BP Slated To Claim $600 Million In Ethanol Tax Credits This Year

Earlier today, I pointed to a Stateline report about state government struggling to cut wasteful tax subsidies for corporations, even when they are faced with billions in budget shortfalls. And the federal government has a similar problem with promulgating tax credits that go to either mature industries that don’t need the help or wind up benefiting parties other than those intended.

For instance, paper companies will receive $6.6 billion this year in credits meant to discourage use of fossil fuels. But to qualify for this boondoggle, these companies will actually add diesel fuel to a fuel mix that is already carbon-free, “following the letter of the law while violating its spirit.”

In that vein, BP, the oil company responsible for the ongoing gusher in the Gulf of Mexico, is slated to be one of the largest beneficiaries of tax credits meant to encourage ethanol use:

BP could stand to reap federal tax credits approaching $600 million this year for blending gasoline with corn-based ethanol, making the British oil and gas giant one of the largest beneficiaries of the 45 cents-per-gallon ethanol incentive…A common misconception is that it’s the ethanol producer receiving the direct benefit, when it’s really the oil companies. “That’s the guy behind the curtain,” said one energy lobbyist. He said BP might be the largest ethanol credit beneficiary by virtue of a heavy Midwest presence, and noted BP was among the first companies to support the ethanol mandate.

BP is the fourth-largest U.S. ethanol blender, behind Valero Energy, ConocoPhillips and Exxon Mobil, and it’s worth asking whether the movement toward a green economy is at all aided by sending free money to oil companies for mixing some ethanol into their blend. “Is it actually promoting the environment’s health? Is the subsidy making a difference, and for whom?” asked Rep. Earl Blumenauer (D-OR).

Indeed, these tax credits for the oil industry, which reaps record profits year after year, should be very closely examined, particularly since many of them contribute to the country’s reliance on oil by making it artificially cheaper to look for and extract. There are currently nine different federal subsidies given to the oil industry, and taxpayers would save $45 billion if they were all cut. But, as CAP’s Sima Gandhi pointed out, making such cuts would require Congress “to overcome lobbyist arguments that killing subsidies will harm the economy”:

Profitable and powerful oil companies, such as BP and ExxonMobil, pay lobbyists millions of dollars to scare lawmakers into believing that ending subsidies to oil companies will wreak havoc on the American economy. These arguments are advanced by trade organizations such as the American Petroleum Institute, and they suggest that eliminating subsidies “could mean less U.S. energy production, fewer American jobs,” and higher oil prices. The evidence suggests otherwise.