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President Barack Obama is calling for an end to tax breaks for oil companies to help finance clean-energy research projects. As part of our Environmental Outlook series, we look at the big business of oil subsidies and their role in U.S energy policy.
- Kate Gordon Vice president for energy policy at the Center for American Progress
- Jack Coleman Managing partner at EnergyNorthAmerica, LLC, and a former federal lawyer for energy policy issues.
- Amy Harder Reporter, The National Journal
MS. DIANE REHMThanks for joining us, I'm Diane Rehm. President Obama took a hard line against the oil and gas industry in his State of the Union Address. He called for an end to billions in taxpayer subsidies to oil companies. Instead, he wants to funnel that money to clean energy initiatives. For this month's "Environmental Outlook" series, we look into subsidies for the oil industry and how they fit into U.S. energy policy.
MS. DIANE REHMJoining me here in the studio is Amy Harder of The National Journal. Jack Coleman, he's with EnergyNorthAmerica, LLC and we have Kate Gordon at the Center for American Progress. Do join us, 800-433-8850. Send us your e-mail to firstname.lastname@example.org Feel free to join us on Facebook or send us a tweet. Good morning to all of you.
MS. KATE GORDONGood morning.
MR. JACK COLEMANGood morning.
MS. AMY HARDERGood morning.
REHMAnd Amy Harder, if I could start with you, how much money does go to the oil industry in the form of tax subsidies?
HARDERWell, first of all, thanks so much for having me on the show. About $4.5 billion goes to fossil fuel industries annually, to the industry. About $4 billion of that goes to the oil and gas industry.
REHMAnd what's it used for?
HARDERIt's used for a variety of things, expensing of exploration and development of fuels and some equipment as well. The industry points out that a lot of those subsidies go to corporations in general and so they should not be categorized as just oil and gas subsidies.
REHMWhy do they go to corporations?
HARDERWell, because it's a -- the 1099 is a tax credit that goes to all corporations, which include oil and gas industries.
REHMJack Coleman, who in particular gets the money?
COLEMANWell, these -- it all depends on which particular -- and I certainly don't agree that these are subsidies. These are typical business expenses that are allowed to be deducted by all businesses and frankly, our system in the United States for oil and gas tax treatment is standard around the world. These kinds of things are allowed to be deducted. Mainly, I think that the items that we're talking about today are used by the exploring and producing companies that go after and producing oil and gas in the United States.
REHMAnd Kate Gordon, I would assume from the president's statement at the State of the Union, he feels that the oil companies are doing just fine without any subsidies. Why did he call for an end to those subsidies now?
GORDONWell, I think a couple of things. First, in 2009, at the G20 Summit, he made a commitment, along with a number of other countries, to reduce oil subsidies and fossil fuel subsidies. That's a global commitment to try to reduce government support for fossil fuels in the face of a climate crisis and an economic crisis.
GORDONBut the second thing is, you know, government tax expenditures or tax credits like these are -- in general, it makes sense to use them for industries that are emerging or where we have a national interest in growing an industry. In this particular case, the oil and gas industry does not need help being ready for the market and making a profit. Exxon Mobil yesterday announced major profits two-thirds above last year. We just put out a paper yesterday at CAP showing that it costs about $10 a barrel to produce oil in offshore, from offshore wells off the Gulf of Mexico and we're selling for $90 a barrel.
GORDONInstability in Egypt just makes those profits bigger, so this is not an industry that needs, for instance, the domestic manufacturing tax credit. You can't do this manufacturing anywhere other than where the oil is. They do not need that kind of tax credit. They're making a lot of money as it is.
HARDERShe makes a good point and that's what President Obama has talked about as well, but there's a general theory out there, you know, that a deal as such as -- you know, I think back in 2002 then Sierra Club President Carl Pope and the president of the Cato Institute, Edward Crane, wrote an op-ed that actually wanted to get rid of all subsidies for all energy types, including renewable, even though they're, you know, a budding industry. But that line, that won't fly in Congress and so given the oil and gas subsidies exist, that's why there are groups pushing for subsidies for renewable energies, which do need some government support to get off the ground.
REHMJack Coleman, Kate Gordon talked about Exxon's announcement yesterday of a 53 percent fourth quarter increase in profit in the amount of $9.25 billion. Considering the fact that not only Exxon but Chevron and ConocoPhillips all made record profits, why does the industry continue to need subsidies?
COLEMANWell, once again, as I said earlier, I don't agree that these are subsidies. These are typical business expenses...
REHMTell me why you call them business expenses when the U.S. government calls them subsidies?
