The Dernogalizer

July 12, 2010

Great NY Times Editorial on Big Oil’s Subsidies

Filed under: Energy/Climate,National Politics — Matt Dernoga @ 11:29 pm
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The NY Times has an excellent editorial about why Congress should pull the plug on subsidies for big oil.  The opening of the editorial says it all…

“No industry enjoys the array of tax breaks and subsidies that the oil and gas industry does. No industry needs them less.”

The rest is pasted below…

“For all the damage it has caused, the disastrous oil spill in the Gulf of Mexico may provide the political momentum to end this special treatment.

President Obama’s 2011 budget, proposed before the spill, would eliminate $4 billion in annual tax breaks for oil and gas companies. Bills in both houses introduced after the spill would achieve many of the same results. Industry has spent $340 million on lobbying over the last two years to block these sorts of initiatives, and until recently Congress has been eager to do its bidding. This year could be different.

The White House has proposed eliminating nine tax breaks. Some are modest, all are complicated, but in toto they provide a range of cushy benefits — fast write-offs for upfront drilling expenses, generous depletion allowances, and the like — that are available at virtually every stage of the exploration and production process.

The net result, as The Times reported recently, is an effective tax rate on investment far lower than that paid by other industries. That, the Treasury Department argues, has encouraged overinvestment in oil and gas drilling at the expense of other parts of the economy.

Industry argues that these and other breaks are vital to robust domestic production and that both investment and employment would fall if they were eliminated. These arguments, which may have made sense years ago, are much less compelling when oil prices are hovering near $80 a barrel and oil companies — including BP — have been racking up huge profits.

Moreover, a Treasury Department analysis says that ending these breaks would reduce domestic production by less than 1 percent. A separate study by Congress’s Joint Economic Committee says that ending the biggest of the deductions — 9 percent of qualified income from gas and oil produced in the United States — would have zero effect on consumer prices.

Apart from these benefits, two other areas cry out for reform. One is the royalty relief program, enacted by Congress in 1995 to encourage the kind of deepwater drilling that has now landed the gulf, its wildlife and its neighboring citizens in so much trouble. Royalty rates are currently 12.5 percent of the per-barrel price for onshore leases, and up to 18.75 percent offshore.

The law suspended royalties as long as oil remained below a threshold price of $28 a barrel. Prices have long since exceeded that threshold, even adjusted for inflation; and because the law was not tightly written, companies have been able to exploit its ambiguities to save themselves billions of dollars.

Sima Gandhi, a tax expert at the Center for American Progress, a liberal advocacy group, estimates that the losses from lost royalties could eventually exceed $80 billion unless Congress fixes the law. It is high time to review the entire royalty relief program, which at current prices is surely outdated and may be unnecessary.

The administration also needs to look carefully at the oil industry’s use of tax havens abroad. The Senate Finance Committee has already announced that it will examine whether Transocean, the operator of the Deepwater Horizon drilling rig, exploited tax laws when it moved its headquarters first to the Cayman Islands, then to Switzerland. Other oil companies also have foreign subsidiaries; the question is whether and to what extent they use them to dodge taxes. The Times article reported that Transocean alone had saved $1.8 billion in taxes since moving overseas in 1999.

Instead of enriching the oil companies, Congress should end these unjustifiable breaks and focus on encouraging alternative fuel sources that create cleaner energy and new clean-energy jobs.”

June 30, 2010

Ed Markey’s Oil Spill SOS Bill

Filed under: environment,National Politics — Matt Dernoga @ 10:22 pm
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I got this last Friday but was slow to put it out.  Definitely looks like legislation worth supporting!

Markey Introduces Oil Spill “SOS” Bill

Legislation would divert big oil subsidies to scientists, in order to improve spill prevention and response

June 25, 2010 – Rep. Edward J. Markey (D-Mass.) today introduced the “Stop Oil Spills Act,” a bill to fund research into new oil spill prevention and response technologies. (more…)

June 24, 2010

Will the G20 Water Down Fossil Fuel Subsidies?

A recent leaked document that has been obtained by ClimateWire indicates that the G20 will water down its previous committment last year to phase out fossil fuel subsidies by making them “voluntary” and “member specific”.

Check out this preamble to the G20 in Toronto and look for the highlighed portions.

Below is Greenpeace’s press release about this document.

