Time to Stop Subsidizing Status Quo

By Tom Buis | February 14, 2013

It came as no surprise that the American Petroleum Institute recently called for a repeal of the renewable fuel standard (RFS), the most successful energy policy this nation has enacted in the past 40 years. Big Oil understands that as renewables enter the marketplace, consumers will increasingly choose home-grown, cleaner-burning American energy instead of foreign oil from some of the globe’s most hostile regions. This cuts into their market share and ultimately their profits, so they will stop at nothing to protect their bottom line.


As the biofuels industry seeks to finally scale the blend wall, API has launched a multimillion-dollar campaign targeted at repealing the RFS, saying it is broken and that the blend wall is the primary challenge for a workable RFS. When it comes to the blend wall, however, Big Oil companies need only look in the mirror to see who is maintaining the status quo. This is their entire play—if the blend wall can’t be broken, the RFS won’t work. But it is the oil companies that are maintaining the blend wall by erecting every possible barrier to bringing increased blends to the marketplace. While they opine for a free market, they are singlehandedly denying consumers a choice and savings at the pump by preventing a lower-cost, high-performance alternative such as E15.


Now is the time to take a stand against the continual efforts of oil companies to prevent renewables from entering the marketplace. What is most egregious about this is that our industry and the American taxpayers are subsidizing this campaign by allowing archaic and unnecessary tax incentives. While the ethanol industry has voluntarily given up the volumetric ethanol excise tax credit, nearly a century has passed and the oil industry is still raking in excessive government tax breaks, even though it is among the most profitable sectors operating today. It is time the oil industry stands on its own, just as the ethanol industry does. During a time of financial difficulty, growing national debt and rising deficits, we can no longer afford to hand out taxpayer money to the tune of $40 billion over the next decade—the amount Big Oil is to get over the next decade.


President Obama understands that we, as a nation, must move forward in reducing our dependence on foreign oil and make significant strides toward sustainable and renewable sources of homegrown energy. Recently, the president called on the America people to lead in this effort during his second inaugural address, highlighting the importance of cleaner-burning fuels for our environment, as well as the economic benefits of jobs created through domestic energy production.


A number of common sense proposals have been put forth to end the senseless subsidies to oil companies. Current taxpayer handouts that the oil industry receives, as noted by the Office of Management and Budget, include: “1) The enhanced oil recovery credit for eligible costs attributable to a qualified enhanced oil recovery project; 2) The credit for oil and gas produced from marginal wells; 3) The expensing of intangible drilling costs; 4) The deduction for costs paid or incurred for any tertiary injectant used as part of a tertiary recovery method; 5) The exception to passive loss limitations provided to working interests in oil and natural gas properties; 6) The use of percentage depletion with respect to oil and gas wells; and, 7) Two-year amortization of independent producers’ geological and geophysical expenditures, instead, allowing amortization over the same seven-year period as for integrated oil and gas producers.”


At a time when our nation is tightening its belt, managing budget cuts and also looking to transition to sustainable energy sources, nearly century-old tax subsidies for oil companies are unnecessary, especially when these tax breaks are being used to help fund a multimillion-dollar campaign to kill a successful energy policy. Now is the time to move forward in sound government policy. It is not appropriate or even defensible to continue to line the pockets of those who wish to take us backwards in our quest for energy security.

Author: Tom Buis
CEO, Growth Energy
202-545-4000
tbuis@growthenergy.org