One day after gasoline hit a record price of $3.29 a gallon, senior executives from the big five oil companies—BP, Chevron, ConocoPhilips, ExxonMobil, and Shell—sat before the House Select Committee on Energy Independence and Global Warming Wednesday to plead “not guilty” for high oil and gasoline prices.
The executives brashly built a case as to why the oil industry still needs the $18 billion in tax breaks that face elimination by the Renewable Energy and Energy Conservation Tax Act, H.R. 5351, recently passed in the House and awaiting action in the Senate. They defended these breaks despite oil prices of $100 a barrel, and record 2007 total profits of $123 billion. Meanwhile, the poorest 20 percent of Americans spend 10 percent of their income just on gasoline and diesel fuel. Chairman Edward J. Markey (D-MA) noted that “On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil.”
The executives argued that the high cost of exploration and refinement requires high profits to provide energy “reliably and responsibly.” According to Chevron Vice President Peter Robertson, elimination of $1.8 billion a year of tax breaks would unduly punish “five companies.” And Stephen Simon of ExxonMobil declared that renewable energy technologies should not receive subsidies because “the market should decide” on energy sources.
Despite all the current privileges that the oil industry enjoys, the executives said that they cannot provide relief at the pump. Mr. Simon maintained, “Our earnings, although high in absolute terms, need to be viewed in the context of the scale and cyclical, long-term nature of our industry as well as the huge investment requirements.”
These five companies have earned higher profits every year since 2001, which totals to a mind boggling $556 billion. In 2007, they made nearly $230,000 per minute in profit—more than the vast majority of American families earn in a year. The oil industry may be cyclical, but it has been in this high price, high profit mode ever since the Bush administration took office. Rep. Emmanuel Cleaver (D-MO) ironically noted “You can get the impression that the oil industry is suffering.”
The executives trotted out their standard solution for every energy problem: allow more drilling in wild, natural places. They reiterated their desire for drilling rights in the Arctic National Wildlife Refuge and areas off our coasts. Of course, drilling in the Arctic would do nothing to reduce oil or gas prices since it would take at least 10 years to begin drilling in the Arctic, according to government and oil industry experts. And the Department of Energy acknowledged that even at peak production the Arctic would only provide enough oil to reduce prices a negligible 50 cents per barrel.
Rather than open up the fragile Atlantic and Pacific Coasts to drilling, oil companies should begin production from the thousands of undeveloped leases in the western Gulf of Mexico. Additional domestic oil production can do little to satisfy energy demand since the United States has less than 2 percent of the world’s proven oil reserves yet consumes nearly one out of every four barrels of oil.
Despite the spike in demand and the high prices for crude oil, most of these companies remain committed to a high-carbon economy. As Rep. Jay Inslee (D-WA) pointed out, ExxonMobil is donating only $100 million—less than a half of one percent of its 2007 profits—to what Mr. Simon called a major project at Stanford University for research “breakthroughs” in alternative energy. Mr. Simon claimed that this investment was sufficient in the effort to mitigate global warming. Rep. John Sullivan (R-OK) called this effort “pathetic.” And Rep. Markey observed that what these oil companies really want is “Tax breaks for the oil companies and tough breaks for the consumers at the pump.”
There were a few slight glimmers of change expressed by the oil executives. Rep. Inslee lauded BP for its program that has allowed it to meet its Kyoto carbon dioxide reduction targets, and its investment of billions of dollars in its alternative energy program. Unfortunately, BP has suggested that it might sell this unit. When Representative Hilda Solis (D-CA) asked BP CEO and President Bob Malone about the source of this foresight, Mr. Malone noted the environmental effect of the oil industry and called for a market mechanism to restrict carbon emissions. Shell President John Hofmeister concurred on this point, citing Shell’s support for a cap-and-trade program.
Big Oil remains a major player in the high-carbon energy economy, where the foremost priority is profits and an unwillingness to commit to a low-carbon economy characterized by clean renewable energy that would create tens of thousands of new jobs. Congress needs to shift tax incentives away from Big Oil and invest in a clean energy future. The Senate also should pass H.R. 5351 to shift tax incentives from highly profited established big oil companies and toward new and innovative renewable energy firms to boost clean energy technologies for the 21st century, such as wind, geothermal, and solar power, and sustainable renewable fuels.