IVR Deconstructed

The price of gas is through the roof (again). BP just trashed the Gulf of Mexico. Oil is going to run out at some point.

Why are we subsidizing the big oil companies?

We all know the reasons we still use oil—dependence, infrastructure, cost of transitioning to alternative energy sources, culture, the oil company lobbies, et cetera—but it’s still weird we subsidize it.

With gas prices up (again), oil executives are in the hot seat (again). Congress has been giving oil execs the what-for lately.

According to CNNMoney, earlier this month Sen. Jay Rockefeller told a group of oil executives at a Senate Finance Committee hearing that they were “deeply, profoundly out of touch.”

Chevron CEO John Watson disagreed.

“I don’t think the American people want shared sacrifice,” he said regarding ditching the tax breaks. “I think they want shared prosperity.”

“Oh, a lovely statement,” Rockefeller countered. “But do you understand how out of touch that is?”

In a hearing just this Wednesday, the Senate Judiciary Committee was after the execs again. CNNMoney reported that Sen. Richard Durbin said: “Does it trouble any one of you—the costs you’re imposing on families, on small businesses, on truckers?”

“The people we represent are hurting,” said Committee Chairman Sen. Patrick Leahy. “While your companies are profiting.”

Yikes. No punches pulled. But…

Forbes.com recently reported first quarter 2011 profits for Exxon Mobil at $10.7 billion, for Chevron at $6.2 billion, for ConocoPhillips at $3 billion. And that the numbers were up significantly from last year.

President Barack Obama attacked the oil companies last month for making huge profits while raising prices at the pump. He’s called for the elimination of subsidies to the oil companies.

The U.S. government subsidizes the oil industry through tax breaks. Just like it subsidizes other energy industries like wind, solar and geothermal. But according to government sources, oil and other fossil fuels account for the majority of federal subsidies while green energy sources get a smaller slice of the pie.

Which makes you wonder how the green industries are ever going to take hold and actually compete with fossil fuels when fossil fuels are still getting most of the federal subsidies. You’d think they’d be getting more.

And, for the oil industry, we’re talking billions of dollars. Obama’s 2012 budget cuts included oil industry tax breaks that amount to about $4 billion a year, by all accounts.

According to the New York Times, the oil industry gets some of the biggest tax breaks of any industry, all along the “exploration and extraction process.”

For example, the tax on capital investments is effectively 9 percent, whereas it’s 25 percent for average businesses. For oil, it’s actually lower than almost every other industry.

Here’s a gut-check…

The Times reported that BP was using tax breaks to write off 70 percent of the lease—$225,000 a day, or about $80 million a year—for the Deepwater Horizon well. Yes, the well that trashed the Gulf of Mexico.