Big Oil Wins Big in Budget Deal

Big Oil’s influence over Congress is clear in the new budget deal. (Image source: Greenpeace).

After two years of standoffs, a budget sequester, and a government shutdown earlier this year, bipartisan budget legislation has finally breezed through Congress and is expected to be signed by President Obama today. But while the avoidance of another government shutdown in January is certainly welcome news, the budget deal’s implications for U.S. energy policy and the climate are sobering.

By the Obama Administration’s own estimates, eliminating subsidies to the oil, gas, and coal industries could have increased federal revenue by more than $4 billion in 2014. More inclusive studies put the value of subsidies – which include tax breaks, cheap access to government land, and many other provisions that favor the fossil fuel industry – even higher, with estimates ranging between $14 and $52 billion per year. Yet instead of closing these loopholes to make fossil fuel corporations pay their fair share to the federal government, the budget deal extends dirty energy subsidies while slashing support for clean energy.

The oil and gas industry makes out particularly well, with the vast majority of its generous subsidies preserved under the new budget. Taking a closer look, only a handful of provisions directly affect the industry. The budget deal:

Repeals the Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources Research Program. According to the Department of Energy’s 2014 budget justification, this will save $50 million per year in spending – a pittance compared to overall federal support to the oil and gas industry. Given the recent commercialization of hydraulic fracturing (“fracking”) technology and the resulting boom in U.S. shale oil and gas production, cutting this federal R&D program was an easy target.
Amends the Mineral Leasing Act to require that states receiving payments from leasing land for oil and gas production share the costs of managing these leases. The budget summary estimates that this cost-sharing program will save the federal government $415 million over ten years. However, these costs will instead be borne by state governments, not oil and gas companies which still do not pay a fair price for their access to federal land and resources, according to a new report from the Government Accountability Office.
Approves U.S.-Mexico Transboundary Hydrocarbons Agreement, which will set up a framework to explore, develop, and share revenue from oil and gas resources in the Gulf of Mexico. According to the U.S. Departments of State and Interior, the agreement will open up almost 1.5 million acres of the Outer Continental Shelf to drilling – an area that contains an estimated 172 million barrels of oil and 304 billion cubic feet of natural gas. This is a huge gift to the U.S. oil and gas industry.
Limits the interest that the federal goverment pays oil and gas companies to 110 percent for overpayment on royalty prepayments for leasing federal lands. This is an important development, albeit one that was required due to deliberate manipulation of the system by oil and gas companies. Until now these companies intentionally made “excessive” royalty overpayments to the federal government “for the sole purpose of receiving interest.” According to the Congressional Budget Office, “overpayments exceeded $3 billion in 2012 […] more than 30 percent of the $9 billion due as royalties on production from all federal lands.”
Rescinds all available funds in the Strategic Petroleum Reserve (SPR) Petroleum Account and eliminates the royalty-in-kind program, requiring oil companies to make royalty payments in full rather than offsetting a certain amount through oil contributions to the SPR.

Industry representatives welcomed the legislation with open arms. The Independent Petroleum Association of America announced that it was “encouraged that the budget deal doesn’t jeopardize the industry’s tax provisions.” A statement from Bob Tippee, Editor of the trade publication Oil & Gas Journal, praised the bill for “[leaving] intact important adaptations of taxation” that benefit the oil and gas industry.

While tax incentives for the fossil fuel industry remain intact, support for clean energy is on the chopping block. Senator Edward Markey (D-MA) and 23 other senators are pushing to preserve ten important clean energy tax incentives that are set to expire at the end of this year. These include wind energy production tax credits, investment tax credits for renewable technologies such as solar and geothermal heating systems and small wind turbines, tax credits for energy efficient homes and appliances, and credits for hybrid trucks. While extension of these tax credits didn’t make it into the budget deal, there’s still a chance that they could be worked into tax reform legislation before the end of the year.

It’s no surprise that there’s bipartisan support to extend oil and gas subsidies; Democrats and Republicans alike are eager to accept campaign finance contributions from the fossil fuel industry. In 2011 and 2012, both parties combined took more than $34 million in campaign finance from oil, gas, and coal companies. This ensures that these powerful corporations have the ear of lawmakers, and can influence them to expand support for dirty energy sources at the expense of the clean energy industry, U.S. taxpayers, and the climate.