U.S. Oil Subsidies Need to Go

company-oil.gifIn February the House passed the Renewable Energy and Energy Conservation Tax Act, or H.R. 5351, which would repeal the $18 billion in tax breaks for multinational oil companies. The bill would create tax breaks for producers of renewable energy, fuel, and electricity. The bill needs Senate approval.
During a speech while the House debated the bill, U.S. Rep. Jay Inslee (D-WA) said, “We’re wrapped around the axle of oil because of these tax subsidies. It’s time to change course. We’re ready to launch a rocket of clean-energy innovation in this country, but opponents of these clean-energy investments are putting a hold on the countdown. We’re about two seconds away from having a burst of economic growth in this county. If they allow these tax breaks to expire, it’ll strangle the birth of new industries.”

Speaker of the House Nancy Pelosi (D-CA) released a statement in support of the bill. The bill “invests in clean, renewable energy and energy efficiency by repealing billions in subsidies given to big oil companies that are raking in record profits. It also closes loopholes and ends giveaways in the tax code for Big Oil. Finally, the bill creates a Strategic Renewable Energy Reserve to invest in clean, renewable energy resources, promoting new emerging technologies, developing greater efficiency and improving energy conservation,” the statement said.
“With oil prices and oil company profits breaking records, the big five oil companies-BP plc, Chevron Corp, ConoccoPhillips Inc, ExxonMobil Corp., and Royal Dutch Shell Group-could easily afford to give up this tax loophole. It is a paltry amount compared to the $123 billion in profits they made last year-nearly $230,000 in profits per minute. And when oil is over $100 per barrel, they shouldn’t need any incentives to drill for more,” Daniel Weiss declared in an article for the Center for American Progress.
U.S. oil subsidies
In 1916 the federal government created the first tax breaks for oil and gas companies. According to the group Taxpayers for Common Sense, “After almost 90 years of taxpayer-funded subsidies, the oil and gas industries are flourishing but taxpayers still continue to contribute billions annually to the energy sector.”
The Sustainable Energy Coalition (SEC) released a report titled, “Sensible Energy Policies,” in March 2001. The report detailed the various types of subsides oil companies receive: gas and oil loan guarantees, overseas refiner credits, enhanced oil recovery credits, intangible drilling costs credits, and depletion allowances. SEC recommended that each type of subsidy by eliminated by Congress.
In 1999 the government created guaranteed loans of up to $10 million for eligible oil and gas producers. The loans are financed through private banking and investment institutions, but are guaranteed by federal taxes, “making liable for up to $500 million should the companies default,” according to the SEC report, and “that number jumps to $600 million if the administrative costs associated with the program are included.
Over $400 million of overseas refinery taxes are subsidized by federal taxes “which increases refinery capacity overseas rather than within our own borders,” the SEC report stated.
Oil companies may be eligible for a 15 percent tax credit for recovering the costs of recovering domestic oil if they use “enhanced oil recovery” methods. The methods involve injecting gas, fluids and other chemicals into the oil reservoir, or using heat to extract the oil.
Tax code provisions allow integrated oil and gas companies to deduct 70 percent of their intangible drilling costs, and deduct the other 30 percent over five years. Intangible drilling costs are “defined as the cost of wages, fuel, repairs, hauling, supplies and site preparations associated with drilling.”
Certain oil, gas and uranium producers are eligible for a subsidy under the tax code. Oil companies can deduct 15 percent from their drilling costs, but some independent oil companies can deduct 100 percent.

Gina-Marie Cheeseman

Gina-Marie is a freelance writer and journalist armed with a degree in journalism, and a passion for social justice, including the environment and sustainability. She writes for various websites, and has made the 75+ Environmentalists to Follow list by Mashable.com.

8 responses

  1. Thank you for this overview!
    18 BB on 123 BB (is that after-tax or pre-tax profit?) is nearly 15%, that’s no small matter. This really tilts the playing field in the wrong way.
    I read some time ago about loan guarantees for coal plants. Is this true, and has this appeared on Triplepundit yet?

  2. It’s hard to believe that while the world is breaking apart, the big oil companies not only profit from the most needed commodity in this world but still receive tax breaks and subsidies!!??

  3. The real subsidy that needs to be eliminated is US military spending. Most of our military spending is done on behalf of oil companies. Eliminate a nice chunk of that and you could lower taxes significantly – yes the price at the pump would go up, but that would just reflect reality instead of being hidden in other taxes!

  4. This is too bad for the US .
    Apparently the German government is subsidizing solar; everyone and their aunt is putting in some kind of solar panel, even renting a neighbors roof, and this is pushing the industry and the developement of the tyechnology forward over there. The Germans are also buying all the cutting edge technology made / produced here , but barely sold here because of the lack of support and incentives. Duh.

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