Top 5 myths about subsidies to oil companies

Tar Sands Banner at Calgary Tower

Cutting $4 billion in taxpayer handouts would be a step towards separating oil and state. Photo: Greenpeace International.

Can the president who killed Osama bin Laden now stand up to Big Oil?

Encouraged by comments made by House Speaker John Boehner that subsidies for oil and gas companies should be on the table, Democrats led by Montana Sen. Max Baucus last week revived their stalled effort to cut billions per year in taxpayer handouts to the largest oil companies.

No surprise, Big Oil is not going gently into that good night, even after just reporting profits up 30% from last year. At the same time, ordinary families who have yet to experience the widely touted recovery are now paying $4 a gallon or more at the pump.

But that hasn’t stopped the oil and gas lobby from firing back. The American Petroleum Institute is already set to supplement robust lobbying efforts by its member companies with its own pressure campaign on Congress.

Hands off our handouts

Meantime, API chief economist John Felmy said that “if Senator Baucus were serious about gasoline prices, he would focus on further development of our vast resources here at home which would create much needed American jobs, increase revenue to the government, and strengthen our energy security.”

Of course, America needs the oil. But to claim that the industry does much else for the domestic economy in exchange for all the taxpayer support they enjoy is just one of the myths the oil lobby has spun over the years.

To set the record straight, here’s our take on all the things that the industry warns that we’ll lose if we finally cut their handouts this time.

Don’t be scared. Instead, be very, very un-scared.

Myth #1: Drivers will lose cheap gas

Claim: “What will the oil companies – what does any company – do when its taxes go up?” asks conservative commentator Keith Koffler, echoing the industry’s Orwellian line that cutting subsidies is actually a form of raising taxes. “PASS THE COSTS ALONG TO THE CONSUMER. That is, higher gas prices.”

Reality: Of course, since peak oil came in 2006, from now on there’s not much anyone can do to stop gas prices from rising. A wicked brew of declining supply and increasing demand will make crude and gas prices volatile over the coming years, but the trend will only be up, up, up. Even in the short term, as they themselves have been telling us for years, ExxonMobil, Chevron and the other oil majors have little control over prices. US gas prices are driven mostly by global crude prices. And crude prices are set on the world oil market. A Joint Economic Committee report states, “the removal or modification of [one of these subsidies] is unlikely to have any effect on consumer prices for oil and gas.”

Myth #2: Workers will lose thousands of jobs

Claim: “The administration continues to ignore the fact this industry is among the nation’s largest job creators,” said API CEO Jack Gerard in February, claiming that cutting oil subsidies would eliminate “thousands of new potential jobs.” The industry claims to support 9.2 million American workers.

Reality: What’s the harm in a little exaggeration? Well, if you actually employ less than 10% of the workers you claim, then Houston, we have a problem. According to the Bureau of Economic Analysis, in 2009 the industry directly employed only 800,000 in the US, comparable to the number of clerks who work in sporting goods, hobby, book and music stores — and much less than 1% of total American 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.

Myth #3: Government will lose tax revenue

Claim: Cutting subsidies “would actually lower revenue to the government by many billions of dollars as a result of foregone revenues from projects the tax hikes [aka, cutting subsidies] would prevent going forward,” says the API’s Gerard.

Reality: 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%. If, in today’s overheated oil market, projects to find and produce oil aren’t worth doing without subsidies, then those projects were probably a waste of money to begin with. And after nearly a century of public support, isn’t this aged industry ready to take off the training wheels yet? Or have the world’s most profitable companies become addicted to corporate welfare?

Myth #4: America will lose energy security

Claim: “America needs policies that promote greater supplies of oil and natural gas, not policies that hinder the industry’s ability to provide consumers the energy they demand and need. The US could significantly improve its energy security by allowing access to domestic oil and gas resources,” says API-funded website Energy Tomorrow.

Reality: See Myth #3. Drill here, drill now, dream on. Or, in the words of radio host Cenk Uygur, “large multinational firms like ExxonMobil are not US property. They sell to the world and their allegiance is to corporate profits. So, when they drill, they drill for the whole world, not just us. Some might find that heart-warming, but it certainly has nothing to do with the US having more oil or lower prices.”

Myth #5: Clean energy will lose a big ally

Claim: The oil and gas industry is already supporting clean energy and creating green jobs more efficiently than the Obama Administration, according to the API, “and with less burden on American taxpayers through its own green investments.”

Reality: How stupid do oil lobbyists really think we are? Despite cheery ad campaigns with solar panels and sunflowers, the industry’s achievement in green energy clearly doesn’t extend far beyond the field of marketing. It’s true that the industry spent $98 billion on “renewable, alternative and advanced emerging energy technologies”  from 2000 to 2005. But 0nly about 1% of that went into clean energy including solar, wind and geothermal, while a whopping $86 billion went into “refining heavier sources of petroleum, including tar and oil sands and oil shale, and on turning waste and residue hydrocarbons into usable products” — more or less the opposite of clean energy — according to a Senate report.

This time for real?

