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Big Oil’s Political Ploy

William S. Becker – Energy and Climate Policy Expert,  Natural Capitalism Solutions Posted: 05/13/11 02:09 PM ET

Whatever else we might say about Big Oil in the United States, we have to give the industry credit for one thing: it has mastered the art of scamming us with a perfectly straight face.

The scam has been underway for decades. This year’s example is the debate about repealing $21 billion in federal subsidies for big oil companies over the next decade.To their credit, President Obama and several Democrats in Congress are pushing the idea.

Oil executives have launched a counteroffensive reminiscent of Gordon Gekko’s argument that “greed is good.” Requiring taxpayers to subsidize America’s biggest oil companies is in the best interest of the country, they say, and anyone who disagrees is playing politics.

ExxonMobil, for example, said that President Obama and congressional Democrats are engaging in “political theater” on this issue. Perhaps. But the real plot line is that big oil companies are fighting once again to keep largesse they don’t need and the nation can’t afford. Here are some examples of the time-tested arguments we’re hearing from Big Oil:

Eliminating their subsidies will force oil companies to increase the cost of gasoline. Even some oil executives acknowledge this is not true. Unless the industry uses subsidy reform as an excuse to gouge consumers, reducing its tax breaks will not affect energy prices. The handful of subsidies under scrutiny here are the proverbial drop in the oil barrel. They are a fraction of the special favors oil companies receive from the federal government, usually at taxpayer expense. And oil company revenues are so high, even counting the cyclic nature of the market, that subsidy reform will not make a difference in energy prices.

The bigger misdirection is the industry’s stubborn assertion that encouraging more domestic production with taxpayer subsidies and permission to drill everywhere will have a meaningful impact on consumer prices. Legions of experts have pointed out in the past that petroleum prices are set by a world oil market so large that more domestic drilling and subsidies won’t much matter. Two fresh examples illustrate how little we control the factors that influence the global petroleum market.

Last December, a vegetable vendor in Tunisia set himself on fire to protest harassment by police. His self-immolation and subsequent death triggered the “Arab Spring” — a chain reaction of protests across the Arab world fueled by frustrations ranging from high food prices to chronic unemployment, and suppression of freedoms to government corruption. Oil prices rose just because of the fear that Arab unrest would threaten world supplies.

The second example is the historic flooding along the Mississippi River. Hopes have been high that high oil prices will flatten demand and lower the cost of gasoline. But gasoline prices may rise anyway because the river is threatening to disrupt oil barges, pipelines and refineries.

It’s unfair to cut subsidies for big oil companies when other companies and industries get taxpayer support. Sen. Orrin Hatch, R-UT, made this statement when oil company executives testified before Congress on May 12. The corollary is that if oil companies get tax breaks, so should all other companies and industries. The last time I checked, we can’t afford that.

More seriously, Hatch’s point is valid within the oil industry. Current proposals would cut some subsidies for big oil companies, but not smaller oil producers. The equitable solution is to phase out all federal subsidies for oil, regardless of the size of the company producing it.

Applied to the energy sector in general, however, Hatch’s point is bogus. The oil industry has been getting federal subsidies for nearly a century, far longer and in far greater amounts than alternative energy industries. Rational public policy would recognize there’s a big and legitimate difference between subsidizing mature and wealthy industries such as coal and oil, and subsidizing emerging industries that are critical to national security, such as solar and wind energy. Fossil energy subsidies are classic corporate welfare; renewable energy subsidies help these vital young industries get across the “valley of death” and into the marketplace.

The American people don’t want shared sacrifice. They want shared prosperity. This interesting statement came from Chevron CEO John Watson at the same congressional hearing. If Watson really supported the idea of “shared prosperity,” he’d volunteer to give his company’s tax breaks back to the American people.

Rather than reducing federal budget deficits, cutting oil subsidies will have the opposite effect. Jobs and investors will disappear and government tax revenues will fall. This argument has been raised by Jim Mulva, chief executive of ConocoPhillips, among others. It’s ludicrous to believe that cutting these few subsidies will drive investors away from oil. So long as there are profits to be made, oil companies will drill and investors will invest. In a world in which populations are growing, consumerism is surging and emerging economies are injecting oil like steroids, there are ample profits to be made. Eliminating a few subsidies won’t change that.

