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Putting Big Oil Subsidies to Work

How We Can Use These Tax Breaks to Help Rebuild Our Infrastructure

SOURCE: AP/J. Scott Applewhite

House Speaker John Boehner (R-OH), center, accompanied by House Majority Leader Eric Cantor (R-VA), right, and Rep. Jeb Hensarling (R-TX), gestures during a news conference to discuss President Barack Obama's decision to halt the Keystone XL pipeline. 

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Last year was a bonanza for the top five oil companies—BP plc, Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell Group—posting combined net-income earnings of $137 billion, a new record. Undeterred, Republican leaders in Congress are seeking to pass transportation legislation that will expand oil and natural gas drilling and will force the construction of the controversial Keystone XL pipeline project. House Republicans hope the Senate will concur and give these companies access for oil and gas production to some of our natural crown jewels.

Republicans in the House want to boost drilling offshore and on protected lands so that the federal revenues gained by this expansion of drilling can be used to pay for the American Energy and Infrastructure Jobs Act—the House Republican five-year highway funding bill.

The Center for American Progress has a better idea: Tap the geyser of oil company earnings by imposing a tax on imported oil and ending antiquated federal subsidies for oil companies. Doing this will pay for an environmentally and fiscally sound plan to upgrade our crumbling transportation, water, and energy infrastructure.

CAP’s new report, “Meeting the Infrastructure Imperative,” recommends doing just that, among other things, to put more federal funds and state, local, and private money to work investing in infrastructure over the next 10 years. Our report details why $129 billion more per year is needed to meet our country’s infrastructure capital repair and improvement needs. CAP found that direct federal spending for infrastructure would need to rise by $48 billion a year, or about a 1.3 percent increase in total federal spending. Boosting federal spending by $48 billion would mean an increase approximately the same size as what was spent on the Iraq war in fiscal year 2011.

CAP projects that with this level of increased federal investment, as much as $60 billion in private infrastructure investment and $11 billion in new state and local investment could be mobilized as well. But where will the new federal money come from?

For decades federal gas tax revenues were dedicated to covering the cost of road, bridge, transit, and rail improvements. But Congress hasn’t raised the 18.4-cents-per-gallon gasoline tax in 19 years, and as a result, its value has eroded by one-third, leaving federal transportation programs chronically short of funds. If that tax had been indexed to inflation, it would be 28 cents per gallon today.

Instead of raising the gas tax now—or doing as House Republicans suggest and relying on mythical revenues from expanding oil drilling or scarring our nation’s heartland with a pipeline that could leak and pollute air and water—CAP calls for a tax of $9.50 per barrel on imported oil, alongside ending $4 billion in annual tax breaks for oil companies, both of which will help pay for the additional federal infrastructure investments to meet our transportation, water, and clean energy infrastructure needs. By CAP’s calculations an oil-import tax and the termination of the oil and gas subsidies would generate approximately $40 billion annually. These funds are needed on top of the approximately $36 billion generated by the federal gasoline tax.

Recent Republican proposals also look to oil companies to shoulder some of the financial burden of infrastructure improvements, but they do so by relying on revenues from an environmentally devastating expansion of drilling offshore and on protected lands. CAP instead proposes to broaden the user-fee model of infrastructure funding to include oil companies’ tax contributions since they are significant beneficiaries of infrastructure improvements.

Under CAP’s plan tax revenues on imported oil and the revenues gained by ending antiquated subsidies would help pay for a decade of investment at the scale needed to bring our infrastructure back up to world-class standards. Specifically, our plan would enable us to:

  • Build out our transit, regional, and passenger rail capacity and as a result make a real dent in air pollution: With better transit and new federal investment in better roads, drivers would face less congestion and save an average of $335 per year due to fewer car repairs and better fuel economy.
  • Stimulate $40 billion a year in private investment in clean energy generation, distribution, transmission, and smart grid infrastructure: At this level of investment, we can achieve an 80 percent reduction in carbon pollution by 2050 compared to the carbon pollution levels in 2005.
  • Make it possible for older water systems to ensure the quality of our drinking water is safe, and that wastewater treatment and storm water overload systems can adequately protect our rivers and lakes by removing industrial and household pollutants from wastewater.

In addition to spending more on what needs to be done, this plan also shows how we can do a better job deciding where and how to invest.

For instance, to attract more private financing for clean energy, the CAP plan calls for a national infrastructure bank with a clean energy loan program and at least a 10-year extension of the investment and production tax credits for renewable energy generation that have been so effective at stimulating private investment in many wind and solar projects. The plan also proposes the creation of a national infrastructure council that would bring together federal agencies to strategically align their infrastructure investments to promote water and energy efficiency efforts and to reduce both traffic congestion and carbon dioxide pollution.

Unfortunately, the Republicans in the House are suggesting cutting funds for transportation infrastructure and suggesting that we rely on the expansion of offshore oil drilling that has very little potential to produce the needed revenues to pay for badly needed investments. In addition, House Republican leaders also plan to hold transportation investments hostage until the Keystone XL pipeline is approved, which would bring dirty tar sands oil from Canada to the Texas Gulf coast for refining, with a large portion sent overseas.

The House Republican leaders hope to move their transportation package after this week’s congressional recess. We suggest they consider a sounder approach that both protects our environment and ensures sufficient revenues to rebuild our infrastructure. CAP’s proposal is a game-changing strategy that could succeed with support from labor, business, environmentalists, and officeholders of both parties. It’s time to get to work on it.

Donna Cooper is a Senior Fellow at the Center for American Progress. Richard Caperton is the Director of Clean Energy Investment at American Progress. Kate Gordon is the Center’s Vice President for Energy Policy. Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress.

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