by Daniel J. Weiss
This post was co-authored by Susan Lyon.
I was out
driving/just a taking it slow
Looked at my tank/ it was reading low
Pulled
in a Exxon station/out on Highway One
Held up without a gun
Held up
without a gun
Springsteen’s
song could not be more true today. Big Oil is once again riding high oil prices
to large profits (see below) while American consumers get stuck with a $2.7
billion gasoline bill in the first quarter of 2010 due to higher oil prices.
But the problems with oil go beyond these companies’ profits. Rising oil prices
also add more filthy lucre to the coffers of
hostile regimes, including Iran.
Meanwhile,
the Gulf of Mexico is suffering a huge oil
spill while taxpayers spend billions of dollars paying for tax
loopholes for Big Oil. And Big Oil spends record
amounts of money to pressure Congress to cement these loopholes in place and
defeat clean energy legislation. Adding injury to insult, big oil opposes energy
and global warming legislation that would reduce our reliance on
oil.
Enough is
enough. We need Congress to stand up to Big Oil and pass legislation that
addresses the problems with oil profits and oil use. Sens. John Kerry (D-Mass.),
Lindsey Graham (R-S.C.), and Joe Lieberman (I-Conn.) are working on legislation that
would reduce oil dependence and put a declining limit and rising price
on carbon. These measures would reduce our dependence on oil, increase
national security, create jobs, and cut pollution.
Mo’
prices, mo’ problems
U.S. crude
oil prices rose from $31.76 per
barrel in January 2009 to $85.17 by April 29, 2010 after a price slump at
the end of 2008. This is an increase of nearly 160 percent over a 15-month
period. The Energy Information
Administration recently predicted that oil prices will rise to above an
average of $81 per barrel by this summer while average gasoline prices will
likely exceed $3.00 per gallon this spring. Drivers will pay 17 percent more for
gas compared
to summer 2009—$174 million per day, or an average of $602 per household
annually. Energy price volatility like this hurts
consumer and business investments, causing families to delay buying a car
and spend less on buying or upgrading their homes. Businesses also cut
investments, while profits surge in the oil and gas
industry.
While higher
prices brought higher profits to Big Oil, they also brought higher gasoline
prices that cost American consumers millions during the first quarter. A CAP
analysis determined that higher oil and gasoline prices forced Americans to
spend $2.7
billion more on gasoline during the first quarter compared to what they
would have spent had prices remained steady after the first
week.
Much of the
U.S. economy is slowly recovering from a deep recession, but oil companies
continue to prosper. The big five oil companies—BP, Chevron, ConocoPhillips,
ExxonMobil, and Shell—announced huge first quarter profits—four of the five
companies announced profits larger than analysts predicted.
As the chart below shows, big oil saw profits in the first quarter of 2010 that
far eclipse analysts’ projections and are significantly higher than 2009 profits
as well.
Big five
oil company profits for the first quarter of 2010 vs. first quarter
2009
BP’s
2010 first quarter profits were $5.6 billion, a 135 percent increase over
the first quarter of 2009. This profit was 50 percent higher than predicted by
The Financial Times. Shell announced that its profits had risen by 49 percent since the first quarter of
2009. Chevron’s profit was $4.6 billion, a 156 percent increase, while
ConocoPhillips had $2.1 billion in profits. The world’s largest private oil
company, ExxonMobil, had a first quarter profit of $6.8 billion, which was 38
percent more than 2009.
Iran:
Thanks for high oil prices
Higher oil
prices also benefit nations that are hostile to U.S. interests—even if we don’t
purchase any oil from them—such as Iran. Every $1 increase in the price of oil
provides an additional $1.5 billion to Iran annually.
Conversely,
adoption of a shrinking limit on carbon pollution that reduces it by 80 percent
by 2050 would reduce the use of oil and lower its price, costing
Iran approximately $1.8 trillion in lost oil revenues over the next 40
years—over $100
million a day. These petrodollars fund and prop up unfriendly
regimes, enabling them to support
terrorists in other nations.
Sea of
fire
Oil companies
deserve to earn a profit since oil exploration and development can be
financially and technically risky business. At the same time, though, they must
produce this oil in a safe and environmentally sustainable manner. Yet despite
rhetoric
to the contrary about advances in environmental safeguards, the spill off
the Louisiana coast shows that offshore oil development still poses a threat to
its workers and risk to the ocean and coastal
environment.
BP owns the
oil rig that exploded and sunk in the Gulf of Mexico last week, causing what CNN reports officials say “could become one of worst spills in U.S. history.”
Tragically, there are 11 missing rig employees who are presumed dead. The well continues to
leak 210,000 gallons of oil per day into the Gulf of Mexico—five times the original
estimate. This growing oil slick already covers an area
larger than West Virginia and oozed
onto the Louisiana shore early this morning. A major portion of the oil
slick looms only five miles offshore. This major oil spill could be the worst
environmental disaster since the Exxon Valdez
spill in 1989, and it is a tragic reminder that we must dramatically reduce
our oil use.
