Big Oil Profits Dwarf Closed Loopholes
The House of Representatives yesterday passed the Energy Independence and Security Act (H.R. 6) by a vote of 235-181, launching an American low-carbon energy revolution. This new legislation would wave goodbye to gas guzzlers and welcome new technologies that would make American cars and trucks run cleaner and more efficiently so that we can wean ourselves off of our reliance on energy from the Middle East and focus more on energy that we can grow and generate at home.
The next step is for the Senate to pass the bill. Unfortunarely, Senate opponents of H.R. 6 blocked its passage with a filibuster, and an effort to end it failed 53-42. A supermajority of 60 votes is required for cloture to end the filibuster. Senate leaders will now begin the arduous task of negotiating with the minority of senators who blocked the bill. Some of them want to protect big oil by keeping its tax loopholes open.
President Bush and some senators oppose H.R. 6 because of its provisions that would close tax loopholes for big oil and provide $13.5 billion in revenues over 10 years. These funds would extend tax credits for wind, solar, and other renewable energy sources; help families buy plug-in hybrid vehicles; and assist companies with the development of cellulosic ethanol.
The president argues that closing the tax loopholes would raise “taxes in a way that will lead to higher energy costs to U.S. consumers and businesses.” The Congressional Joint Economic Committee evaluated this claim and concluded that there is little evidence to support it, saying, “Because the removal or modification of the tax deduction does not affect production decisions…removing or modifying the tax deduction will have no effect on consumer prices for gasoline and natural gas.” The Committee also notes that oil prices are much higher since the loopholes were established.
Opponents also argue that the elimination of this $13.5 billion in tax breaks will deprive big oil companies of the revenue they need to explore and develop oil and gas resources. This ignores the over half a trillion dollars in combined profits earned by the big five oil companies since 2001. (See profit chart). The $13.5 billion in tax breaks, collected over a decade, is less than 3 percent of these companies’ total profits over the last seven years. BP, Chevron, Shell, and ExxonMobil each had more than $13.5 billion in profits during the first three quarters of 2007. The closed loopholes are a drop in the barrel compared with big oil profits.
Rather than invest significant amounts of these profits in the development of clean, renewable energy alternatives, or even in exploration for new oil and gas, big oil companies invested a significant portion of these profits in buying back their own stock. Big oil spent 38 percent of their profits—nearly $55 billion—on stock buybacks beginning in 2005. (see chart from Money Guzzlers) This does nothing to add to the U.S. supply of either new, clean energy, or oil and gas.
In April 2005, President Bush said, “I will tell you with $55 oil we don’t need incentives to oil and gas companies to explore.” Yet two and half years later, with oil selling for $90 a barrel, some senators are threatening to block energy legislation to protect $13 billion in tax breaks for big oil. And President Bush threatens to veto the bill over the same issue. Because of their desire to help big oil, these senators and President Bush would block a huge increase in vehicle fuel economy, production of renewable fuels, a renewable electricity standard, and efficiency requirements for buildings and appliances. This would represent special interest politics at its worst. Instead, senators should support prompt passage of the Energy Independence and Security Act, and President Bush should sign it when it reaches his desk. This would launch America’s clean energy revolution to a low carbon future.
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