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Amid Calls for a People's Bailout, Fed's Corporate Debt-Buying Could Mean Billion-Dollar Big Oil Bailout

A new Friends of the Earth analysis warns that ExxonMobil, Chevron, and Conoco "are together eligible for a maximum $19.4 billion in benefits."

oil rig

"Oil company bailouts are simply throwing good money after bad," warned Friends of the Earth senior policy analyst Lukas Ross. (Photo: arbyreed/Flickr/cc)

As calls for a People's Bailout in response to the coronavirus pandemic continue to grow across the United States, a new analysis warns that the country's Big Oil companies "stand to reap yet another billion dollar bailout" thanks to the Federal Reserve's plans to buy up to $750 billion in corporate debt.

"Instead of pumping money into an irresponsible industry that plays shell games with its debt, Congress should focus on providing direct support to workers and communities on the frontlines of coronavirus."
—Lukas Ross, FOE

The analysis (pdf), released Wednesday by the advocacy group Friends of the Earth (FOE), explains that this expected bailout for polluters relates to a controversial $500 billion corporate slush fund included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed in March.

According to FOE's report, The Big Oil Money Pit:

Of that amount, Treasury Secretary Steven Mnuchin enjoys direct control over a comparatively small $46 billion reserved for aviation and industries deemed essential to "national security." But the remaining $454 billion went to the Federal Reserve, which will use the money to implement emergency lending programs for corporations and municipalities. Secretary Mnuchin must approve these lending programs and wields considerable power over their design, but the money itself will move through the Fed.

After weeks of unprecedented human suffering and an ongoing failure to support frontline workers, the Fed announced on April 9, 2020 how it would spend the first $195 billion of the slush fund. A full $75 billion would go to buy corporate debt. But because the Fed can leverage money appropriated by Congress, the real size of this program is $750 billion. Considering that a majority of the money from the first stimulus [is] still unspent, there is plenty of room for this program to grow.

FOE found that the fossil fuel giants ExxonMobil, Chevron, and Conoco "are together eligible for a maximum $19.4 billion in benefits, based on their credit ratings and outstanding long-term debt."

The Fed has hired BlackRock, the world's largest asset manager, to administer part of its debt-buying efforts related to the pandemic. "As BlackRock begins purchasing 'high yield' exchange-traded funds (ETFs) to bolster corporate debt markets," FOE warns, "energy companies (predominantly oil and gas) stand to benefit disproportionately as the largest single issuer of junk bonds, at 11% of the entire U.S. market."

Other key takeaways from the report include:

  • There are 12 fracking-focused oil and gas companies that could potentially qualify for the new program. Together, they may be eligible for over $24.1 billion in potential benefits.
  • Major fracking company Continental Resources, whose debt was recently downgraded to below investment grade by S&P, is potentially eligible for as much as $1.5 billion under new, weaker standards announced by the Federal Reserve.

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Echoing climate campaigners' comments after President Donald Trump met with fossil fuel executives at the White House earlier this month, FOE senior policy analyst Lukas Ross said in a statement Wednesday that "oil company bailouts are simply throwing good money after bad."

"Congress and the Democrats must stop this endless stream of handouts to an industry that is exploiting a public health crisis for financial gain," Ross declared. "These potential payoffs to major campaign contributors are the least efficient way of re-starting the economy and will just serve to enrich oil executives."

"Oil companies are trying to punt the financial reckoning of their fracking debacle and Congress should not enable their addiction with public tax dollars," he added. "Instead of pumping money into an irresponsible industry that plays shell games with its debt, Congress should focus on providing direct support to workers and communities on the frontlines of coronavirus."

As the Trump administration has tried to spend billions of taxpayers dollars to "fill up" the country's Strategic Petroleum Reserve (SPR) and major banks are reportedly preparing to take over fossil fuel assets with CARES Act funding, climate action advocates have charged that "we need a people's bailout, not a polluters' bailout!"

Hundreds of community leaders, lawmakers, and groups—including FOE—have joined the demand for Congress to pursue a people's bailout guided by five key principles:

The new FOE report includes some specific calls to action directed at Congress:

  • Prioritize direct aid to still neglected workers and communities on the frontlines of the crisis.
  • Engage in aggressive oversight to ensure BlackRock does not benefit unfairly from purchasing its own products or needlessly bolster fossil fuel assets.
  • Eliminate Secretary Mnuchin's authority to waive crucial protections banning companies receiving bailouts stock buybacks.
  • Make future stimulus aid conditional on new and binding protections for workers and the environment.
  • Make oil, gas, and coal companies ineligible for support from existing stimulus programs, unless it is conditioned on a phaseout of existing production and an iron-clad commitment to existing pension and environmental liabilities.

"Much more work needs to be done, both to support workers and families in the face of COVID-19 and to prevent a runaway bailout of the fossil fuel industry," the report says. "Congress cannot afford to wait."

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