Big Oil: Obscene profits with subsidies on top

fossil fuel subsidy chart

While fossil fuels get more than $70 billion in federal subsidies, the US provides only $12 billion for clean energy. Image:

While the GOP House leadership seeks $60 billion in savings from programs including food-aid for pregnant women, public transportation and the EPA, Democrats say they can find most of that amount just from cutting oil subsidies.

In his State of the Union address, President Obama proposed cutting nearly $40 billion worth of handouts to the oil and gas industry. All told, subsidies to fossil fuel industries including oil, natural gas and coal total more than $70 billion, as compared to only $12 billion for renewables excluding corn ethanol.

A bill of no-sale

In response to the president’s call, last week Rep. Earl Blumenauer (D-OR) and a group of Democrats introduced the “Ending Big Oil Tax Subsidies Act” to end ten tax credits and deductions big oil companies currently receive. Subsidies on the block would include deductions for drilling costs such as wages and supplies, deductions for the production of oil and gas and deductions for expenses related to the cost of tertiary injectants.

As Blumenauer explained, “it makes no sense that we are borrowing money from China to subsidize the most profitable industry in the world and corporations like ExxonMobil that earn billions every year.”

Rep. Edward Markey (D-MA) added,

The biggest companies no longer need 100 year-old subsidies to sell $100 dollar per barrel oil to make nearly $100 billion a year. We shouldn’t be trying to balance the budget on the backs of our seniors and struggling middle-class families while oil company executives continue to line their pockets with tax breaks.

Over the past decade, the big five oil companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — made a total profit of nearly $1 trillion.

The bill exempts smaller oil companies, which are more dependent on subsidies to stay in operation in the United States, according to John Hofmeister, former CEO of Shell and founder of Citizens for Affordable Energy, who says that Big Oil doesn’t need subsidies when crude prices are high.

“The fear of low oil prices drives some companies to say that subsidies should be sustained,” Hofmeister told the National Journal. “And my point of view is that with high oil prices such subsidies are not necessary.”

A job-killing tax increase?

Any proposal to cut oil subsidies will face strong opposition from House Republicans. The GOP and the industry say that the subsidies are necessary so jobs aren’t lost or shipped to other countries.

In typically Orwellian fashion, the American Petroleum Institute is trying to spin cutting the subsidies as a tax hike. According to API President and CEO Jack Gerard:

It’s no surprise the administration is proposing yet again to raise taxes on the U.S. oil and natural gas industry.  But it’s still a bad idea and comes at one of the worst times in our economic history.  The administration continues to ignore the fact this industry is among the nation’s largest job creators and delivers enormous revenues to government at all levels.  The industry pays income taxes, royalties and other fees totaling nearly $100 million every day and pays income tax at an effective rate far higher than most other industries.

Not surprisingly, the true effective tax rate of the oil industry is a topic of dispute, with some analysts claiming that the petroleum and pipeline sector pays only about a third of the statutory corporate tax rate of 35%.

As to jobs, studies have consistently shown that emerging, labor-intensive energy sources like solar and wind create far more jobs per dollar than mature industries like drilling and mining, which increasingly rely on machinery to cut labor costs.

As for the major companies including Shell, Chevron, BP, ConocoPhillips, and Exxon having to cut jobs because they are struggling, that doesn’t appear to be true, especially with Brent crude oil trading at around $100 a barrel. Large oil companies don’t need subsidies when crude reaches $70 a barrel or higher, according to Hofmeister.

“The appendicitis of the global energy system”

Sure, America is the land of corporate socialism, throwing taxpayer dollars at dubious enterprises deemed too-big-to-fail from Detroit to Wall Street.

But oil subsidies are different. They’re so bad that even the chief economist at the International Energy Administration has named fossil fuel subsidies as one of the biggest impediments to global economic recovery — “the appendicitis of the global energy system which needs to be removed for a healthy, sustainable development future.”

For the US to deal with peak oil and climate change, we will need a national plan to cut our dependence on oil and quickly ramp up clean energy and conservation. And to have any chance at a rational energy policy, citizens will need to break the power of Big Oil over Washington.

A promising place to start will be cutting unnecessary handouts to the world’s wealthiest industry, corporate welfare that the Great Recession has made positively criminal.

— Erik Curren

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  1. says

    Exxon alone reported book profits more than double this pathetic $4 billion subsidy. The $70 billion figure is simply dishonest. No corporations pay a plain tax with no loopholes. That’s the system as it is intended to be by the powers that be. The notion that the tax code will somehow be rectified and enforced on this one industry is ridiculous.

    And that doesn’t even reach the larger point, which is that “clean energy,” whatever that it, stands zero chance of making a major difference, unless and until we start discussing demand, rather than supply.

    But that’s off-limits, isn’t it? Profits are at stake for real on that side.

