Putting Big Oil Subsidies to Work for America

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"Putting Big Oil Subsidies to Work for America"

How we can use tax breaks to help rebuild our infrastructure

by Donna Cooper, Richard W. Caperton, Kate Gordon , Daniel J. Weiss

Last year was a bonanza for the top five oil companies—BP plc, Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell Group—posting combined net-income earnings of $137 billion, a new record. Undeterred, Republican leaders in Congress are seeking to pass transportation legislation that will expand oil and natural gas drilling and will force the construction of the controversial Keystone XL pipeline project. House Republicans hope the Senate will concur and give these companies access for oil and gas production to some of our natural crown jewels.

Republicans in the House want to boost drilling offshore and on protected lands so that the federal revenues gained by this expansion of drilling can be used to pay for the American Energy and Infrastructure Jobs Act—the House Republican five-year highway funding bill.

The Center for American Progress has a better idea: Tap the geyser of oil company earnings by imposing a tax on imported oil and ending antiquated federal subsidies for oil companies. Doing this will pay for an environmentally and fiscally sound plan to upgrade our crumbling transportation, water, and energy infrastructure.

CAP’s new report, “Meeting the Infrastructure Imperative,” recommends doing just that, among other things, to put more federal funds and state, local, and private money to work investing in infrastructure over the next 10 years. Our report details why $129 billion more per year is needed to meet our country’s infrastructure capital repair and improvement needs. CAP found that direct federal spending for infrastructure would need to rise by $48 billion a year, or about a 1.3 percent increase in total federal spending. Boosting federal spending by $48 billion would mean an increase approximately the same size as what was spent on the Iraq war in fiscal year 2011.

CAP projects that with this level of increased federal investment, as much as $60 billion in private infrastructure investment and $11 billion in new state and local investment could be mobilized as well. But where will the new federal money come from?

For decades federal gas tax revenues were dedicated to covering the cost of road, bridge, transit, and rail improvements. But Congress hasn’t raised the 18.4-cents-per-gallon gasoline tax in 19 years, and as a result, its value has eroded by one-third, leaving federal transportation programs chronically short of funds. If that tax had been indexed to inflation, it would be 28 cents per gallon today.

Instead of raising the gas tax now—or doing as House Republicans suggest and relying on mythical revenues from expanding oil drilling or scarring our nation’s heartland with a pipeline that could leak and pollute air and water—CAP calls for a tax of $9.50 per barrel on imported oil, alongside ending $4 billion in annual tax breaks for oil companies, both of which will help pay for the additional federal infrastructure investments to meet our transportation, water, and clean energy infrastructure needs. By CAP’s calculations an oil-import tax and the termination of the oil and gas subsidies would generate approximately $40 billion annually. These funds are needed on top of the approximately $36 billion generated by the federal gasoline tax.

Recent Republican proposals also look to oil companies to shoulder some of the financial burden of infrastructure improvements, but they do so by relying on revenues from an environmentally devastating expansion of drilling offshore and on protected lands. CAP instead proposes to broaden the user-fee model of infrastructure funding to include oil companies’ tax contributions since they are significant beneficiaries of infrastructure improvements.

Under CAP’s plan tax revenues on imported oil and the revenues gained by ending antiquated subsidies would help pay for a decade of investment at the scale needed to bring our infrastructure back up to world-class standards. Specifically, our plan would enable us to:

  • Build out our transit, regional, and passenger rail capacity and as a result make a real dent in air pollution: With better transit and new federal investment in better roads, drivers would face less congestion and save an average of $335 per year due to fewer car repairs and better fuel economy.
  • Stimulate $40 billion a year in private investment in clean energy generation, distribution, transmission, and smart grid infrastructure: At this level of investment, we can achieve an 80 percent reduction in carbon pollution by 2050 compared to the carbon pollution levels in 2005.
  • Make it possible for older water systems to ensure the quality of our drinking water is safe, and that wastewater treatment and storm water overload systems can adequately protect our rivers and lakes by removing industrial and household pollutants from wastewater.

In addition to spending more on what needs to be done, this plan also shows how we can do a better job deciding where and how to invest.

For instance, to attract more private financing for clean energy, the CAP plan calls for a national infrastructure bank with a clean energy loan program and at least a 10-year extension of the investment and production tax credits for renewable energy generation that have been so effective at stimulating private investment in many wind and solar projects. The plan also proposes the creation of a national infrastructure council that would bring together federal agencies to strategically align their infrastructure investments to promote water and energy efficiency efforts and to reduce both traffic congestion and carbon dioxide pollution.

Unfortunately, the Republicans in the House are suggesting cutting funds for transportation infrastructure and suggesting that we rely on the expansion of offshore oil drilling that has very little potential to produce the needed revenues to pay for badly needed investments. In addition, House Republican leaders also plan to hold transportation investments hostage until the Keystone XL pipeline is approved, which would bring dirty tar sands oil from Canada to the Texas Gulf coast for refining, with a large portion sent overseas.

The House Republican leaders hope to move their transportation package after this week’s congressional recess. We suggest they consider a sounder approach that both protects our environment and ensures sufficient revenues to rebuild our infrastructure. CAP’s proposal is a game-changing strategy that could succeed with support from labor, business, environmentalists, and officeholders of both parties. It’s time to get to work on it.

