Big Oils political ploy

Our guest blogger is Bill Becker.

Whatever else we might say about Big Oil in the United States, we have to give the industry credit for one thing: It has mastered the art of scamming us with a perfectly straight face.

The scam has been underway for decades. This year’s example is the debate about repealing $21 billion in federal subsidies for big oil companies over the next decade. To their credit, President Obama and several Democrats in Congress are pushing the idea.

Oil executives have launched a counteroffensive reminiscent of Gordon Gekko’s argument that “greed is good”.

Requiring taxpayers to subsidize America’s biggest oil companies is in the best interest of the country, they say, and anyone who disagrees is playing politics.

ExxonMobil, for example, has issued a statement that President Obama and congressional Democrats are engaging in “political theatre” on this issue.  Perhaps. But the real plot line is that big oil companies are fighting once again to keep largesse they don’t need and the nation can’t afford.  Here are some examples of the time-tested arguments we’re hearing from Big Oil:

Eliminating their subsidies will force oil companies to increase the cost of gasoline. Even some oil executives acknowledge this is not true.  Unless the industry uses subsidy reform as an excuse to gouge consumers, reducing its tax breaks will not affect energy prices. The handful of subsidies under scrutiny here are the proverbial drop in the oil barrel. They are a fraction of the special favors oil companies receive from the federal government, usually at taxpayer expense. And oil company revenues are so high, even counting the cyclic nature of the market, that subsidy reform will not make a difference in energy prices.

The bigger misdirection is the industry’s stubborn assertion that encouraging more domestic production with taxpayer subsidies and permission to drill everywhere will have a meaningful impact on consumer prices. Legions of experts have pointed out in the past that petroleum prices are set by a world oil market so large that more domestic drilling and subsidies won’t much matter. Two fresh examples illustrate how little we control the factors that influence the global petroleum market.

Last December, a vegetable vendor in Tunisia set himself on fire to protest harassment by police. His self-immolation and subsequent death triggered the “Arab Spring” — a chain reaction of protests across the Arab world fueled by frustrations ranging from high food prices to chronic unemployment, and suppression of freedoms to government corruption.  Oil prices rose just because of the fear that Arab unrest would threaten world supplies.

The second example is the historic flooding along the Mississippi River. Hopes have been high that high oil prices will flatten demand and lower the cost of gasoline. But gasoline prices may rise anyway because the river is threatening to disrupt oil barges, pipelines and refineries.

It’s unfair to cut subsidies for big oil companies when other companies and industries get taxpayer support. Sen. Orrin Hatch, R-UT, made this statement when oil company executives testified before Congress on May 12.  The corollary is that if oil companies get tax breaks, so should all other companies and industries. The last time I checked, we can’t afford that.

More seriously, Hatch’s point is valid within the oil industry. Current proposals would cut some subsidies for big oil companies, but not smaller oil producers. The equitable solution is to phase out all federal subsidies for oil, regardless of the size of the company producing it.

Applied to the energy sector in general, however, Hatch’s point is bogus. The oil industry has been getting federal subsidies for nearly a century, far longer and in far greater amounts than alternative energy industries. Rational public policy would recognize there’s a big and legitimate difference between subsidizing mature and wealthy industries such as coal and oil, and subsidizing emerging industries that are critical to national security, such as solar and wind energy.  Fossil energy subsidies are classic corporate welfare; renewable energy subsidies help these vital young industries get across the “valley of death” and into the marketplace.

The American people don’t want shared sacrifice. They want shared prosperity.

This interesting statement came from Chevron CEO John Watson at the same Congressional hearing.  If Watson really supported the idea of “shared prosperity”, he’d volunteer to give his company’s tax breaks back to the American people.

Rather than reducing federal budget deficits, cutting oil subsidies will have the opposite effect. Jobs and investors will disappear and government tax revenues will fall. This argument has been raised by Jim Mulva, chief exeuctive of ConocoPhillips, among others.  It’s ludicrous to believe that cutting these few subsidies will drive investors away from oil.  So long as there are profits to be made, oil companies will drill and investors will invest.  In a world in which populations are growing, consumerism is surging and emerging economies are injecting oil like steroids, there are ample profits to be made. Eliminating a few subsidies won’t change that.

Cutting these subsidies is a tax increase for Big Oil. The “tax increase” argument is an all-purpose fear phrase routinely rolled out by fiscal conservatives and corporations.  It’s not clear to me that eliminating a tax break qualifies as a tax increase, strictly speaking.  Yes, removing subsidies would result in big oil companies paying higher taxes, assuming their accountants don’t find other ways to escape the obligation. But taking away subsidies merely results in oil companies paying what they should pay without favored treatment.

