NTU Ad Wastes Energy On Misinformation About Gas Prices And Oil Subsidies

May 05, 2011 12:19 pm ET

The anti-tax hardliners at the National Taxpayers Union are pumping $1.25 million into an ad campaign that blames President Obama for high gas prices. But the White House hasn't "banned" fossil fuel production in the U.S. as the ad claims, and the $4 billion in taxpayer money we spend every year to subsidize oil companies isn't doing anything to hold gas prices down. According to NTU, Obama's proposal to end those subsidies is merely "new energy taxes that would drive up prices even more," but energy experts say that ending taxpayer giveaways to oil companies won't impact pump prices.

National Taxpayers Union: "Tell President Obama 'No New Energy Taxes'"

This was President Obama encouraging Brazil to drill for oil: [Obama clip:] "Brazil wants to be a major supplier of new, stable sources of energy...the United States wants to be a major customer." But what about here at home? You're paying more at the pump, but Obama and his allies in Congress support new energy taxes that would drive up prices even more. And the administration has banned production on most American oil and gas, costing the U.S. billions and making us more dependent on foreign oil. Tell President Obama: No new energy taxes.

President Wants To End Taxpayer Giveaways To Oil Companies And Use Revenue To Invest In Clean Energy

Five Large Oil Companies Made Combined $884 BILLION In Profits Over Past Decade. From PolitiFact: "We found that British Petroleum, Royal Dutch Shell, ExxonMobil, Chevron and ConocoPhilips  had a total decade-long profit of roughly $801.7 billion in raw dollars. The total profit for the five companies peaked at $123.4 billion in 2007. Last year it was $77.5 billion. When we adjusted our annual figures for inflation, the five companies' 10-year total profit was about $884.3 billion." [PolitiFact.com, 4/11/11, emphasis added]

White House Proposal Would Reallocate $4 Billion Annual Spending On Oil Subsidies To Clean Energy Programs. As reported by the Associated Press: "Amid rising gasoline prices at the pump, President Barack Obama urged congressional leaders Tuesday to take steps to repeal oil industry tax breaks, reiterating a call he made in his 2012 budget proposal earlier this year. [...] Obama's proposal, spelled out in his past two budget plans, would eliminate a number of tax breaks for oil companies that would generate an estimated $4 billion a year in additional revenue. The tax breaks - some in place since the 1920s - have survived multiple attempts to repeal them in the face of heavy oil industry lobbying. [...] Blaming the subsidies on 'outdated tax laws,' Obama said that money obtained from repealing the breaks should be spent on clean energy initiatives to reduce dependence on foreign oil." [Associated Press, 4/27/11, emphasis added, via New Haven Register]

President Obama: Since We're Talking About Cutting Spending While "Oil Companies Are Making Huge Profits," We Should Stop Spending $4 Billion Per Year On Oil Subsidies. From President Obama's April 30, 2011, Weekly Address:

In some places, gas is now more than $4 a gallon, meaning that you could be paying upwards of $50 or $60 to fill up your tank.

Of course, while rising gas prices mean real pain for our families at the pump, they also mean bigger profits for oil companies. This week, the largest oil companies announced that they'd made more than $25 billion in the first few months of 2011 - up about 30 percent from last year.

Now, I don't have a problem with any company or industry being rewarded for their success. The incentive of healthy profits is what fuels entrepreneurialism and helps drives our economy forward. But I do have a problem with the unwarranted taxpayer subsidies we've been handing out to oil and gas companies - to the tune of $4 billion a year. When oil companies are making huge profits and you're struggling at the pump, and we're scouring the federal budget for spending we can afford to do without, these tax giveaways aren't right. They aren't smart. And we need to end them. [President Obama Remarks, 4/30/11, emphasis added]

  • Former CEO Of Shell Oil: Big Oil Companies Don't Need Subsidies Because Prices Are So High. According to the National Journal: "Large oil companies don't need tax subsidies when oil prices are high, a former CEO of Shell Oil said Thursday. 'In the face of sustained high oil prices it was not an issue-for large companies-of needing the subsidies to entice us into looking for and producing more oil,' John Hofmeister toldNational Journal Daily. Hofmeister retired from Shell in 2008 and founded the group Citizens for Affordable Energy." [National Journal, 2/11/11]

GOP's House Budget Chairman Paul Ryan Has Also Called For Ending Oil Subsidies. As reported by ABC News: "As oil companies announced soaring profits for the first quarter of 2011, political leaders in Washington stepped up their calls for reforming government issued subsidies and tax breaks to oil companies. In an interview for 'This Week,' Christiane Amanpour pressed House Budget Committee Chairman Paul Ryan, R-Wis., about these subsidies. 'Would you back ending subsidies to oil companies?' Amanpour asked. 'Oh yes,' said Rep. Ryan. 'I think we should clean up all those loopholes. And don't forget, there's a lot of corporate welfare spending that is in our budget put in there by both political parties because of powerful interests. We want to get rid of all that.'" [ABC News, 5/1/11, emphasis added]

