Blog on the Run: Reloaded

Monday, July 5, 2010 11:48 am

The rigged energy game

Filed under: We're so screwed — Lex @ 11:48 am
Tags: , ,

My friend Taft Wireback had a depressing article published in today’s News & Record about an entrepreneur facing the loss of his business because Congress has failed to extend a tax break that makes that business — Greensboro’s only biodiesel plant — financially feasible.

This is bad enough on its own. Biodiesel represents one small step toward both energy independence and reduced impact of energy consumption on the environment. And it’s ideal for concentrated urban areas such as Greensboro where vehicle fleets — GTA and PART buses, Postal Service vehicles and so on — could provide a reliable base of demand for this alternative energy source.

But, as always, context makes things even worse. As this report in yesterday’s New York Times makes clear, the energy game is rigged, heavily, in favor of oil:

When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.

The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes.

At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure, warning that it will lead to job losses and higher gasoline prices, as well as an increased dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.

If there is one benefit from the misbegotten elevation of Sarah Palin to the national political scene, it is that more Americans became aware of the fact that not only do Alaskans not pay state income taxes, they get a check from the state every year, their share of the proceeds from Alaskan oil production. That’s in stark contrast to how taxpayers in the other states fare:

The federal government is on the verge of one of the biggest giveaways of oil and gas in American history, worth an estimated $7 billion over five years.

New projections, buried in the Interior Department’s just-published budget plan, anticipate that the government will let companies pump about $65 billion worth of oil and natural gas from federal territory over the next five years without paying any royalties to the government.

Granted, $7 billion over five years would represent neither a huge windfall for individuals nor much help with the deficit. But it would be better than nothing.

And more broadly, we need to identify and enact the kinds of economic incentives that will move us significantly in the direction of energy independence even if, realistically, we may never get there. Every step we take in that direction is a step we take away from being held hostage and even forced into unnecessary wars, and may be a step toward saving our own hides by not destroying the environment we rely upon for life itself.

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