President Obama devoted his April 30 weekly address to cutting oil subsidies. “Instead of subsidizing yesterday’s energy we should be investing in tomorrow’s.”

Let’s hope his actions will live up to his words. No doubt Big Oil is a formidable foe, even if they’re not holed up in a compound in Abbottabad, Pakistan. But if the president finally uses his bully pulpit to really stand up for clean energy and conservation, anyone who cares about America’s future should stand with him.

— Erik Curren

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  1. LD says

    Oil companies profit margin is usually around 9 %. They DID NOT go up to 39%. The overall dollar amount may have gone up which makes the profit “dollar” amiount go up. It is misleading and downright deceitful to look at the dollars and not the profit margin percent or earnings percent. Banks profits are much higher than oil companies by about 15% Microsoft as well Let’s use reality here not deception!

  2. Jon says

    Typical leftist propaganda. Why aren’t you talking about how these “oil subsidies” are very similar to subsidies and tax breaks given to many other industries? Instead, like a good little Obama Zombie, you spin everything and talk about the big bad oil companies. As LD already pointed out, the percentage of the profit is more telling than the overall number. It’s like saying that Home Depot corporation should be attacked because they make hundreds of times the profit of the local True Value store. Sure they do, they have a bigger operation. If you look at the percentages of the two, it will be very close. Just like the oil industry. If you want real bad guys, go after the banks that are dealing in sub-prime loans, and go after William Jefferson Clinton, who on November 12, 1999, signed legislature that repealed the Glass-Steagall Act and allowed the banks to do this.

    • says

      Jon — I agree about Clinton. We need glass-Steagall back and we do need to go after Wall Street and banks that both Bush and Obama gave so many taxpayer dollars to with so little benefit to the ordinary American. But, really, do big oil companies need subsidies when they’re making so much profit? And I’ve never heard that Home Depot gets huge taxpayer subsidies to do their ordinary business. I don’t have a problem with profit. That’s just capitalism. What I have a problem with is profitable companies seeking corporate welfare. Doesn’t that sound like socialism to you? Even some Republicans think the giveaways to Big Oil are just too much.

  3. James says

    Clinton was working on behalf of the same bankers that all subsequent Presidents answer to. Glass Steagall had to fall because there was no other way to funnel trillions of taxpayer dollars into the giant derivatives beast. It’s still going to all de-leverage. It’s just a lot bigger bubble now and it will make a lot bigger pop. As far as the oil industry, it’s a cartel. It’s big enough to get what it wants, just like the banking cabal.

    • Erik Curren says

      I’m afraid, James, that you may be right about the even bigger bubble bursting this time. And it could be pretty scary unless we start making other arrangements now. I hope it’s not too late for our whole society, but there’s certainly time for families and communities to get ready.

  4. Katherine says

    “Reality: What’s the harm in a little exaggeration? Well, if you actually employ less than 10% of the workers you claim, then Houston, we have a problem. According to the Bureau of Economic Analysis, in 2009 the industry directly employed only 800,000 in the US, comparable to the number of clerks who work in sporting goods, hobby, book and music stores — and much less than 1% of total American 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.”

    I will come back to address the rest of this nonsense, however this particular ‘myth’, as you call it, caught my eye, first.

    What about all the employees who are INDIRECTLY employed by the oil industry? Why aren’t you counting those people? You’re talking about direct employees, as in employees directly on the payrolls of companies like Shell and Exxon. You aren’t even taking into consideration the vast amount of various companies and industries that contract through these big, bad oil companies. You’re also not talking about the companies who use crude to produce every day household products, and even a huge chunk of pharmaceuticals. What’s the harm in a little exaggeration, you say? What’s the harm in adding a tiny little word like ‘directly’, in order to attempt to debunk a claim made by the opposing side? That’s the problem with small minded leftists. They tend to look at things at the most very basic level. They don’t look at the big picture. Many, many industries and smaller companies are reciprocal, at the least, to the oil industry. I am not a DIRECT employee to any big oil company, I’m not on their payrolls, DIRECTLY, but they darn sure pay my bills and pay for my children’s education. That’s the beauty of the versatility of the oil industry, and the very important part that propaganda like this tends to leave out. There is no industry that has it’s hand directly in America’s wallet like the oil industry does. You can thank the oil industry, even though we are not DIRECTLY employed, for the fact that our family will never use a cent of government assistance, for our tax dollars and for the fact that our children will not be drains on society.

    Obama is wanting to yank 100% of funding to the entire petroleum industry. Take a walk around your house, and come back with a list of the items in your house that are made with crude oil/petroleum. Crude oil that’s not even produced in the U.S.. The companies that manufacture those items for sale to consumers are reliant on the refineries that provide the refined crude to manufacture those products. That laptop you more than likely typed this nonsense on, that Ibuprofen you took to clear the headache it gave you, and the sandwich and glass of milk you ingested to wash it down are perfect examples of how the oil industry affects your own personal life and wallet. How many of those sporting goods stores, book stores and hobby stores rely on the oil industry, from shipment of products to the manufacturing of the products? Remember, many products that those stores sell are made out of crude oil, in some form or fashion, not to mention their parking lots are made of asphalt, and, well… know where that is going. Shit rolls downhill, my friend. Like it or not, nearly every aspect of our lives relies on crude oil in one way or another, from the rubber your tree hugging bicycle tires are made out of, to the toilet paper you use to wipe your butt (It’s got to get transported to the store, in order to make contact with your butt, remember, and is packaged in..wait for it…plastic, made from crude oil).

