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Public Citizen Applauds House Vote to Repeal $14 Billion in Oil Subsidies

Jan. 19, 2007

Public Citizen Applauds House Vote to Repeal $14 Billion in Oil Subsidies

Statement of Tyson Slocum, Director of Public Citizen’s Energy Program

The U.S. House of Representatives has taken a much-needed step toward making things right with American taxpayers by voting to repeal $14 billion worth of tax breaks and royalty relief that were enacted or poised to take effect during a time of high prices and strong profits for the oil industry.

These were not subsidies that had existed for a generation but were recently enacted giveaways to an industry that has thrown $17.6 million in campaign contributions at members of the last Congress in the past two years. Thursday’s action by the House not only ends these subsidies to Big Oil but dedicates the $14 billion saved to wind, solar, alternative fuels and energy efficiency. The Senate should quickly approve this measure so it can take effect.

Shifting subsidies from mature, profitable industries such as oil and gas into renewable energy and energy efficiency is a great first step in establishing the sustainable energy investments America needs. It is not a tax on industry, as industry apologists claim. Rather, it rights a wrong: an enormous taxpayer giveaway to an industry that earns billions in profits in a single quarter and hardly needs financial help. The legislation, HR 6:

  • Denies the oil industry a $7.6 billion tax break over the next decade. This break came as a result of   2004 legislation that created a sweeping new deduction for domestic manufacturing. As a result, for the first time, oil and natural gas production was classified as a manufactured good, treating it the same as a domestically produced car or other item made in a factory. HR 6 ends this tax deduction for Big Oil.
  • Extends the period of time over which oil companies can claim a tax deduction for geological and geophysical expenses from five to seven years. Deducting the expenses more slowly will save taxpayers $100 million over the next decade.
  • Closes a loophole in contracts awarded in 1998 and 1999 by the Department of Interior to oil companies to drill in the Gulf of Mexico. The contracts require the companies to pay little or no royalties for drilling on public land. The government failed to include a price ceiling, meaning that as oil prices skyrocketed, oil companies could earn huge profits without having to pay taxpayers. HR 6   imposes a “conservation of resources fee” and disallows these companies from bidding on new leases unless they renegotiate these sweetheart deals, raising $6.1 billion over the next decade.
  • Repeals a provision in the Energy Policy Act of 2005 that provided additional royalty relief to oil companies in certain situations. The repeal will raise $210 million over the next decade.

For years, Congress and the White House have established an energy policy written by and for the benefit of Big Oil. Thursday’s vote signals a change: that lawmakers don’t want taxpayers to pay billions of dollars of subsidies to companies like ExxonMobil, and that this country will begin making the necessary investments in clean energy rather than relying on polluting energy sources.