Look at it this way: Big Oil is subsidized not only by access to public lands, low royalty fees and special breaks in the federal tax code. It also is subsidized every day by every one of us who pays taxes, buys gasoline or purchases a petroleum-based product. Our tax dollars pay the enormous costs of protecting overseas oil supplies and shipping lanes. The gas taxes we pay at the pump help build and maintain the highways that promote the use and sale of oil. More than 154 million Americans live in places where coal plants and petroleum-powered vehicles contribute to pollution that makes the air too dangerous to breathe. Families bear the medical costs and lost wages associated with that pollution.  It’s difficult to feel bad about the taxes paid by Big Oil.

Oil subsidy reform is election-year silliness and political posturing by Obama and reform advocates on the Hill. Ken Cohen, the vice-president of public and government affairs at Exxon, told the Financial Times the subsidy debate is merely “the kickoff for the 2012 presidential campaign and congressional elections”.

So what? The 2012 election cycle is an excellent time for presidential and congressional candidates to differentiate themselves on national energy policy.  Our oil addiction is one of the biggest national, environmental and economic security issues of our time. We need an electoral intervention.

Cutting subsidies by $21 billion over 10 years will make little difference in reducing the federal deficit. That’s true.  As of May 12, the national debt was more than $14 trillion – the largest in the world, about $46,000 for every citizen. But we have to start somewhere.  To paraphrase the late Republican Sen. Everett Dirksen, “Twenty billion here, twenty billion there, and pretty soon you’re talking real money.”

The oil subsidy debate has greater significance than $21 billion however. It is a litmus test of conservative sincerity about reducing the federal deficit – a test the Tea Party should watch closely.  So far, the spending cuts proposed in the Republican-controlled House have been driven by naked ideology, using deficit reduction as an opportunitiy to attack environmental regulations, climate science and government services for the poor and middle class. In the words of ExxonMobil, the votes have been pure political theater.

Last February, shortly after he became Speaker of the House, John Boehner said this:

It is immoral to bind our children to as leeching and destructive a force as debt. It is immoral to rob our children’s future and make them beholden to China. No society is worthy that treats its children so shabbily.

With that level of moral conviction, it should be a no-brainer for Republicans to vote in favor of eliminating oil subsidies. If conservatives are not willing to harvest this low-hanging fruit, it’s doubtful they’ll make the far tougher choices that meaningful deficit reduction will require.

[JR:  If Boehner really cared about our children so much, he wouldn’t support destroying the livable climate they will need.]

Congress should take up oil subsidy reform another time, as part of overhauling the nation’s tax system. There’s no reason to wait on reforming such an obvious and equitable target for deficit reduction. And there’s no reason to believe that a Congress so deadlocked by partisanship and its own rules will succeed at reforming the tax code anytime soon.

This isn’t the first time we’ve had this debate. In the past decade alone, oil executives were called before Congress to justify excessive profits in November 2005 when oil cost $60 a barrel; again six months later when a barrel of oil cost $75; again in April 2008 when oil hit $100 a barrel; and again this week, with crude back in the $100 range.  For the past 40 years of oil crises, oil wars and oil-induced recessions, it has been Ground Hog Day on Capitol Hill.

The questions reform-minded members of Congress asked oil executives over the years remain relevant and unresolved today: Why should oil companies get tax breaks when their profits are so high and consumers are so broke? Why isn’t Big Oil investing more of its profits to develop the alternative energy resources that would keep the industry and the nation secure in the long-term?

If it were up to me, all fossil energy subsidies would be shifted to a rapid buildup of energy efficiency and renewable energy technologies in the United States. But if deficit reduction provides the only sufficient leverage for subsidy reform, so be it.

However we use the revenues, we should resolve the indefensible perversities of national energy policy once and for all, starting with the elimination of federal subsidies for Big Oil.

–Bill Becker, Executive Director, the Presidential Climate Action Project

11 Responses to Big Oils political ploy

  1. Mulga Mumblebrain says:

    This is just capitalists preying on the rest of humanity, the essence of their death-cult. I heard a similar abomination this morning when a tobacco industry (an industry that profits from knowingly peddling substances that kill or severely injure those addicted to it)PR flak argued against the local Commonwealth Government’s decision to bring in plain packaging of cigarettes. The health profession is united without exception in favouring this measure, but the capitalists think only of ‘intellectual property rights’ and ‘freedom’ to peddle a ‘legal product’. The moral atmosphere of market capitalist economies, in my opinion, approximates to that of a narco-state, perhaps Colombia at some stage, or Panama under Noriega when he still followed CIA orders, or indeed of the UK forcing opium on the Chinese at the point of a gun.