Energy Experts Say Getting Rid Of Oil Subsidies WON'T Cause Jump In Gas Prices

U.C. Berkeley Expert On Energy Markets: "The Incremental Change In Production That Might Result From Changing Oil Subsidies Will Have No Impact On World Oil Prices." As reported by Media Matters:

According to Severin Borenstein, co-director of U.C. Berkeley's Center for the Study of Energy Markets, in an email to Media Matters: "Gasoline prices are a function of world oil prices and refining margins. The oil companies are quick to point out that they are not to blame for oil prices because the price is set in the world market, or which they are a small share. That is all true. But one implication of that is that the incremental change in production that might result from changing oil subsidies will have no impact on world oil prices, and therefore no impact on gasoline prices." [Media Matters, 4/28/11]

Former API Chief Economist: Ending Oil Subsidies Would Have "Very Little" Effect On Gasoline Prices. As reported by Media Matters: "Michael Canes, a distinguished fellow at the Logistics Management Institute and former chief economist of the American Petroleum Institute wrote in an email to Media Matters that ending subsidies to oil companies would have 'very little' effect on oil prices. He further said that there could be 'Some small effect if at the margin domestic production is adversely affected, but I suspect that effect would be very small indeed. Personally, I'd like to see an end to ALL energy subsidies, but that's another issue entirely.'" [Media Matters, 4/28/11]

Energy Firm News Director: Ending Subsidies "Won't Change The Price Of Gasoline." As reported by Media Matters:

When asked how the proposed cuts to oil subsidies would affect gasoline prices, John Kingston, Director of News at energy information firm Platts said: "It wouldn't, and I don't view them as subsidies." He added:

The tax breaks on oil are part of the endless discussion about how to tax an economic activity. Do you tax it at 0%? Do you tax it 100%? Or do you tax it in between? You want to tax it at the rate that provides the most money for the government while not inhibiting economic activity.

But that is not a subsidy. My demand for oil isn't going to change one iota because of the changes that are under consideration, and therefore it won't change the price of gasoline.

Oil companies will argue that the changes in the tax rate could change supply.  Now you could build some theoretical model that says, if the tax rate is changed, it MIGHT inhibit production, and therefore down the road, supplies would be less than they would be otherwise. Therefore, the price could be higher and my demand might be less. This is not as crazy as it sounds. If the rate on these forms of exploration went to 100%, obviously, no company would produce that oil, the overall market would tighten, and the price could go up. But that's not in question; the administration is not proposing a 100% tax rate. [Media Matters, 4/28/11]

Moody's Economist: Decisions On Production And Development Of Oil Wells "Are More Influenced By Other Factors Such As Oil Prices And Technological Innovation." As reported by Media Matters:

In an email to Media Matters, Moody's economist Chris Lafakis stated that while he hadn't conducted a full analysis of the implications of tax breaks to oil companies and thus couldn't comment on the impact of Obama's proposals, generally speaking, factors other than tax incentives have more of an influence on oil companies' decision to begin exploration or production of a well. According to Lafakis:

Generally speaking however, my sense is that while tax breaks encourage exploration, production and development of oil wells, those decisions are more influenced by other factors such as oil prices and technological innovation. For instance, tax breaks have had little to do with the increase in oil rig drilling since the third quarter of 2009. Instead, oil rig drilling has risen as oil producers have developed methods to extract oil from shale formations in the West North Central census division. [Media Matters, 4/28/11]

CRS: Gasoline Price "Would Not Be Expected To Increase Very Much, If At All" In The Short Run If The Domestic Production Tax Break Were Rescinded. According to a Congressional Research Service report on oil industry subsidies:

As before, eliminating the deduction -- that is to say, raising the corporate tax rate -- would increase total (or average) business costs and therefore reduce profitability among the major oil and gas producers.  As long as marginal production costs are unaffected, there would be no price effects in the short run. Similarly, the demand for imports is likely to remain the same in the short-run.  Thus, this type of corporate income tax increase  would arguably be an administratively simple and economically effective way to capture at least some of the oil industry's windfalls in the short run.  However, at a current deduction of 6%, and a marginal corporate tax rate of 35%, only a small portion of the industry's likely windfalls would likely to be captured under this option.

