Top 5 myths about subsidies to oil companies
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 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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