the “ultimate recession” could come at any time.

  10. espiritwater says:

    One way to raise peoples’ consciousness on the issue of climate change is to ask your local library to order books on climate change. During the last few months, I’ve asked for (and recieved!) the following books via the library:

    Joe Romm’s book, “Straight Up”; Gwynne Dyer’s book, “Climate Wars” and now am reading Lester Brown’s book, “World on the Edge”. All 3 are excellent books and I highly recommend them! They will have you on the edge of your seat.. all up to date on the latest science!!!

  11. Tim says:

    One point that should be hammered home by anyone claiming that oil companies use their profits ‘to produce more energy’: oil companies have for many years used a big fraction of their profits to buy back their own stock! GOP oil apologists incessantly claim that oil companies need profits to produce more oil – utter nonsense. If they wanted to produce more oil (if that were even more than marginally possible), they wouldn’t consume capital taking themselves private – which is what they are doing. See, for example, this chart for Exxon:

    It is bad enough to subsidize oil companies to produce “yesterday’s energy”, it is ridiculous to free up more profits so that their shareholders can concentrate the value of their shares. Managers of oil companies know very well that peak oil is basically here; they plan to maximize their take in future times of scarcity.

  12. BBHY says:

    Giving tax incentives to oil companies makes about as much sense as giving incentives to Microsoft to keep selling Windows.

    Oh crap, I hope no one in congress reads that comment. I don’t want to give them any ideas!

  13. David B. Benson says:

    Deincentivize fossil fuel producers.

    But also impose a FCOAD fee.

  14. Sou says:

    It’s my understanding that US consumers of oil don’t pay world parity prices. The price of petrol in the US seems very low compared with the price paid at the pump in most countries.

    Hope some sense will prevail sooner rather than later.

  15. Jeff Huggins says:

    Insane If We Don’t

    If we don’t get ourselves off of the oil habit, as quickly as possible, we should judge ourselves insane. Consider:

    * When there is “unrest” in the Middle East or large oil-producing countries, oil prices go up: And the big oil companies only make MORE money when the price of oil is up. Consumers pay more. Oil companies make more. And CO2 keeps pouring into the atmosphere.

    * Huge amounts of our money go TO the Middle Eastern countries, and many of the people in some of those countries don’t like us much. Much of our own money helps fund some people who would like nothing better than to use it against us, in war or in other ways.

    * And, when there are troubles in the oil-producing regions, our politicians (influenced by oil companies, you can bet) seem to find it necessary to send our military to help protect “U.S. interests”, so to speak. When there’s trouble, the price of oil goes up — so oil companies make more! — and at the same time, we tend to send our military (payed for by the public, not the companies, and soldiered by our children, not the oil execs). The companies make more money, and people (soldiers and innocents) die.

    * Meanwhile, we keep pouring CO2 into the atmosphere. In turn, along with all the other problems that will cause, it will contribute to the destabilization of some of those same parts of the world. And then will the politicians want to send young men and women again to fight? To fight and die in order to try to “stabilize” areas that our own actions have helped to destabilize?

    * And meanwhile, we feel worse and worse. It’s no wonder that we feel worse and worse: it’s natural to feel bad when one knows, deep down, that his choices are misinformed and self-defeating and irrational.

    So what the heck is going on? Why is it that we can’t see straight and prompt responsible action? I am starting to feel that our leadership is completely failing — and I’m not sure, at this point, whether it’s out of lack of motivation, or incompetence, or both?

  16. BBHY says:


    The idea of a convergence of crises fits perfectly with Strauss and Howe “The Fourth Turning” which also says we are heading into a period of crises, with a critical point around 2015-2020 and resolution about 2020-2025.



  17. dorveK says:

    Anyway, with or without subsidies to “Big Oil”, it seems a fair bet to assume that rationing is coming sooner than later: see this recent British proposal from “The All Party Parliamentary Group on Peak Oil”

  18. @15 Jeff,

    Leaders are only as brave as think they can be: afterall they want to get re-elected.

    Money is the key. Economics is supposed to answer the question of how best humans can maximise scarce resource but the way we account for our economic activity makes the ludicrous assumption that the planet’s resources and services are not only unlimited but that there is no cost attached to their use. Nature is economically “invisible” and unless we bring it into the economic system, I think we are ******.
    Economic activity is good: destructive economic activity is bad. Unfortunately humans have been arguing about the meaning of “good” and “bad” pretty muchsince they started thinking but we HAVE made progress (might be hard to believe but levels of violence in the world are actually going down). We could fix this problem if we put our minds to it and the “deniers” are in reality just greedy and selfish.
    Is collaboration a dirty word in the US? I hope not, becasue if we cannot find a way to collaborate on finding the solution, there is nothing left to compete for.