Selling Us Back Our Oil
by Tony Chavira
We’ve been using oil for over 150 years now and (whether deliberately or not) we still can’t find a comparably pervasive energy technology. The ancient device known as an internal combustion engine was developed in the 1600s and used gunpowder to keep the engine parts combustin’. The development of the oil drilling industry led to the wide adoption of the stuff in the 1850s, and technological advances known as “cars” brought about the oil-guzzling internal combustion engine’s current omnipresence. Our cars may be generations more slick-looking than the gunpowder-fueled engines of yestercentury, but they’re still the same basic technology. Our oil may come from different places and may be found in new ways, but it’s still the same stuff we were drilling it out of the American plains in the 1850s.
Oil company business models are the same as they were in the 1850s, just as crude as their product: drill oil, sell it to the public, repeat. But there are two things that have made it more complicated for them to bring oil to the market over the past 50 years. First and most important, environmental legislation prevents them from having access to every possible oil well. And second, tax legislation.
Have you ever considered why the oil-rich places of the world tend to be either environmentally sensitive or war-torn? The answer isn’t much of a mystery: we’ve already used up all the oil in “safe” places and ruined the environment of others to drain their wells dry. Over the years, our options have depleted with the supply:
- Do business with countries like Venezuela, Iraq and Saudi Arabia (who may lead us to into further conflict or force us to take sides when we don’t want to).
- Tear apart a section of Arctic wilderness (risking another tanker hull breach or a spill that annihilates local wildlife).
- Continue drilling far offshore and hope that nothing toxic spills into the water (again).
The fact that so many Americans are on board with (at least) one of these options says a lot about how oil has intertwined itself into our lifestyles. Our demand is practically insatiable and we don’t seem to know any other way to operate.
Eliminating oil subsidies will not stop this from being a reality. People will still want it and they’re still going to drill for it. If we’ve taken any lesson from the last 150 years, it’s that oil companies will drill the world dry if we keep paying them to do it. Norway taxes oil companies through the roof and it doesn’t deter the companies from drilling or selling to Norwegians. UK Prime Minister David Cameron wants to charge oil companies a kind of “rent” to drill in their seas. It is, after all, British land first and oil company land second. But they’ll pay the bills to start the drills ... only the bottom line matters.
Lucas Gusher, Texas, 1901
But the oil company lobby doesn’t feel that way about American land. Jack Gerard, president of the American Petroleum Institute, was recently quoted in The New York Times saying “The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”
I don’t think Mr. Gerard has a very strong understanding of what the word “federal” means. When an entity is “federal,” it is separate from industry. If one would like to take part in business in a country, they must play by the rules of the federation. Maybe Mr. Gerard thinks we should be giving his industry bigger tax breaks or larger write-offs. Maybe he think he industry should be allowed to kick down the signs on our national forests and drill anywhere they want for free. Clearly, he favors his profits over law.
Until now, there have been two cornerstone arguments for keeping up oil company subsidies in the U.S. First, that subsidizing the energy companies keeps jobs in America. In other words, American oil drilling jobs would magically go to the Norwegians or the Chinese if we make it less hospitable for companies to take our oil. But data shows that the Netherlands has the highest prices for gas and the highest amount of taxes on oil companies, yet oil companies continue to go there, sell there and drill there. You’d think that the most economically inhospitable environment would force the oil industry to move on, but it hasn’t. They need the oil and they need the market too badly to go anywhere.
The second argument is that these tax breaks are keeping the price of gas artificially low, so that lower income people pay less at the pump (and, in that way, benefit from energy access). Advocates of this view are effectively saying that if we keep oil companies from paying taxes (at levels comparable to every other country in the world) they will keep the price low for us. Let me be crystal clear about this: as long as they don’t pay taxes, our prices stay low. Sounds a lot less like energy access and a lot more like blackmail.
But if you go to charts that outline global gas prices, you’ll see that Venezuela has the lowest, and their oil industry is state-run. Next lowest are by Nigeria, Egypt, Kuwait, and Saudi Arabia ... all government run and government managed as well. So even if the prices in these places are low, oil companies will not make the kind of profits they’d like. But back here in America, we’re somehow perfectly comfortable allowing the oil companies to be private and for-profit, letting them operate at minimal cost (thanks to tax breaks), and paying them record high prices for gas at the pump.
As the average price of gas in Los Angeles creeps close to five dollars per gallon, our lack of tax dollars to pay for our public transportation projects strips us of alternatives to cars. Teachers and other public employees lose their ability to negotiate their pay because we are running out of money. We’re running such a deficit and are so deeply in debt that the idea of taking health benefits away from senior citizens starts to sound reasonable to elected officials. At first, those officials seemed interested only in cutting programs Democrats liked, but now they’re even looking at cut down military spending. And you know Republicans are scared when missile contracts to their friends are on the chopping block.
Yet many people still think oil subsidies are okay. Speaker of the House John Boehner backtracked on statements he accidently made implying he’d be cool with cutting oil company subsidies. Jack Gerard is unwilling to admit that tax benefits applied to the petroleum industry are the most generous in the world. But can you blame him? Even if we eliminated tax credits and deductions, the U.S. would still be the best place in the world for an oil company to be headquartered. The industry receives $113 billion annually in direct federal subsidies, most of which are tax breaks.
Some of those breaks were developed recently (for example, the 2005 Energy Bill authorized $4 billion in oil and gas subsidies until the end of 2010). Some are chiseled into our tax code and date back to 1916 (just after the 16th amendment allowed the government to collect income tax). Back then oil was bountiful, so to encourage these companies to shore up their reserves and tap American wells the government gave them a provision they’ve been abusing for years. Over the last ten years the oil industry has made over $1 trillion. About $37 billion per year has been federally subsidized.
Let’s get back our subsidies and make these companies pay to use our natural resources. Especially if they’re going to make us pay to buy them back.