Yesterday IER clearly and methodically broke down the major components of the recent report from Oil Change International, highly touted on the left and in the media, which purports to show vast subsidies for coal, oil and natural gas in the United States (the implication being that they are far greater than the well known subsidies and mandates which prop up their favored technologies such as wind and solar). That previous post shows how this report is out of line with more authoritative, and non-biased, data from the Energy Information Administration and the Congressional Research Service, but in this post let’s take a closer look at the justification for including the data categories that the OCI study selects to paint as subsidies, many of which rely on a very ideological construction of the term subsidy.
Tax Provisions That Apply to Every Company Are “Subsidies”
Three of the top 10 largest “subsidies” identified by OCI are in fact generally applicable elements of the tax code available to all companies in the United States, including companies more favored in OCI’s eyes. Last-in, first-out accounting, the domestic manufacturing deduction, and the dual capacity taxpayer deduction, cannot be considered fossil fuel subsidies by any honest observer. If everyone gets the same subsidy then it is no longer a “subsidy” in any real sense, it is just the tax code. It would be the same as claiming that fossil fuel companies receive a “subsidy” because they have the same statutory 35% tax rate as every other company instead of a 50% or 100% rate. This is of course preposterous, and adds nothing to the discussion other than to dishonestly bump up the total dollar figure to a more impressive number. This dishonesty adds over $3 billion to OCI’s total.
The Old Standbys
Two of the advertised subsidies are old chestnuts that the environmental left has been harping on for decades: the deduction for intangible drilling costs and the expensing of percentage cost over depletion. The intangible drilling costs deduction is similar to the deduction other businesses receive for investments like R&D and expensing over depletion is analogous to depreciation expensing in other industries. Note these two tax provisions apply in only limited fashion and not at all, respectively, when it comes to large oil companies. These are not the subsidies for big oil companies of the left’s imagination. These two provisions, amounting to $3.8 billion of OCI’s total, have been endlessly debated elsewhere, so there is little to add here. Suffice it to say that the energy industry contends that these are the industry’s versions of provisions that are generally applicable, while OCI and the left disagree.
Conclusion
Whenever a report is released that is funded by the oil and gas industry, the left immediately dismisses it as biased because the funder has an interest in the outcome. Well what is this report? It is created by an organization dedicated to eliminating the use of coal, oil and natural gas. How is their report any less biased? Far from exposing hypocrisy in the oil and gas industry, that this report from OCI is accepted and reported uncritically serves more to expose the weakness of the arguments underlying the anti-development left.
Tomorrow I’ll take you deeper into the OCI study’s obfuscation as it pertains to supposed “lost” royalties and revenues.