  2. sault says:

    I would wager that even increased drilling offered with subsidy repeal would not attract enough Republican votes to get through the House. The Democrats should at least make this a big deal for a week or two to get the public on their side if no deal can be made. In that case, there can be no progress on virtually ANYTHING until January 2013, and that’s only if the Democrats post big gains in the House or Senate. Maybe the fiscal hawks in the Tea Party might be swayed if this issue is made a BIG DEAL, but they are so wacky, there’s no way to tell.

  3. Solar Jim says:

    Maybe, with Germany and Japan’s recent announcements, we should advance strongly toward clean energy by eliminating all direct, indirect and external subsidies for the four toxic explosives (petroleum, coal, fossil gas and uranium). Of course, they might not even be economically feasible as “energy” if that were to come about, especially since they are actually “matter” rather than “energy” (but we are still looking for intelligence in space aren’t we?).

  4. Mark Sandeen says:

    Ask yourself this simple question.

    If the US consumes approximately 25% of the world’s oil, then 75% of our oil subsidy tax dollars are going outside the country.

    Should we really be sending 75% of our tax dollars overseas?

  5. Mulga Mumblebrain says:

    Solar Jim #3, even if we closed down the nuclear industry today we would still face a future polluted by the deadly detritus of nuclear waste, the accidental contamination from Windscale, Three Mile Island, Chernobyl and Fukushima, and the deliberate contamination of depleted uranium weapons. I’m afraid that the nuclear dragon has long since escaped.

  6. Some European says:

    ” [JR: If Boehner really cared about our children so much, he wouldn’t support destroying the livable climate they will need.] ”

    At the end of this famous interview Boehner says: “We’ve gotta find ways to work toward a solution to this problem [carbon emissions] WITHOUT RISKING THE FUTURE FOR OUR KIDS AND GRANDKIDS”
    That sentence is sooo incredibly painful.

  7. Bill Becker says:

    I agree that getting any proposal on subsidy reduction through this Congress is unlikely. But I think it’s still important that we make duplicity much more difficult for those who claim that cutting oil subsidies is a tax increase, or will result in higher gas prices, or will result in less investment and oil production, or will cause the economy to collapse. These subsidies should be made a populist issue, another case in which the rich are getting richer at the expense of American consumers. Families are taking another big hit while CEOs and oil companies rake in outrageous salaries, bonuses and profits, while fighting to keep taxpayer support they don’t need. If fiscal conservatives and Tea Party members are sincere, cutting oil subsidies is a no-brainer. I hope we hold their feet to the fire not just for the next few weeks, but consistently until voters begin to punish them for talking out of both sides of their mouths.

  8. Mike Roddy says:

    Bill, you’re right, it’s not just a populist issue, but a moral one, and will affect our long term survival, too.

    Have you approached leading Democrats about making this part of a nationwide stump speech? It would resonate, especially when the details come out.

    So far they have been timid, and left the speechmaking to Obama, whose remarks are OK, but brief, and delivered with a smirk instead of with fire in his eyes.

    Now is the time for our President to channel Martin Luther King, our greatest spiritual leader. And it’s time for the Democratic members of Congress to act like men, and not the vacillating, opportunistic empty suits that they appear to be.

  9. Joan Savage says:

    The oil subsidy issue feels like a skirmish almost welcomed by Big Oil, as they are likely to win, yet can afford to lose this one, and still come out way ahead on profits through corporate tax exemptions, etc. As the chess players and old warriors say, it pays to pick your battles.

  10. Joan Savage says:

    That said, Bill Becker’s call to the populist issue is broader and worthy, not an election-year skirmish.

  11. sailrick says:

    Anyone have an idea how much the total annual fossil fuel subsidies are? This $2 billion number doesn’t ring true. I believe it is far higher. I remember a study done by Koplow, that showed $49 billion for 2006 alone, with $39 billion of that going to oil and gas and the rest to coal. In 2005, the Bush administration increased oil subsidies for the next five years by $32.9 billion. That’s a $6.5 billion/year increase for those five years. Koplow found all kinds of hidden costs to the government in support of these industries, that one wouldn’t necessarily think of as subsidies.

    From a study- Koplow’s 2007 report to the Organisation for Economic Cooperation and Development:

    “Estimating U.S. oil and gas subsidies is very challenging. Subsidies rarely involve cash payments. Instead scores of U.S. government agencies and departments create hundreds of programmes to support the U.S. energy sector. And there is no requirement for the federal government to keep track of all this.”

    “Energy subsidies are often simply hidden from public scrutiny. Subsidy programms from 1918 are still in place. I’m not aware of any oil and gas subsidy that has ever been phased out,”

    Hey, they need the money for their climate change disinformation campaign.