Cutting these subsidies is a tax increase for Big Oil. The “tax increase” argument is an all-purpose fear phrase routinely rolled out by fiscal conservatives and corporations. It’s not clear to me that eliminating a tax break qualifies as a tax increase, strictly speaking. Yes, removing subsidies would result in big oil companies paying higher taxes, assuming their accountants don’t find other ways to escape the obligation. But taking away subsidies merely results in oil companies paying what they should pay without favored treatment.

Look at it this way: Big Oil is subsidized not only by access to public lands, low royalty fees and special breaks in the federal tax code. It also is subsidized every day by every one of us who pays taxes, buys gasoline or purchases a petroleum-based product. Our tax dollars pay the enormous costs of protecting overseas oil supplies and shipping lanes. The gas taxes we pay at the pump help build and maintain the highways that promote the use and sale of oil. More than 154 million Americans live in places where coal plants and petroleum-powered vehicles contribute to pollution that makes the air too dangerous to breathe. Families bear the medical costs and lost wages associated with that pollution. It’s difficult to feel bad about the taxes paid by Big Oil.

Oil subsidy reform is election-year silliness and political posturing by Obama and reform advocates on the Hill. Ken Cohen, the vice-president of public and government affairs at Exxon, told the Financial Times the subsidy debate is merely “the kickoff for the 2012 presidential campaign and congressional elections.”

So what? The 2012 election cycle is an excellent time for presidential and congressional candidates to differentiate themselves on national energy policy. Our oil addiction is one of the biggest national, environmental and economic security issues of our time. We need an electoral intervention.

Cutting subsidies by $21 billion over 10 years will make little difference in reducing the federal deficit. That’s true. As of May 12, the national debt was more than $14 trillion — the largest in the world, about $46,000 for every citizen. But we have to start somewhere. To paraphrase the late Republican Sen. Everett Dirksen, “Twenty billion here, twenty billion there, and pretty soon you’re talking real money.”

The oil subsidy debate has greater significance than $21 billion, however. It is a litmus test of conservative sincerity about reducing the federal deficit — a test the Tea Party should watch closely. So far, the spending cuts proposed in the Republican-controlled House have been driven by naked ideology, using deficit reduction as an opportunity to attack environmental regulations, climate science and government services for the poor and middle class. In the words of ExxonMobil, the votes have been pure political theater.

Last February, shortly after he became Speaker of the House, John Boehner said this:

“It is immoral to bind our children to as leeching and destructive a force as debt. It is immoral to rob our children’s future and make them beholden to China. No society is worthy that treats its children so shabbily.”

With that level of moral conviction, it should be a no-brainer for Republicans to vote in favor of eliminating oil subsidies. If conservatives are not willing to harvest this low-hanging fruit, it’s doubtful they’ll make the far tougher choices that meaningful deficit reduction will require.

Congress should take up oil subsidy reform another time, as part of overhauling the nation’s tax system. There’s no reason to wait on reforming such an obvious and equitable target for deficit reduction. And there’s no reason to believe that a Congress so deadlocked by partisanship and its own rules will succeed at reforming the tax code anytime soon.

This isn’t the first time we’ve had this debate. In the past decade alone, oil executives were called before Congress to justify excessive profits in November 2005 when oil cost $60 a barrel; again six months later when a barrel of oil cost $75; again in April 2008 when oil hit $100 a barrel; and again this week, with crude back in the $100 range. For the past 40 years of oil crises, oil wars and oil-induced recessions, it has been Groundhog Day on Capitol Hill.

The questions reform-minded members of Congress asked oil executives over the years remain relevant and unresolved today: Why should oil companies get tax breaks when their profits are so high and consumers are so broke? Why isn’t Big Oil investing more of its profits to develop the alternative energy resources that would keep the industry and the nation secure in the long-term?

If it were up to me, all fossil energy subsidies would be shifted to a rapid buildup of energy efficiency and renewable energy technologies in the United States. But if deficit reduction provides the only sufficient leverage for subsidy reform, so be it.

However we use the revenues, we should resolve the indefensible perversities of national energy policy once and for all, starting with the elimination of federal subsidies for Big Oil.

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