View data on Big Oil’s first-quarter profits (.xls)
The United States experienced glacial economic growth during the first quarter of 2014, but the big five oil companies—BP, Chevron, ConocoPhillips, Exxon Mobil, and Shell—did not. Even though their profits were lower than in the first quarter of 2013, they still earned a combined $23 billion. They spent $7 billion, or nearly one-third, of this amount to repurchase their own stocks, lining the pockets of their boards of directors, their executives, and their largest shareholders. On top of this, they have $68 billion in cash reserves. Big Oil continues to prosper in a slowly recovering economy.
The companies benefited from domestic oil prices that averaged $5 per barrel higher in the first quarter of 2014 than in the first quarter of 2013. The higher price of oil offset the companies’ 5 percent production decline from the first quarter of 2014 compared to the first quarter of 2013.
In addition to producing oil and gas, the big five oil companies emit a huge amount of the carbon pollution responsible for climate change. According to the latest data from the Environmental Protection Agency, these companies spewed the climate pollution equivalent of 71 million cars in 2012—equal to more than one-quarter of the cars currently on the road.
This carbon pollution contributes to the growing threat of climate change. Some of these companies recognize that their carbon pollution imposes real costs on the economy and established an “internal price on carbon” pollution to account for future carbon pollution reduction requirements. This price does not equal the amount of damage they estimate their carbon pollution causes, but rather how much they think potential future restrictions would cost.
The Carbon Disclosure Project reports that “Many companies using an internal carbon price referred to potential increased costs should a carbon price become more formalized or mandatory.” Specifically, it found that “ExxonMobil is assuming a cost of $60 per metric ton by 2030. BP currently uses $40 per metric ton. Royal Dutch Shell uses a price of $40 per ton.” Additionally, ConocoPhillips has an internal carbon price of $8 to $46 per metric ton.
Applying BP, ConocoPhillips, Exxon Mobil, and Shell’s internal carbon costs to their 2012 carbon pollution yields a combined internal carbon cost of up to $14 billion.
These four companies have higher internal carbon costs than the federal government’s “social cost of carbon,” which is a proposed $39 per ton in 2015, assuming a 3 percent discount rate. This amount is the government’s “estimate of the economic damages associated with a small increase in carbon dioxide emissions” due to harm from extreme weather and other impacts.
Even though these oil companies acknowledge that their carbon pollution has a price, they are not advocates of action. For instance, The New York Times reported that “Exxon Mobil would support a carbon tax if it was paired with an equal cut elsewhere in the tax code” if Congress took legislative action on climate change—a highly unlikely prospect.
Despite recognizing that their carbon pollution has a cost, these and other big oil companies are members of and huge financial contributors to the American Petroleum Institute, or API, a major opponent of action to protect the climate. According to the nonprofit Sourcewatch, a number of the big five companies’ CEOs served on API’s board of directors. The American Petroleum Institute recently opposed the Obama administration’s plans to reduce methane pollution, a potent greenhouse gas. It also wants to block the Environmental Protection Agency from protecting public health from climate pollution.
While they largely ignore climate change, these mega oil companies are fighting hard to keep their $2.4 billion in annual federal tax breaks. In 2013 alone, these companies spent $45 million on lobbying, making retention of these unnecessary provisions a top priority. Recently, Exxon Mobil attempted to rationalize these tax breaks by providing misleading or irrelevant responses to a previous Center for American Progress analysis. To save Exxon the trouble of reiterating its claims, here are some quick facts to debunk them.
In recent years, Exxon Mobil paid an effective federal tax rate that was half—or less—of the 35 percent standard federal business tax rate. Here are some media and nongovernmental organizations’ estimates of Exxon’s effective federal tax rate:
The oil and gas industry has been the largest recipient of federal tax breaks, subsidies, and other government supports over the past century:
- The Congressional Budget Office reports that from 1916 to 2005, federal energy tax breaks “were primarily intended to stimulate domestic production of oil and natural gas.”
- The Nuclear Energy Institute estimates that the oil and gas industry received 76 percent of all federal energy tax preferences from 1950 to 2010, as well as 58 percent of total federal support.
- DBL Investors estimates that over the past century, the oil and gas industry has received average annual federal support—including tax breaks—of $74 for every $1 in federal renewable energy support, in 2010 dollars.
Big Oil receives tax breaks not available to other industries, and it is also benefits from a large break that is appropriate for manufacturing companies, not oil production. Some of these tax breaks are listed below:
- The “percentage depletion” method permitted for oil and gas is fundamentally different and more favorable than depletion for other industries. It is worth $11 billion per decade.
- The “expensing of intangible drilling costs” allows immediate deduction of these expenses, rather than over time like for many costs. It is worth $13 billion per decade.
- The domestic manufacturing deduction gives tax breaks to discourage companies from offshoring jobs. Big Oil companies can receive it for production even though they cannot move their U.S. oil fields to other nations. It is worth $18 billion per decade.
Even with these tax breaks, BP, Chevron, Exxon Mobil, and Shell have shed thousands of U.S. jobs in recent years. Based on their company reports, these four companies employed 12,000 fewer domestic workers in 2012 than in 2007. For the oil industry as a whole, nearly half of their 1.9 million direct oil and gas employees in 2013 worked at service stations.
The big five oil companies made a combined profit of $23 billion in the first quarter of 2014, and had cash reserves of $68 billion. They do not need the $2.4 billion in annual special tax breaks that could otherwise pay for approximately 658,000 Pell Grants for college students or 42,000 additional public school teachers; that amount of money could also increase federal funding for the National Cancer Institute by 50 percent. Any of these investments would benefit Americans far more than the handouts to oil companies, particularly when those companies use one-third of their profits to buy back their own stocks, and their five CEOs have a combined salary of $89 million annually.
Americans understand that we ought to end these unnecessary tax breaks. A November 2013 Hart Research poll found that 62 percent of Americans approve of eliminating “special tax breaks for oil and gas companies.” After another quarter of huge profits, it’s time for Congress to stand up to Big Oil and eliminate their unnecessary tax breaks.
Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress. Miranda Peterson is a Special Assistant for the Energy Opportunity team at the Center.