Cutting Subsidies to Big Oil

May 17, 2011

The week of May 16th, the Senate voted on a bill (S. 940), introduced by Senator Robert Menendez (NJ), that would have ended a number of subsidies for the biggest five oil companies in the United States and used the money saved – about $4 billion per year – to reduce the deficit. The subsidies are loopholes in the tax code - tax credits and deductions that only benefit the oil and gas industry.

In a 52-48 procedural vote, the Senate halted debate on the bill. While the outcome was largely expected the issue will remain front and center going into debates on deficit reduction.

The five largest oil companies made $30 billion in the first three months of 2011. As Sen. Menendez has pointed out, with profits like that they do not need more help from taxpayers, especially when Congress is facing tough choices about cutting medical, welfare and environmental programs that benefit millions of people.

On May 12, 2011 the Senate Finance Committee held hearings on Senator Menendez’ bill (S. 940). Leaders of the five largest oil companies –ConocoPhillips, ExxonMobile, BP, Chevron, and Shell testified, claiming it was “un-American” to take away their subsidies. Dismayed by their lack of social responsibility, Senator Jay Rockefeller (WV) described the CEO’s as ‘out of touch’ with the lives of the working people who buy their gas and pay for their subsidies.

The $4 billion in oil and gas subsides will be a bargaining chip in discussions about the FY12 budget, but these subsidies constitute more than political theater. The tax code loopholes and subsidies distort the energy market, protecting outdated energy systems - fossil fuels and nuclear power - from free market accountability and preventing renewable sources of energy from competing freely. A more comprehensive bill would be needed to truly level the playing field between renewable sources and fossil fuels, but FCNL supported the Menendez bill because it is a solid step toward energy efficiency and a healthier planet. It removes incentives to use fossil fuels and, at a time when everyone is concerned about the deficit, also helps balance the budget.

Read On:

• Blog Post: Oil Subsidies on the Hill
• Learn about other ways to support renewable energy legislation.
• Find out more about the federal budget deficit, and why cutting it is important.
• Check out FCNL's positions on the federal budget and tax policies.

More Resources:

• A study by the Environmental Law Institute found that between 2002 and 2008 the federal government provided subsidies to fossil fuels and corn ethanol totaling equal to $89.3 billion dollars; in the same time period renewable energy received $12.2 billion dollars. Subsidies for the nuclear power industry are even greater.
• A study by Friends of the Earth, using a different measurement and a broader definition for subsidies, concluded that the nuclear industry would receive $46.4 billion in subsidies between 2011 and 2015. In annual terms that means: renewables get $2 billion, fossil fuels and corn ethanol get $14.9 billion and nuclear gets $11.6 billion.
• Interview with Howard Learner, executive director at the Environmental Law and Policy Center, who discusses a new series of reports highlighting developments in the wind and solar energy industries in Midwestern states. Learner says that, despite the recession, these industries have continued to grow and create jobs.
• Environment and Energy Daily explains the politics behind repealing oil industry tax breaks.
• The New York Times examines the competing interests behind energy subsidies, in a piece by Greenwire and Environment and Energy Daily.