Oil Industry Spins Subsidies Discussion In Wake of President Obama's State of the Union Address

Thu, 2011-02-03 14:42TJ Scolnick
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Oil Industry Spins Subsidies Discussion In Wake of President Obama's State of the Union Address

In his State of the Union address, President Obama urged Congress to stop subsidizing oil companies and set a goal for 80% of electricity generated by 2035 to come from “clean” energy sources. While there is much dispute over some of the technologies included in the “clean” category, the President is proposing some wise investments in genuine cleantech. To pay for low-carbon energy alternatives, the President proposed $302 million for solar energy research and development (up 22 percent); $123 million for wind energy (a 53 percent increase); and $55 million for geothermal energy (up 25 percent).

But fossil fuels subsidies are holding back growth in burgeoning clean energy industries, which face a momumental challenge to compete with entrenched industries that receive far greater government subsidies.

And when it comes to oil subsidies, the President says enough is enough:

“…I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

Building on that speech, in about two weeks, President Obama will release his 2011 budget (which covers the 2012 fiscal year beginning October 1st, 2011), which is expected to include the end to some $4 billion a year in oil and possibly gas subsidies. A fossil fuel subsidy, according to the NY Times, colloquially refers to incentives, tax credits, preferences and loan guarantees. Over a 10-year period, if the President succeeds in eliminating both oil and gas subsidies, the US will save approximately $36.5 billion.

That’s a great move to cut truly wasteful spending on a mature industry that is collecting massive profits on its own.  But this figure only scratches the surface of dirty energy subsidies. In September 2009, the Environmental Law Institute released a study [PDF] stating that from 2002-2008, federal subsidies for fossil fuels and ‘renewable’ energies with high global warming pollution content totaled some $72 billion.

Assuming the President follows through with his suggested oil subsidy cuts, this will build on his earlier efforts to do the same thing in last year’s budget, as well as international momentum sustained at the G20 Summits in Pittsburgh (2009) and Toronto (2010). In Pittsburgh, Obama and other world leaders noted that:

“Inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change. The Organization for Economic Cooperation and Development (OECD) and the IEA have found that eliminating fossil fuel subsidies by 2020 would reduce global greenhouse gas emissions in 2050 by ten percent.”

At that meeting, they committed to:

“Rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.”

The US submission to the G20 in Toronto also included a phasing out process of fossil fuel subsidies.

According to Reuters, removing the subsidies will not have significant financial impact on energy companies, with $36.5 billion accounting for a mere 1% of expected domestic oil and gas revenues in the 10-year period.

Not surprisingly, in spite of the negligible implications for energy companies, the fossil fuel industry and their lobbyists came out against the President’s proposal.

Devon Energy Corporation spokesman Bill Whitsitt said that repealing the tax breaks would “slow down a real revolution” in natural gas exploration – not such a bad thing according to EPA figures.

Charles Drevna, President of the Oil Refiners Trade Group said:

“We applauded the president last week during his State of the Union address for stating his desire to increase domestic energy production.” 

“The additional taxes on our businesses run counter to those stated objectives, however, and will do nothing to stimulate increased investment.”

Jack Gerard, President of the American Petroleum Institute, also opposed the end of subsidies to his industry. He, however, offered some spectacular spin on the subject:

This is a tired old argument we’ve been hearing for two years now…”

“The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”

Despite the oil industry’s rhetorical gymnastics, nothing could be further from the truth.  The oil industry has received immense support from taxpayers, all while polluting our air and water as we saw with the Exxon Valdez disaster and the BP blowout, to name just a few examples.

Previous Comments

Thanks for focusing attention on this important issue. Good to see the ELI data correctly quoted as well. (Some people interpret the values as annual values.) Interesting to see the oil industry speak of how it is “subsidizing” the federal government. I presume that they are counting normal corporate taxes and royalties for oil and natural gas extracted from public lands and offshore, which of course are only payments to the owners of the resource – i.e., U.S. citizens (via its federal government).

That said, the biofuels industry uses similar arguments, ignoring the losses in tax revenues from activities (e.g., livestock production) displaced by the subsidization of “renewable fuels”.

Since you are a Canadian-based blog, do you have any good information on subsidies to fossil fuels in Canada?

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