It’s Time To Sequester Green Energy Subsidies, Not Mythical Oil And Gas Tax …

July 8, 2013 by  
Filed under Green Energy News

President Barack Obama speaks at the Departmen...

President Barack Obama speaks at the Department of Energy. (Photo credit: Wikipedia)

One of the big applause lines in President Obama’s recent Georgetown “climate action plan” pitch declaring an all-out EPA war on coal and it’s fossil cousins said:  “And because billions of your tax dollars continue to still subsidize some of the most profitable corporations in the history of the world, my budget once again calls for Congress to end the tax breaks for big oil companies, and invest in the clean-energy companies that will fuel our future.”  This is hardly a new strategy theme. The familiar take-away line is that even more regulation is essential to bludgeon energy producers and consumers to abandon climate-ravaging fossil fuels in favor of heavily taxpayer-subsidized “alternatives”… and eliminate that Big Oil tax break subsidy advantage.

White House climate aide Heather Zichal has said that the Obama administration can accomplish these objectives through policies that “don’t require any new laws or any new technologies.” In addition to using a global warming ruse to unleash a regulatory onslaught under the claimed auspices of EPA’s Clean Air Act, Politico notes that Obama will also pursue “improved energy efficiency for homes and businesses, more investments by the Interior Department and other investments in clean energy research and production, and a phase-out of fossil fuel subsidies”.

Oh, the unfairness of it all!

U.S. oil exports last December hit a record 3.6 million barrels per day, and natural gas production last year saw a 33% increase over 2005 levels. As these successes have been occurring, “green energy” paybacks are turning decidedly brown. Joseph Dear, investment chief for the California Public Employees Retirement System recently commented, investing in clean energy has to be more than just “a noble way to lose money.”

Speaking at the Nashua Community College in New Hampshire on March 1, 2012 as gas prices approaching $4 a gallon had become a major re-election campaign issue, Obama said: “[Over] the long term, an all-of-the-above strategy requires the right incentives. And here’s one of the best examples. Right now, $4 billion of your tax dollars—$4 billion—subsidizes the oil industry every year”. He continued: “Four billion dollars. Now, these companies are making record profits right now—tens of billions of dollars a year. Every time you go to the gas tank or fill up your gas tank, they’re making money. Every time.  Now, does anyone really think that Congress should give them another $4 billion this year?”

When the crowd yelled “no,” Obama said: “Of course not — it’s outrageous.”

But wait a minute…what subsidies? And how did he arrive at that $4 billion figure?

Using a very broad definition applied by Oil Change International, the term “subsidies” refers to: “any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by consumers.” So based upon the first of these criteria, let’s assume that the president is referring to three types of oil and gas company tax “loopholes”: 1) an oil depletion allowance; 2) expensing drilling costs; and 3), a credit for taxes paid to foreign nations during foreign operations (a foreign tax credit).  Yet in one form or another, these same advantages are extended to other industries as well, and often with more generous benefits.

Oil depletion allowances, the first category, principally apply to small independent producers, with similar benefits available for all mineral extraction, timber industries, etc., allowing them to pass the depletion on to individual investors. Large integrated corporations haven’t been eligible for these since the mid-1970s. Expensing indirect drilling costs involves writing off expenses in the year incurred rather than capitalizing them and writing them off over several years. Closing this “loophole” would only change the timing of taking he expense, not the total amounts of the so-called “subsidy”. The third category, a tax credit for taxes paid to foreign nations, is available for all international companies. This provides an offset to foreign taxes, often paid as royalties, so that the companies aren’t taxed twice on the same income.

The oil and gas extraction and refining has already been singled out to receive even fewer tax breaks than other industries. Whereas Section 199 of the “American Job Creation Act of 2004” provides a 9% deduction from net income for businesses engaged in “qualified production activities”, oil and gas was penalized and limited to a 6% deduction. Passed with strong bipartisan congressional support, the intent was to provide a competitive advantage to domestic companies engaged in product manufacturing, sales, leasing or licensing, and production-related software activities.

Many manufacturing industries, including farm equipment, appliances and pharmaceuticals take advantage of the full Section 199 deduction. Even highly profitable companies like Microsoft and Apple get those breaks, as do some foreign companies that operate factories in the U.S.

Revisiting that so-called $4 billion subsidy for greedy oil companies, let’s review the real breakdown. As reported by fellow Forbes contributor Robert Rapier, according to oil-related subsidy data published in a 2010 joint OECD-IEA report titled “Fossil Fuel Subsidies and Other Support”, the single largest expenditure was just over $1 billion for the Strategic Petroleum Reserve which is provided to protect the U.S. from oil shortages. The next largest was just under $1 billion in tax exemptions for farm fuel. The justification for this exemption is that fuel taxes pay for roads, and the farm equipment that benefits from the exemption is technically not supposed to be using the roads. The third largest category provides $570 million for the Low-Income Energy Assistance Program (LIHEAP). It is classified as a petroleum subsidy because it artificially reduces the price of fuel, which theoretically helps oil companies sell more. Combined, these three programs account for $2.5 billion per year in “oil subsidies”.

As for that LIHEAP tax benefit attributed to Big Oil, consider the reaction by other prominent Dems when Republicans, as well as President Obama, attempted to reduce funding. Senator Chuck Schumer (D-NY) called that proposal an “extreme idea” that would “set the country backwards”.  Senator Jeanne Shaheen (D-NH) said “The president’s reported proposal to drastically slash LIHEAP funds by more than half would have a severe impact upon New Hampshire’s most vulnerable citizens and I strongly oppose it.” Then-Senator John Kerry (D-Mass) wrote a letter to Obama stating, in part: “We simply cannot afford to cut LIHEAP funding during one of the most brutal winters in history. Families across Massachusetts, and the country, depend upon these monies to heat their homes and survive the season.”

Incidentally, wasn’t all that global warming that Kerry has been alarmed about supposed to remove that brutal winter peril?

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