The Exxon
Valdez spill cost Alaska’s fishermen an estimated $800 million in damages to
their livelihood. This oil spill could bring an economic Armageddon to the gulf
coast seafood industry. Bloomberg
reports:
Louisiana is
the largest seafood producer in the lower 48 states, with annual retail sales of
about $1.8 billion, according to state data. Recreational fishing generates
about $1 billion in retail sales a year, according to the
state.
BP should be
required to place its first quarter profit of $5.6 billion in an escrow account
to provide compensation to the fishermen whose livelihoods are threatened. These
funds should also be used for cleaning up the soon to be blighted
shores.
Oil tax
loopholes: More money for the misbegotten
Despite high
prices and profits, big oil companies still want taxpayer-funded loopholes even
though some conservative oil men believe they are unnecessary. In 2005, former oil man
and President George W. Bush noted that with higher oil prices big oil does
not need tax breaks to explore and develop oil
fields.
I will tell
you with $55 oil we don’t need incentives to the oil and gas companies to
explore. There are plenty of incentives. What we need is to put a strategy in
place that will help this country over time become less
dependent.
Yet even with
today’s prices more than 50 percent higher than $55 per barrel, Big Oil
companies want
to maintain tax loopholes that siphon additional billions of dollars from
U.S. taxpayers. Taxpayer money pays for the tax breaks claimed by Big Oil, but
the industry claims that closing these loopholes is really a new energy tax on
them. American Petroleum Institute President Jack
Gerard stated:
With America
still recovering from recession and one in ten Americans out of work, now is not
the time to impose new taxes on the nation’s oil and natural gas industry. New
taxes would mean fewer American jobs and less revenue at a time when we
desperately need both. A robust U.S. oil and gas industry is essential to the
recovery of the nation’s economy.
Contrary to
this assertion, cutting the subsidies to Big Oil would help our economy while
shrinking the federal budget deficit. In fact, a state-by-state
analysis indicates that taxpayers would actually save money if the
subsidies and tax breaks were lifted. A recent CAP analysis found that the effective
federal income tax rate in the United States for major oil companies is
lower than the effective tax rates they face abroad—sometimes close to 50
percent lower. The report also determined that subsidies to the oil industry
will cost the U.S. government about $3 billion in lost revenues next year and
nearly $20 billion over the next five years.
These
estimates are only the initial assessment—they still vastly underestimate the
help that the oil industry receives from the government via extensive hidden tax
code benefits as well.
Big Oil
squeezes the Capitol
Given the
generous subsidies Big Oil receives, it should come as no surprise that this
industry is fighting hard to keep their loopholes and block reform. There was record
oil and gas industry lobbying in 2009. These companies spent at least $154
million on squeezing Congress that year-more than 16 percent higher than 2008.
Big Oil’s lobbying and political arm—the American Petroleum Institute—alone
spent at least $7.3
million on lobbying in 2009 and another $1.3 million more in 2010 to kill
legislation. API has also spent millions of dollars running expensive print, TV, and radio ads to do the
same. The American Petroleum Institute alone “doled out $75.2 million for public relations and advertising” in
2008.
Congress
must act
In short, Big
Oil’s profits climb higher and higher as American consumers feel more and more
pain at
the pump. This needs to stop.
Sens. John
Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joe Lieberman (I-Conn.) are developing
bipartisan comprehensive energy legislation that would reduce oil dependence and
put a declining limit and rising price
on carbon. These provisions would increase American energy independence (and
our national
security), create jobs, produce “Made in the USA” clean energy technologies,
and cut pollution. The bill should also establish much stricter safeguards for
existing offshore oil production.
Additionally,
Congress should cut subsidies
to big oil and level the playing field for safe, clean energy sources.
Further, we need to curb the economic, social, and environmental damage that our
consumption of dirty fuel causes. To achieve these many goals, Congress must act
swiftly to pass bipartisan comprehensive energy and climate
reform.
Methodology
We used the
weekly price and quantity data supplied by the EIA’s U.S. prices and consumption
database to calculate how much more Americans spent on gas in the first quarter of 2010
relative to what they would have spent had prices remained steady after the
first week of January 2010. Using their data from the “Finished Motor gasoline
product supplied” and “Conventional retail gas prices” sections, we multiplied
the average weekly product supplied value times that week’s recorded price,
doing this separately for each week of the first quarter. From here, the initial
week’s value was subtracted from each other weeks to obtain how much more was
spent each week relative to the first. Aggregating this column resulted in the
final figure.
See
also:
Big Oil
Awash in Profits by Daniel J. Weiss and Susan Lyon
Quenching
Our Thirst for Oil by Susan Lyon, Rebecca Lefton, and Daniel J.
Weiss
Related Links:
Wake up, Obama. The Gulf spill is our big chance
Oil rig disaster could soon be worse than Exxon Valdez
Obama puts offshore drilling on hold as Gulf of Mexico oil slick reaches U.S. coast