fossil fuel subsidy chart
Fossil fuels get more than $70 billion in federal subsidies, but 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