    So many people tend to forget that the oil industry is not just about energy. While the research and development of cleaner forms of energy are great, alternative sources do not have and cannot recreate the chemical properties that make up crude oil and make it so versatile. Personally, I have a huge problem with Obama taking MY tax dollars and investing them in companies that are now bankrupt (Solyndra, anybody?), while attempting to strip 100% of funding from successful companies who are working hard to develop alternative energy sources, independently, through donations to major universities and various programs. Funny how you mention, in your last ‘myth’, how much money oil companies have put towards developing and researching greener energy sources, however you don’t mention the comparison to how much Obama has spent *cough* wasted *cough* on investing in failures, or even in general. Once again, you’re talking about DIRECT contribution of the oil companies, and you’re leaving out their INDIRECT contributions to research and development. How many oil companies own stock in domestic renewable energy sources? How much money is donated by big oil companies to even humanitarian causes, compared to Mr. Obama? Check out Mr. T. Boone Pickens, and his sole contributions to not only humanitarian causes, but also to renewable energy resources. Then, drive through the Texas Panhandle, and set your sites on the impressive wind farms. If that’s not truly investing in renewable energy, I just don’t know what is. Funny how Mr. T. Boone Pickens, a lowly, dirty, big oil company owner has solely made billions of dollars worth of contributions to universities, cancer research, renewable energy sources, at risk children, residential schools, hurricane Katrina relief, and was one of THE biggest charitable givers of 2005-2006. Not to mention, that evil, greedy rich man even jumped his happy butt in a bulldozer to go along with his donation to the Jubilee Park. When was the last time Mr. Obama got his hands dirty to help the American people? You’re intentionally leaving out the fact that alternative energy sources are serious potential sources of revenue for the oil industry, as well, and we all can agree that they will line their pockets through any avenue they can, however their contributions to society somehow seem to balance out their ‘greed.’ Potential revenue, in itself, is motivation for oil companies to invest in the exploration of greener sources. At the same time, however, one can not discredit the worldwide, high, rising demand of crude oil production.

    In conclusion, it makes absolutely NO sense to only include DIRECT employees of the oil industry in your little propaganda piece. Also, in conclusion, if Americans believe that big oil companies are capable of ‘buying’ our government, they should bet their booties that they are capable of everything you listed will not happen, once they aren’t getting what they want.

    • says

      Katherine — You don’t identify yourself as a paid publicist for the oil industry, so I must say I find it surprising to see an ordinary web surfer so passionate about protecting subsidies to companies like ExxonMobil and BP that post record profits quarter after quarter!

      For my part, I’m open about my financial interests: I am a partner in a solar energy company. But as a writer, I seek to get to the facts.

      And the facts are these: while oil industry talking points try to show that their industry contributes substantially to the economy through both direct and indirect jobs as well as other benefits, it still remains that if their product is harmful, it shouldn’t matter how many jobs they create. We could give subsidies for land mines or chemical weapons also, and they might create jobs. But there’d be a few other, er, problems with such a plan.

      Even so, studies have shown that renewable energy creates many more jobs per dollar than fossil fuels. And consider that as of 2011, the US solar industry was one of the few bright spots in our economy, employing more people than the whole coal industry. Solar is also a major exporter of US technology.

      It’s high time to kick oil companies off the public dole. Then, we need to make Big Oil pay their externalized costs for climate change, oil wars, and various health problems.

  5. Dacid says

    @ Katherine…there’s a concept known as saturation. Indirect employment by petroleum is a non-factor, since they get all the oil they need and could want from whatever international source(which US oil is part of) anyways. That means literally no impact whatsoever on production that uses any oil based precursor. Not even more gas stations or attendants would be necessary, no matter how much oil is produced in the US. The only way indirect employment occurs is from transportation of oil, storage of oil and equipment made in the US. Thee are hardly major hitters for employment.

  6. James R. Martin says

    Good work Erik! Thanks!

    I’ll be shocked if congress / the senate / president manage to actually remove these subsidies. And if they do, I’ll have a LOT more confidence in government than I presently have–which is at a very low level indeed. Maybe I’ll even come to think of politics being a worthwhile effort?! As it is, I’m–or have been– just wanting to circumvent or bypass politics and appeal to the people, asking us all to abandon business as usual (e.g., car culture, industrialism, consumerism, etc.).

  7. James R. Martin says

    Aggie 95,

    The link you provided is a dead end — goes nowhere. Are you claiming that American-owned oil corporations are “expected to become the world’s largest oil producer”? Or is it your claim that the lands of America are “expected to become the world’s largest oil producer”? The distinction is very important. But all of this is irrelevant to the matter as to whether we are at or near a global peak in oil production, as you seem to be implying.

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