International/Toronto-23 June 2010–As BP’s oil continues to gush into the Gulf of Mexico, G20 heads of state, due to meet in Toronto this weekend, are planning to dilute last year’s commitment to phase out subsidies to Big Oil and Big Coal, according a copy of the draft statement seen by the environmental groups, Greenpeace and Oil Change International.

Last year in Pittsburgh, G20 leaders agreed, “To phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest” (1).

However, this year’s draft statement (2) sees the commitment watered down with the inclusion of “voluntary, member-specific approaches,” to ending fossil fuel subsidies.

 “Subsidising the likes of BP, oil disasters and climate change is nothing short of insanity. The Gulf oil disaster has focused minds world wide on the need to end our oil addiction and begin an energy revolution. The urgent need to shift massive resources into energy efficiency and renewable energy sources. G20 leaders need to put their money where their mouths are and keep their promise to cut fossil fuel subsidies,” said Kumi Naidoo, Greenpeace International Executive Director, who will be an observer at both the G8 and G20 Summits.

“Governments passing one hundred billion dollars a year of taxpayers’ money to big oil and coal is immoral when compared to their refusal to provide the same amount of money for the poorest countries for climate change adaptation and mitigation.”

The developed world currently gives around $100bn a year to the fossil fuel industry in subsidies – one of the reasons ExxonMobil didn’t have to pay any US tax last year (1).  

Meanwhile Governments are baulking at coming up with the  $140 billion a year in finance needed by the world’s poorest countries adapt to climate change and move to a clean energy economy.

“We welcomed President Obama’s appearance of leadership and the G20 commitment to end fossil fuel subsidies last year,” said Steve Kretzmann, Director of Oil Change International.  “Now it seems that their promise to end fossil fuel subsidies was as well thought out as a deepwater drilling plan. The G20 needs to stop the gusher of public money that is spewing into the coffers of Big Oil and coal.”

“We don’t need any more excuses about why it’s so hard – plug the leak, stop giving away our money to polluters, and start funding clean energy now.”

Both groups called for the G20 Leaders to redouble their commitment to end fossil fuel subsidies. Rather than dilute their promise from last year the G20 must take heed of the BP Deepwater oil disaster and move the world rapidly away from its addiction to fossil fuels.

Ends

 (1)  Available here: http://www.pittsburghsummit.gov/mediacenter/129639.htm

(2)  A copy of the leaked document can be found here: http://www.greenpeace.org/international/en/publications/reports/G8G20-documents/

(3)  Climate Progress blog has a full breakdown of the story of ExxonMobil’s tax evasion here http://climateprogress.org/2010/04/06/exxon-mobil-paid-no-federal-income-tax-in-2009/

Greenpeace and Oil Change International will both be observers at the G8 and G20 Summits this weekend.   For advance briefings and information, and for interviews on the leaked document, please contact:

Alex Paterson Greenpeace Canada (Toronto) + 1 416 524-8496

Steve Herz, Greenpeace International  (San Francisco) +1-510-282-4792

Steve Kretzmann, Oil Change International  (London) +1-202-497-1033

May 26, 2010

Close Tax Loopholes, Save Taxpayers $20 Billion Over 10 Years

Filed under: Energy/Climate,National Politics — Matt Dernoga @ 1:01 am
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In the wake of the gulf oil spill, can we finally stop subsidizing this morally bankrupt energy system?  Senators Merkley, Menendez, and Nelson say yes.

Merkley Joins Robert Menendez and Bill Nelson to Close Tax Loopholes, Save Taxpayers $20 Billion Over 10 Years

May 24, 2010

Washington, D.C. – U.S. Senator Jeff Merkley (D-OR) joined Senators Robert Menendez (D-NJ) and Bill Nelson (D-FL) today to announce legislation that will close a number of corporate tax loopholes that allow oil companies to avoid paying billions of dollars in taxes. The Close Big Oil Tax Loopholes Act targets a series of tax breaks related to drilling activities and revenues, as well as foreign tax schemes. Menendez estimates that closing these loopholes will amount to more than $20 billion over ten years for taxpayers.

“At a time when millions of Americans are struggling to find work, oil companies that are making billions in profit are still receiving billions more in government subsidies,” Merkley said.  “It’s time that we stop handing over cash to the big oil companies and start investing in clean energy solutions that will strengthen our national security, create American jobs and reduce the national deficit.”