COLEMANWell, I wouldn't say that -- number one, the level of subsidies, I think that even if you consider them subsidies, which I don't, for oil and gas, is miniscule compared to other energy forms from the federal government.
REHMGive me an example?
COLEMANWell, for example EIA, Energy Information Administration, data shows that solar energy is subsidized at the amount of $24.34 per megawatt hour, wind is $23.37 per megawatt hour, whereas contrast natural gas and petroleum at 25 cents.
REHMOkay. Now, let me take you back one step, wind and solar, we know, are developing industries and the government, I think, would argue that that's why you need to subsidize wind and solar. Oil is right there. Oil has been there and oil is still getting substantial amounts of assistance.
COLEMANOnce again, the oil -- you talk about the profits from Exxon Mobil. The profits that these companies make pales in comparison to the taxes that they pay, 10 times the profits, so they are huge payers of taxes in the United States. I don't have the details for each one of them, but that's in the record and it's certainly verifiable. What I think is missing, once again, we need to get back to the fact that we have a tax model for business.
COLEMANIn business, for example a manufacturer, say he comes out with a new product. He hopes it's going to be profitable, it may not be. But by getting rid of these business deductions for oil and gas companies, you're basically saying to that manufacturer in equivalent situations, you don't get to write off your expenses if you don’t have a profitable product, for example.
REHMLet me turn to you, Kate Gordon. What about the tax question? How do you respond to that?
GORDONOn the question of whether these are business expenses, you know, I think that what we see here, and I'll go back to the earlier point, is government getting involved in an industry that's mature, that's market savvy, that's making a big profit and that's the existing infrastructure.
GORDONThe current tax credits and subsidies to oil, to wind and solar and other renewables have been, in general, part of a national effort to do a transition from oil and gas to different kinds of energy. Some of these oil and gas credits have been in place since 1913 when we had a World War I imperative to do more domestic oil and gas production. Those have been around for over 100 years, they are well in place -- for 100 years, they're well in place, whereas we have a new emerging set of industries that needs help.
GORDONNo one is arguing that wind and solar should have permanent subsidies. Everyone thinks that the German model, for instance, of phasing out subsidies for these technologies as they become mature and more profitable is the right way to go. We're just arguing the same model should be applied to oil and gas subsidies.
REHMSo Amy, of course, this isn't the first time that an administration or a president, even, George W. Bush called for an end or reduction in the subsidies, so where is the politics behind this?
HARDERYeah, this is -- President Obama, in his last two budget proposals, has called to end these subsidies to no avail. Congress has not and given the more conservative makeup of this Congress, will not again this year or in the next two years, end these subsidies. The House, of course, is controlled by Republicans now, who support more offshore drilling and do not support the end of subsidies despite their deficit hawk message resonating from the elections.
REHMThat's kind of a two-sided coin.
HARDERRight, and I have a story about that in our National Journal magazine this week about how they -- even the Tea Party groups, who are backing their elections, they want to end subsidies and cut spending across the board, but they say when pressed -- in my interviews for the story, they say that while we want ideally, we would have to look at all of these subsidies. But they won't go out and actually get rid of them even though when pressed, they don't have a really great answer.
GORDONThis is a tough issue. These are the largest companies in the world in many cases. These oil and gas companies are enormous and very powerful companies, huge amount of lobbying power in Congress, but it is a very interesting question. What happens when you have an ideology of budget cutting and fiscal responsibility and efficiency coming up against a very strong lobbying force in favor of things that have been on the books for 100 years, that no one can prove or actually change a business model? We will see a very interesting clash of ideologies there, I think.
REHMSo you're saying that even if these subsidies to oil companies were cut, you cannot necessarily assume that that money is going to go into wind and solar and other forms?
GORDONWell, there's two different issues. There's first the issue of, do they cut them at all and second, where do they go?
REHMKate Gordon, vice-president for energy policy at the Center for American Progress. Short break, right back.
REHMAnd we're back talking about oil industry subsidies that go back, as you said, Kate Gordon, probably 100 years or so. Here in the studio is Jack Coleman, he's managing partner at EnergyNorthAmerica, LLC. He's a former federal lawyer for energy policy issues. Amy Harder reports on energy and the environment for the National Journal, Kate Gordon is Vice-President for Energy Policy at the Center for American Progress. We will get to your calls in just a moment, 800-433-8850.
REHMHere's an e-mail and it goes as follows, "I see a parallel between this program and an earlier one on dietary guidelines. In both cases, it would seem our government is working at cross purposes. We subsidize the very things reasonable people agree we should limit, or at least not encourage, by making them cheaper. In diet, an example is subsidizing U.S. sugar production. In energy, it's subsidizing oil production. In each case, the good of the many is sacrificed for the benefit of the few." Jack Coleman.