    • says

      Obviously, Exxon is so profitable that they’d do just fine without subsidies. And they do squirm out of a lot of their taxes, paying an effective rate of about 13%, even though the statutory corporate rate is 35%. Yes, we’ll be lucky to replace a small portion of the fossil fuels we lose. Nobody rational said this whole transition thing was going to be easy — but it will be better if we do what we can now to keep corporate greed from preventing positive action on energy.

      • says

        Positive action on energy means talking about demand, plain and simple. Using petty gestures and false outrage about corporate greed as a distraction from that fact is the Obama strategy. It is a diversion. People in the transition movement ought to be protesting that, not cooperating with it.

        • says

          With all due respect, Michael, I have to disagree about fighting corporate abuses, particularly those of Big Oil. How can you explain that a liberal president with Dems in charge of both houses of Congress couldn’t pass even the most watered-down climate bill? If we want to do anything positive at all on the federal level, including conservation, which I agree is the key area to address, we need to break the power of Big Oil. Big corporations have hijacked our democracy for long enough. Corporations want us little people to be cynical and leave them alone. Transition people have a special responsibility to transcend the temptations of cynicism and show some character — it’s time as Bob Marley said to get up, stand up for our rights.

  2. Matt says

    It would be very nice if somehow the US could have an energy policy, but then I cannot remember back to a time when we did. That is besides sending in the military to take what we wanted. But I doubt that really counts.

    • says

      Aside from invading oil producers, I guess we had a de facto energy policy of subsidizing fossil fuels and nukes. But now I think it’s time we graduated to something more explicit or at least updated to deal with today’s situation.

      • Matt says

        I agree entirely on what you are saying in the article. But what I am saying is that with the current power structure in Washington with the Tea Bag Party and all, any real and meaningful change in a direction of sustainability and true independence is a pipe dream at best. Just this week the White House Energy guy Chu was berated by both parties for trying to place additional funding for wind, solar, and geothermal energy. The power players in Washington are more concerned with appeasing their masters “Big Oil” than they are about making any lasting change that may allow the empire to last even a few more years.

        • says

          And I agree with you, Matt. It’s depressing the hold that Big Oil has on both parties, so that even a smart guy like Chu gets slapped down by energy-boneheads. I know the odds are long, but we have to try to separate oil and state, as the folks at Oil Change International put it.

  3. scott says

    Just throw the free market bs line back in their faces and end all subsidies for all of them, that way no company can whine about any unfairness and we all start paying the real cost of using energy. If the Repubs and Tea Partiers balk at removing the subsidies for just the fossil fuel companies, especially the Tea Partiers(small government, free markets) , then just tell them loudly and publicly to never, ever bring up or say anything about any more “free market” BS ever again.

    • says

      Scott — Damned straight! I think the Tea Party is being largely manipulated by big corporations and that they’re not really honest about small govt for all, but that they really only want to cut spending on people they don’t like while preserving the perks for rich people and big companies. Nonetheless, you’re right that we should still make them put their free-market money where their mouth is.

      • Matt says

        The Tea Party is basically a creation of the Koch Brothers who are their major funders. I guess this really does show that not only are politicians easily bought, but if you have enough money you can just create your own party.

        Just as an aside, I was reading around on the web this morning and found a rep in Wisconsin who believes that we need to keep digging up the coal because God will never allow it to run out. Or there is the state of Montana that has placed a house bill to basically repeal reality. Since climate change and peak oil are obstructing their ability to grow their economy, they will deny that reality and physics even exist.

        I am unsure us to how to even begin debating people like this, if they go any further off to the right I can only hope that they will fall off the flat earth that they believe in.

  4. Tom says

    Remove all the subsidies if Congress wants to cut $100B off the budget. Between farm and fossil fuel subsidies the people are losing over $91B every year. Then Congress can start examiine sorting through the thousands of other subsidies we dole out every year.

    • says

      Thanks for adding in farm subsidies, Tom. Cutting those along with fossil fuel subsidies would be probably the quickest way to save a huge amount of money — and they’d be good policy too, by cutting out business incentives that don’t help consumers at all.

  5. JR Namida says

    I can not find a list of all the subsidies given to Oil Companies. Is there a master list somewhere on the web that can be researched? I have seen several instances that there are 100 + federal subsidies for oil companies.

    If there was a comprehensive list then there would be more opportunity for the lay person to do some detailed research, and maybe find a way to eliminate a number of old subsidies, and push that money into wind and solar products manufactured in this country, until the southwest can power the north east during the winter…

    On the other hand I also can’t say that I understand why oil in the ground would be considered capital equipment, but I don’t fault the oil companies for this as much as I fault our tax code. Then I know that Oil Companies lobbied for this tax arrangement in the tax code.

    Oil was last centuries energy and it made this country a world leader, but unless we change to non nuclear alternative energy rapidly and stop eliminate our dependency Oil, and become an oil exporter we are doomed to become a third world nation.


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