“The flow of revenues to oil companies is like the gusher at the bottom of the Gulf of Mexico: heavy and constant,” said Menendez. “There is no reason for these corporations to shortchange the American taxpayer. They certainly aren’t using the extra money they get from exploiting these loopholes to help bring down the price of gas for our families. Unlike the underwater geyser in the Gulf, we can shut down these loopholes quickly and permanently when we pass this legislation.”

“I’d like to see us pay for an accelerated alternative-fuels program by ending the billions of dollars in giveaways to Big Oil,” said Nelson.  “Previous attempts to close these loopholes were dead-on-arrival, because of the industry’s clout.  Maybe that won’t be the case this time.”

Among its provisions, the legislation would accomplish the following:

  • Recoup royalties that oil companies avoided paying for oil and gas production on public lands
  • Prevent oil companies from manipulating the rules on foreign taxes to avoid paying full corporate taxes in the U.S.
  • End a number of tax deductions and relief afforded to the oil industry, such as the deductions for classifying oil production as manufacturing, for the depletion of oil and gas through drilling and for costs associated with preparing to drill.

Oil companies make up four of the top ten spots on the Fortune 100 list of largest corporations. In the first three months of this year alone, the top 5 oil companies made over $23 billion in profits.

The Close Big Oil Tax Loopholes Act is based upon provisions in President Obama’s budget in which he signaled the need to stop subsidizing polluting industries. The bill does contain important safeguards to allow refineries and oil companies with yearly revenues of less than $100 million to retain certain tax credits and deductions.

Background on legislation:

  • Recoup Royalty Revenue Lost to Contract Loopholes: This proposal would create an excise tax on oil and gas produced on federal lands on the Outer Continental Shelf (OCS) in order to pay back American taxpayers for contract loopholes whereby oil and gas companies avoided paying royalties on certain oil and gas produced in the Gulf of Mexico.  This would save an estimated $5.3 billion.
  • End Oil Companies Abuse of Foreign Tax Credits: Would require that a dual capacity taxpayer establish that the foreign country generally impose an income tax to be able to claim a foreign levy as a creditable tax, saving $8.2 billion.
  • Repeal Expensing of Intangible Drilling Costs: Would repeal the deduction for IDCs and require such costs be capitalized as a cost of the well or tangible property and recovered through depreciation or depletion, as applicable.  Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. In the President’s Budget this provision saved $10.9 billion, but the grandfathering of smaller companies will lower that score.
  • Repeal Percentage Depletion for Oil and Gas Wells: This proposal would repeal percentage depletion for oil and gas properties. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction. In the President’s Budget this provision saved $9.6 billion, but the grandfathering of smaller companies will lower that score.
  • Repeal Deduction for Tertiary Injectants: The proposal would repeal the current deduction and instead allow oil companies to capitalize and depreciate or deplete costs for tertiary injectants.  For example, supply costs would be capitalized and deducted when consumed or as part of cost of goods sold. Oil companies with yearly revenues of less than $100 million would retain the use of this deduction.  In the President’s Budget this provision saved $57 million, but the grandfathering of smaller companies will lower that score.
  • Repeal Exemption of Passive Loss Limitations for Interests in Oil and Gas Properties:  The proposal would end the exemption from passive loss rules for oil companies so they must operate under the same tax rules as other corporations.  Oil companies with yearly revenues of less than $100 million would retain the use of this exemption. In the President’s Budget this provision saved $217 million, but the grandfathering of smaller companies will lower that score.
  • Repeal Domestic Manufacturing Deduction for Oil and Gas Production: This proposal would repeal the ability of oil and gas companies to claim oil and gas production as manufacturing, thus making the production activities ineligible for the domestic production activities deduction.  Oil companies with yearly revenues of less than $100 million would retain the use of this deduction.  The deduction would also be retained for oil refining and natural gas processing. This exact proposal has not been scored, but could easily save billions.
  • Match Geological and Geophysical Amortization Periods for All Oil and Gas Companies: This proposal would create more uniform amortization rules for geological and geophysical costs.  G&G costs are costs incurred in obtaining and accumulating data that serves as the basis for acquiring and retaining oil and gas properties.  Oil companies with yearly revenues of less than $100 million could amortize geological and geophysical costs over two years.  All others would amortize these costs over 7 years. In the President’s Budget this provision saved approximately $1 billion, but the grandfathering of smaller companies will lower that score.

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