Wednesday, February 27, 2008

Rob Peter to pay Paul

The House passed a bill that would basically increase the tax burden for oil companies. The news media claims it’s new taxes but actually most of it will come from rolling back taxes credits oil companies receive now. The House bill amounts to $18 billion over 10 years and it only targets the 5 largest US oil and gas companies.

The vision is to use the money to provide tax breaks for alternative energy sources (wind and solar) and for energy conservation programs. In order to justify the measure targeting those 5 companies, analysis was done by the House Ways and Means Committee and they estimated that those same 5 companies earned $123 billion last year.

The White House has signaled that it will veto the bill because it unfairly targets the oil industry. Some critics of the bill argue that it will not reduce gas prices and in fact it might cause them to increase in the short run. Others argue that this might cause gas prices to fall in the future because the funding from this bill will speed up the development of alternatives to gas thereby reducing its price.

Going back to the logic of energy independence, House Speaker Nancy Pelosi said the bill would increase energy independence and lower energy costs because it directs new funds to clean technology. On the other hand, the oil industry feels that such a bill in fact reduces energy security and independence by discouraging new domestic oil and gas production. The White House agreed with the energy industry.

Well this is the raw data – now what? I agree that we should invest in clean technology and we should do that aggressively. However, I disagree with the notion of rob Peter to pay Paul. Of course I’m biased towards to the oil and gas industry but at the same time when the industry fell on hard times (80’s and early 90’s) no one came to the rescue saying here’s a bail out right? What people fail to realize is that an oil company invests billions of dollars on a project today that will return money 10 years from now. That’s part of the reason they’re making money now (ok maybe lots of money). Most of the projects making money today were developed in the late 90’s when oil was trading around $20 or so. I can’t blame them for doing that! Does Congress realize that when Exxon or Chevron today finds a field they will price oil at around $30 to $40 and then see if it will be economical? Of course they’ll be happy if oil stays at $100 but at the same time they’ll shell out billions of dollars before they see a drop of oil. Who knows what the price of oil will be in 3 years? Is Congress willing to guarantee a price of oil at $100 a barrel? I’m sure the oil companies wouldn’t mind giving up $18 billion then.

Like I said, I’m not against investments in clean tech but we should do it in a smart way and this to me doesn’t seem to be too smart.

A link to the article on Yahoo news can be found below:


Candide said...
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Candide said...

If finding oil is so risky economically, then it doesn't seem prudent to me to continue to provide tax credits to these companies. It would seem more in the interest of our country to invest in energy returns that can be assured, a good description for solar, wind, and end-use efficiency. At this point, the long-term marginal cost of energy from oil and gas is prohibitive and certainly higher than that for renewables.

In the business-as-usual scenario that you are advocating, we will continue to spend an increasing amount of capital to obtain increasingly difficult supplies of oil and gas, none of which will prevent our eventual use of all economically available oil and gas at some time in the future. Strong support for a system of energy recovery and use that will ultimately fail us makes little sense to me. In contrast, reducing our subsidies to expensive, risky enterprises and investing in reliable alternatives makes a lot of sense.