http://www.latimes.com/news/nationworld/nation/la-na-oil-spill-subsidies-20100525,0,1705123.storyMay 25, 2010
Oil companies have a rich history of U.S. subsidies
Some say the Gulf of Mexico catastrophe can be linked to Congress' policy of oil-friendly tax breaks and financial benefits.
By Kim Geiger and Tom Hamburger, Tribune Washington Bureau
It was close to 2 a.m. when Rep. Edward J. Markey (D-Mass.) and others on a House-Senate conference committee saw just how much clout the oil industry had when it came to winning special tax breaks and other financial benefits from Congress. At issue was the 2005 Energy Policy Act — the largest energy bill in years. The committee chairman, Rep. Joe L. Barton (R-Texas), a friend of the industry, had saved some big issues for the end: billions of dollars in tax and royalty relief to encourage drilling for oil and gas in the Gulf of Mexico and other offshore areas. There was even a $50-million annual earmark to support technical research for the industry. At the time, drilling was already proceeding at a brisk pace, and industry profits were setting records. "With all the money they are making," Markey said to his top energy aide, who recalled the scene, "why does the government need to subsidize their work and their research?" That point of view did not prevail. The bleary-eyed lawmakers wanted no part of Markey's amendments. The bill was eventually passed in both houses with bipartisan support. Notably, then-Sen. Barack Obama of Illinois voted in favor.
Today, Markey and other critics complain that these policies have cost the U.S. Treasury tens of billions in lost revenue, and led to a reckless search for oil in fragile environments like the deep floor of the Gulf of Mexico. He and others say the unfolding catastrophe at the Deepwater Horizon rig, which exploded April 20 in a disaster that killed 11, can be directly linked to oil-friendly legislation over the last two decades... The industry received significant federal support for such deep-water drilling. Since the government began aggressively issuing offshore drilling permits under President Reagan, the industry has received tens of billions of dollars in tax breaks and subsidies, including exemptions from royalty payments — the fees due when a company extracts resources from U.S. government property. The royalty waiver program was established by Congress in 1995, when oil was selling for about $18 a barrel and drilling in deep water was seen as unprofitable without a subsidy. Today, oil sells for about $70 a barrel, but the subsidy continues. The Government Accountability Office estimates that the deep-water waiver program could cost the Treasury $55 billion or more in lost revenue over the life of the leases... Congress had originally intended to provide royalty relief only when oil prices were especially low. But an Interior Department error in the drafting of contracts in the 1990s led the industry to argue against pegging the relief to oil prices. Oil companies won a lawsuit last year requiring the government to pay back $2.1 billion in royalties from previous years, including about $240 million to BP.
An increasing number of analysts say the waiver program has pushed drilling into fragile and remote areas where emergency response plans were inadequate. "If it wasn't profitable for them to do it, then that's a good argument for leaving the oil in the ground," said Robert Gramling, who studies the history of the oil industry at the University of Louisiana, Lafayette. The government-subsidized rush to deep-water exploration led to a situation where the industry was doing "things that were technically possible but were beyond our ability to undo them if we find out we have a problem."... In addition, several analysts say, billions more have been lost to the Treasury through another form of subsidy — favorable packaging of federal leases sold by the Interior Department. Bill Freudenburg, a professor of environmental studies at UC Santa Barbara who has worked with Gramling studying the economics of offshore drilling, contended that such packaging had in effect given away drilling rights. He noted that in the early 1980s, the Interior Department began selling drilling leases at an average rate of $263 per acre compared with $2,224 per acre in the previous decades.
A 2008 General Accounting Office report found that out of 104 jurisdictions throughout the world, only 11 received a smaller portion of oil revenue than the U.S. government. "We were just stunned by how badly the American taxpayer has been getting screwed," Freudenburg said. "I don't know of too many places where it is harder and more expensive to get oil out of the ground than the North Sea off of Norway. And Norway somehow manages to get a 75% take
, basically double of what we get."...
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