Texas oil subsidies, at a crossroads

Photo by Jerod Foster for The Texas Tribune

In August, two Harvard researchers concluded that Exxon Mobil misled the public about climate change. In very public, paid advertorials and elsewhere, the company sowed doubt about the reality, seriousness and solvability of global warming.

But climate may not be the only issue the oil industry has been less than forthcoming about. Oil executives — notably including former Exxon CEO Rex Tillerson, at his confirmation hearing to be Secretary of State in January — have repeatedly denied receiving subsidies from the U.S. government.

A new peer-reviewed study, published last month in Nature Energy, chronicles a dozen subsidies to the oil industry. Starting with the definition of “subsidy” used by the World Trade Organization,we show how a dozen subsidies boost oil profits in the Permian Basin of Texas by an average of 11 percentage points each year.

Even if you don’t use the “S” word, this study’s findings should be cause for alarm.

The study plainly shows what these “rules affecting specific industries” (the GOP’s preferred term) do for surplus profits, oil production and, ultimately, climate-warming carbon dioxide emissions.

It shouldn’t be hard for Texans and other Gulf Coast residents to connect the dots here.

Texans’ tax dollars — nearly $3 billion annually from state-level taxes alone, according to another recent report —support the state’s oil and gas industry. Federal subsidies to oil and gas amount to about the same amount, and that is just by Congress’ own calculation. (Others have the number much higher.)

The new study in Nature Energy shows one of the consequences of these subsidies: an estimated 17 billion new barrels of oil nationally — 7 billion of which from the Texas Permian.

This subsidy-dependent oil alone leads to about 6 billion tons of carbon dioxide (equal to about one year’s worth of total U.S. carbon dioxide emissions). That that doesn’t include the oil from long-lived, already producing fields. This 6 billion tons is about 1 percent of the global carbon budget that keeps the world within the internationally agreed limits.

It seems unlikely that U.S. Rep. Kevin Brady will raise the issue of tax support for the oil industry. His current bill maintains the largest oil subsidies. But others in Congress may raise the issue. The high cost of spending public tax dollars on oil producers has been on Congress’s radar for nearly a century, since the Joint Committee on Taxation first called the percentage depletion allowance “arbitrary” in 1927.

That subsidy, still in place for many producers, allows firms to deduct, in some cases, much more in expenses than they ever actually incur, distorting the market for new capital investment for oil.

Furthermore, Congress may well see a different Texas and a different nation. Texans’ awareness of the consequences of oil subsidies, and oil development, is now much greater. Most Americans, and most Texans, think global warming is mostly caused by human activities, and 44 percent of Texans connect hurricanes with climate change.

The trade-offs could be painful. Some in Texas do benefit economically from oil development. But should the state and its leaders in Congress continue subsidies to the industry that artificially inflate oil’s place in the regional and national economy?

One lesson from Hurricane Harvey may be that others in the economy could need greater support; for example, emergency workers, nurses, engineers and city planners. Those jobs, along with growth in the state’s booming renewable energy industry, could well make up for any lost jobs in the oil industry. (Though oil job losses may be small, since we found that most subsidy value goes to surplus corporate profits, not to workers on the ground.)

There is also a risk that oil may just not be a good investment, if China, India, California and others succeed in banning oil-fueled cars and proliferation of electric vehicles accelerates.

The GOP talks of modernizing the tax code. That is a useful concept, because it is a very modern reality that taxes feed oil, and oil contributes to climate change. It’s time to take away the permanent status of oil subsidies. Congress should remove subsidies to the oil industry.

Peter Erickson

Senior scientist, U.S. Center of the Stockholm Environment Institute