US House takes on Big Oil
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The industry receives federal largesse beyond tax breaks and relief from royalty payments. Add in research and development subsidies and accounting breaks and the total looks more like $6 billion a year for the next five years, according to a Friends of the Earth tally of JCT data.Skip to next paragraph
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Other economists say the industry's federal subsidies are far higher. They average about $39 billion annually if items such as defense of oil lanes in the Persian Gulf, guarding domestic infrastructure like the Alaska Pipeline, and paying to maintain the nation's Strategic Petroleum Reserve are also included, says Doug Koplow, founder of Earth Track, a Boston consulting firm that analyzes natural-resource subsidies.
"There probably is a public interest in government involvement in maintaining security of supply and reducing price, but those costs should be borne by oil markets and not by taxpayers," he argues.
The strategic reserve, for instance, stores about a two-month supply of oil for the nation in salt domes in Louisiana and Texas. Maintaining it costs the nation an average $2 billion or so a year, Mr. Koplow says. Guarding Middle East oil lanes averages about $19 billion a year, he found, which doesn't include the recent surge in spending because of the Iraq war.
If Congress were to cut $1.4 billion a year in subsidies, as House Democrats urge, the industry would still get more than $37 billion a year from government coffers, according to this analysis, four times the amount spent on the nuclear industry and six times the amount spent on ethanol.
Others dispute such analyses.
"It just depends on how you want to define a subsidy," says Jerry Taylor, a senior fellow at the Cato Institute, a conservative Washington think tank. "A lot of these oil companies pay more in taxes to the government than they pay to stockholders. The argument they're being given preferential tax treatment is a myth."
Mr. Kibbe, the oil industry official, says Koplow's analysis raises the question of "where you draw a line. Does that mean every mile of road we put in is a benefit to the car companies?"
Of course, renewable-energy industries also get government help, with ethanol receiving half the subsidies, Koplow estimates. Roughly half of that largesse comes in the form of a tax credit worth 51 cents per gallon to ethanol producers. Overall, ethanol subsidies in 2006 were about $6 billion a year using Koplow's broader definition, which includes federal tariffs, renewable fuel standards, and other factors.
Here, too, energy subsidies distort markets and are a negative for taxpayers and the economy, he argues.
"Right now Congress is giving billions to ethanol, biodiesel, and the nuclear industry," Koplow says. "There may end up being a positive impact on climate change from these. But it may not be the quickest, or the cheapest, way to deal with the problem."
Leading Democrats in the House want to use the $14 billion from the oil and gas industry to create a strategic energy- efficiency and renewables reserve to accelerate the use of renewable energy. They also want to promote the use of energy-efficient products and boost research and development for renewable fuels.
"What the Democrats are doing is a great down payment, shifting these oil and gas giveaways over to renewable energy and conservation," says Erich Pica, domestic program director for Friends of the Earth. "But there's still more to be done."