The market price of crude oil and natural gas, or even of refined petroleum products, such as gasoline, would not be expected to increase very much, if at all, by such a change in the short run.  In general, also, the income tax increases are not expected to have real output effects in the short run, although they could cause resources to flow to other industries in the long run as long as these other industries are allowed the manufacturing deduction, which is equivalent to a lower marginal tax rate. [Congressional Research Service, "Oil Industry Financial Performance and the Windfall Profits Tax," 9/30/08]

The Administration Hasn't "Banned Production" Of American Fossil Fuel Resources

Onshore Oil Production In The Lower 48 States Has Increased Steadily Throughout The Obama Administration. The U.S. Energy Information Administration prepared a chart showing onshore oil production in the lower 48 U.S. states in light blue:

 [EIA.gov, 4/26/11]

Natural Gas Production Has Increased Steadily Throughout The Obama Administration. The U.S. Energy Information Administration prepared a chart showing natural gas production in the U.S. over time:

 [EIA.gov, 4/26/11]

Despite Gulf "Moratorium," Drilling Continued In Shallow Gulf Waters And Deepwater Rigs That Were Already Producing Oil Continued To Do So

AP: Drilling Rigs In Shallow Waters Were "Allowed To Remain In Operation." As reported by the Associated Press: "The moratorium put a halt to the 33 deepwater exploratory rigs in operation in the Gulf in addition to all new deep-sea drilling permits. Platforms that are already producing oil along with rigs in shallow waters are allowed to remain in operation." [Associated Press, 6/10/10]

FactCheck.org: "Moratorium Had No Affect On Wells Already In Production." According to a fact check of the claim that President Obama's drilling policies are to blame for $4 a gallon gas prices by FactCheck.org: "The moratorium had no affect on wells already in production, according to Nicholas Pardi, a spokesman for the Bureau of Ocean Energy Management, Regulation and Enforcement. But it did affect drilling of new wells, and it's important for new wells to start producing oil as the old wells experience a natural decline in production." [FactCheck.org, 3/24/11]

Over 5,000 Wells Continued To Pump Oil And Gas In The Gulf. As reported by McClatchy: "Interior Secretary Ken Salazar said the actions wouldn't hurt the nation's immediate need for oil and natural gas, noting that 591 deepwater wells and 4,515 shallow water wells in the Gulf will continue to pump oil and gas." [McClatchy, 5/28/10, via Pittsburgh Post-Gazette]

PolitiFact: "Existing, Oil-Producing Deepwater Platforms" Were Allowed To "Continue To Produce." From a June 16th, 2010, PolitiFact item:

On May 27, Obama did announce a 6-month moratorium on exploratory drilling in the Gulf of Mexico. But if you think that means there's no more oil production going on in the Gulf, you'd be mistaken.

Wells that are currently producing oil will continue to produce. There are 72 active platforms in water depths of 500 feet or greater (the definition of deepwater) in the Gulf of Mexico that will be allowed to continue to operate.

At issue here is the term "oil drilling." Many people use the term broadly to refer to the entire process of extracting oil from the ground, not just drilling the holes looking for oil. But once a well starts producing oil, it's not being "drilled" anymore.

According to the moratorium notice, the U.S. Minerals Management Service will not consider drilling permits for deepwater wells for six months. In addition, operators that are currently drilling any well "must proceed at the next safe opportunity to secure the well and take all necessary steps to cease operations and temporarily abandon or close the well until they receive further guidance from the Regional Supervisor for Field Operations." There are 33 drilling operations in water deeper than 500 feet that fit that bill, which means that they needed to get to a safe place and then stop drilling. For the record, Deepwater Horizon was among the wells in the exploratory drilling phase.

When the Department of the Interior issued the moratorium directive on May 30, Secretary Ken Salazar published a statement saying, "Deepwater production from the Gulf of Mexico will continue subject to close oversight and safety requirements, but deepwater drilling operations must safely come to a halt. With the BP oil spill still growing in the Gulf, and investigations and reviews still underway, a six-month pause in drilling is needed, appropriate, and prudent."

We think a lot of people probably assumed Obama's statement meant that all oil operations in the Gulf of Mexico were put on a six-month hiatus. That's not the case. The moratorium relates to exploratory oil drilling, not to existing, oil-producing deepwater platforms, which will continue to produce. [PolitiFact, 6/16/10]

EIA: Crude Oil Production In The Gulf Of Mexico Remained Near Record High Levels. According to the U.S. Energy Information Agency, production of crude oil remained near its highest levels in the months following the imposition of a moratorium on new deep-water drilling, averaging approximately 48 million barrels per month. The following EIA chart shows no major drop in production throughout 2010:

  [U.S. Energy Information Agency, accessed 5/5/11]

BOEMRE Has Approved 51 New Shallow Water Permits Since June. According to the latest data available from the Department of Energy's Bureau of Ocean Energy Management, Regulation, and Enforcement, 51 permits for new shallow-water wells have been approved since June 8, 2010:

 [BOEMRE, accessed 5/5/11]