People or Polluters: Ending Oil Subsidies

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Huffington Post

People or Polluters: Ending Oil Subsidies

The number on every driver's mind right now is $4.

Gas prices are hovering around $4, and are well above that in some areas. However, there are some other, much bigger numbers that also merit attention:

$10.7 billion. $7.2 billion. $6.3 billion. $6.2 billion. $3 billion.

Those massive numbers are the profits -- from just the first quarter of 2011 -- of the five biggest oil companies: ExxonMobil, BP, Shell, Chevron, and ConocoPhillips. All told, the big five oil companies reported $36 billion in profits for the first quarter of 2011, more than $200,000 every minute, and oil profits have soared in recent years as gas prices have skyrocketed.

Several factors make those record profits possible. Crude oil prices have jumped to around $100 per barrel. The industry is more concerned with cost than safety when building wells, often cutting corners to save money. And each year, the federal government gives about $4 billion to the oil industry to encourage it to do what it would normally do anyway.

Some of these lavish tax loopholes that give the oil industry this money began nearly a century ago, when Congress decided that it would be beneficial for the American economy to encourage the production of a new source of energy. As the industry -- and its lobbying operation -- expanded, so did the handouts. Today, the sector is so rife with giveaways that some companies earn a higher return on investments after taxes than before. What's more, most of the profits oil companies make, and therefore most of the money they receive in tax breaks, doesn't even go to exploration or drilling -- companies spend most of their profits buying their own stock to increase its value.

During the congressional debate about the Energy Policy Act of 2005, a barrel of crude oil sold for about $55. In April of that year, oil-friendly President Bush stated, "We don't need incentives to oil and gas companies to explore. There are plenty of incentives," and in a Senate hearing that November, Senator Ron Wyden (D-Ore.) asked the CEOs of the five largest oil companies whether they agreed with the president. Although all five said that incentives were unnecessary, the Republican-controlled Congress extended the subsidies in the final bill.

Six years later, with oil selling for nearly twice its 2005 price (and six times the $18 per barrel it cost in 1995, when Congress expanded subsidies to encourage offshore drilling), the handouts continue. But now, these same oil companies claim they wouldn't be able to do business without them. A ConocoPhillips press release last week called proposals to end the giveaways "un-American," and CEO James Mulva -- the same CEO who told the Senate that his company did not need incentives six years ago -- stood by the statement at a Senate hearing the next day. The oil industry also says that repealing these subsidies would raise prices at the pump, but oil prices are set by global supply and demand -- direct subsidies just pad companies' profits.

A widespread, bipartisan majority of Americans support ending oil subsidies, but House Speaker John Boehner is apparently opposed to making multinational corporations pay the same effective tax rate as average citizens. Boehner previously argued that the government shouldn't "pick winners" by helping emerging renewable technologies compete. Boehner's support for dirty energy handouts shows that he has apparently already picked the winner and placed his bet: oil across the board.

And where there are winners, there are losers. Far from making these companies pay their fair share, the budget proposed by House Budget Committee Chair Paul Ryan (R-Wisc.) would actually lower corporate tax rates while slashing support for those who need it most: the poor, the middle class and the elderly.

The whole debate boils down to a series of simple questions: what is the government's role? Who should the government support, people or polluters? Does the government exist to provide a safety net for the disadvantaged or to pad corporate profits?

It is indefensible for our federal government to demolish the social safety net that has made this country the economic and social wonder it has been for the last fifty years, while continuing to hand out more than $200 billion in subsidies to environmentally destructive industries. As income inequality widens and the country struggles with nine percent unemployment, it is no time for the government to end assistance to those who are struggling, particularly when wealthy oil companies have yet to pay their fair share.

In the time it took you to read this article, big oil made more than $800,000. So next time you fork over $4 for a gallon of gas, think about the $4 billion that Congress willingly hands to dirty oil each year. Which is the bigger outrage?

Update: The Senate last night voted on a bill to end billions of dollars worth of oil subsidies. The bill, written by Senator Robert Menendez (D-N.J.), was defeated by a vote of 52-48, with 3 Democrats joining Republicans to kill the measure.

Erich Pica

Erich Pica is President of Friends of the Earth.

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