Donna Cooper is a Senior Fellow at the Center for American Progress. Richard Caperton is the Director of Clean Energy Investment at American Progress. Kate Gordon is the Center’s Vice President for Energy Policy. Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress.

This piece was originally published at the Center for American Progress.

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3 Responses to Putting Big Oil Subsidies to Work for America

  1. Hi!

    Thank you for the article! I agree with almost everything you have to say. In fact what you are saying is very important. We need to stop subsidizing the oil industry. We act like they are our friends, they are American business that have America’s best interest at the forefront of their corporate credo. But the truth is, 2/3’s of their business is done overseas. They are corporations in a capitalistic society. This leaves us with a corporate entity who’s sole purpose in this world is to generate record profits. And that is exactly what they are doing. The worst part about it is that our tax dollars are being used to help them achieve this goal. You are right, this has to stop. We need our government to take our tax dollars and use them towards upgrading our country’s infrastructure.

    We have to stop helping the oil industry. Our own government is being run by the very industry as we speak. We need this to stop. The industry does not create new jobs for us, in fact they have done just the opposite. They have shut down refineries to reduce their refining capacity in the US so they can charge us higher prices. They have not built a new refinery in the US in over 30 years. As long as they control the supply we are chained to their prices. But this isnt about waging a war with them for the supply of oil. This is about stepping away from their game, and starting a new one.

    This is where I find my only qualm with your article. Right now in the United States the largest player in terms of renewable energy is a very large corporation, GE. While taking the step towards renewable energy is a must, we as a people have to be very careful. If we allow our renewable energy supply to be controlled by a corporation, or group of corporations we will find our selves in a very similar situation down the road. Before John D. Rockefeller got involved in the oil industry in the late 1800’s it was controlled by a large group of small corporations, which made for a very competitive market. Rokefeller, through the Standard Oil Corporation changed all of this through consolidation. Today, Exxon-Mobile, Chevron-Texaco, BP-Amoco, Conoco-Phillips, to name a few are all decedents of the Standard Oil monopoly. This will happen to the renewable energy field as well. It already is, GE, one of the largest corporations in the world is the leading player in our country. If we think they are doing this because they are good Samaritan’s, we are wrong. They see the writing on the wall.

    The only way for us to ensure our ultimate energy independence is properly run and is run for the right reasons is to make it a publicly owned, not for profit organization within our government. That way we can be assured that it is the people of this country who own their energy resources. It is the people who run it, and that way we take our freedom back and keep it out of the hands of corporations.

  2. UnCoverUp says:

    Recently ConocoPhillips’ lawyer-lobbyers (lawbyers) threatened to pick-up their Alaskan “new investment” marbles and go play with corruptible foreign governments overseas, like the former Libyan dictator Gaddafi. However, these threats are less convincing now in light of recently discovered evidence showing how ConocoPhillips and the other international oil companies (IOCs) bribed these dictators into agreeing to oil/gas production
    contracts structured to relabel a large portion a dictator’s oil production profits as a “tax in lieu of an income tax.” IOCs’ lawbyers for almost fifty years have done this to abuse the “Foreign Tax Credit” provision of the US federal tax code to “avoid” (more accurately “evade”) US income tax on repatriated production profits. See “ConocoPhillips Shareholder Proposal — 2012″ at http://UnCoverUp.net.

    However the Arab Spring has decimated the ranks of oil-rich dictatorships leaving fewer places for ConocoPhillips to take their “new investment” marbles. Alaskans, and Americans at large, should look to Norway as a model for managing and taxing ConocoPhillips and BP, or any other IOC that wants to profit from the production and sale of the oil/gas property owned by citizens through their governments.

  3. bill tiffee says:

    A good start, but let’s get rid of the gasoline tax entirely and replace it with a $25 per barrel tax on non Nafta oil (about 3 billion barrels a year, which would generate roughly $75 billion a year). WTO rules allow for an oil import fee but not Nafta, so Canada and Mexico would have to be exempt(about 1 billion barrels a year).
    The gasoline tax brings in about $30 billion a year so the import fee would raise an extra $45 billion to invest in more transportation spending, high speed rail, incentives for alternative energies like wind and solar, electric transmission lines to high wind areas, and a fueling infrastructure along interstate highways for alternatives energies, including natural gas.
    The beauty of this is that a real plan to reduce dependence on foreign oil would kick the speculative oil market in the teeth and produce a drop of at least $25 per barrel in world markets. Since domestic prices would rise to the level of the imported oil, consumers would see a net gain in the amount of the removed federal gasoline tax or 18.4 cents a gallon.

    You also need to create a floor of about $75 per barrel to encourage domestic production and ensure that alternative energies remain competitive with the price of oil, which has a tendency to go up and down (it dropped over $100 per barrel in the last six months of 2008. If prices fall below $75 per barrel, the import fee would increase to support the floor, and the extra revenues would go to deficit reduction.

    Since the oil states would benefit the most, you would have the leverage to remove the federal subsidies for oil and gas.