COLEMANWell, I think, as I have said before, this subject is all about the wrong thing. These are not subsidies. Whether or not some of these business deductions have been in place in the tax code since 1913 is not the question. The question is, are we going to treat all businesses fairly -- all industries fairly? What this tax proposal is, is about penalizing one industry compared to other industries.
REHMHow do you see it penalizing an industry that has realized rather substantial profits?
COLEMANThe question is, are we going to allow business principles -- standard principles and tax law so that all businesses will know, yes, we can deduct our cost of doing business before we come up with our net profit and pay tax on this. What these policies are saying is, no, we're not going to allow one industry to deduct all of their business expenses before we tax them.
GORDONIt's not completely fair to say these are exactly the same as other deductions. The percentage depletion rule, for instance, which is so complicated, I won't even try to explain it, but I will say that it's a rule again in place for 100 years that allows oil and gas producers to take a larger deduction on each barrel of oil drilled that doesn't actually necessarily relate to how much is in the amount that they're drilling, so most businesses take a very different type of deduction. This is a larger deduction that, in some cases, can even exceed the amount of revenue that these companies are getting from each barrel, so...
HARDERTheir different comments highlight the fact that the oil and gas subsidies are engrained in a tax code, which unlike renewable energy subsidies, which have to be approved at the end of every year, every two years, it's much easier for those...
HARDER...to fall at the wayside, so to speak. There was a really big battle at the end of last year over the renewable energy and ethanol tax credits and that's something that the industry has to fight every single year or every two years. The oil and gas subsidies, on the other hand, are in the tax code, but that said, President Obama and members on both parties in Congress have shown an interest in reforming the tax code. And if that happens, there could be a legitimate chance that these oil and gas subsidies, as well as others, could be seriously examined.
REHMDo you agree?
GORDONYou know, this is a huge issue, absolutely. One of the reasons it's been so hard for renewable energies to get off the ground in this country is a lack of business certainty about where the government policy will be, where the fiscal policy will be on these issues. We see year by year renewals. The stimulus bill put a lot of money into these industries, but it's ending and Amy's exactly right that this allows for a huge amount of uncertainty looking at other countries that are frankly eating our lunch on clean energy technology development and production. They have much greater policy certainty and financial certainty for these markets than we've put in place here.
HARDERShe does raise a good point that certainty -- market certainty is a big problem or advantage in the energy industry. The renewable industry is struggling to gain a footing because it doesn't have the certainty. And that's -- there's other things other than just these subsidies that's creating the uncertainty. There's also the fact that the United States does not have a natural energy policy, such as any type of price on carbon emissions or any other larger goal. But given that's not going to be on the table for at least the next two years, the renewable energies are really holding onto these subsidies as if they're their last hope to regain a footing in the market.
COLEMANYes. Number one, this whole thing about certainty, just because the oil and gas industry -- the renewable industry doesn't have certainty, the argument seems to go that well, we should make the oil and gas industry not have certainty, either.
REHMWell, how does...
COLEMANWell, if you take away the certainty from the oil and gas and...
REHMThe certainty of what?
COLEMANWell, the certainty of the tax code provisions that we already -- that are already in the tax code permanently, versus these renewable tax code provisions, which are only in there for a year or two or three, so I mean, the argument...
REHMBut you guys have had it for 100 years.
COLEMANYes. But the fact is, this industry is -- opposed to what was said earlier, is not mature. We're talking about shale gas plays, which 10 years ago, we weren't producing any natural gas from shale gas plays in this country. That was not -- that is not mature. Research and development and technology advancements have allowed us to produce. And instead of being an importer of natural gas into this country 10 years ago, we are now -- we have more than 100 years worth of natural gas.
REHMWhat about his point on shale gas development, Kate?
GORDONNatural gas is doing extremely well right now. Natural gas is cheaper than coal, industries are switching to natural gas from coal all over the United States. It is probably the fastest growing fuel that we have. I don't think natural gas needs a particular carve out from the government to give it incentives to become more profitable or to develop more of it. It's another example of what do we want the -- what do we want government to be doing with industry and for how long? What is the role of government in thinking about new research and development, emerging industries, national priorities to transform from an extremely volatile energy system based on an extremely volatile set of resources into something more diversified and cleaner?
REHMAll right. We have lots of callers waiting. Let's go to the phones to Lake St. Louis, Mo. Good morning, Arthur.
REHMHi there. Go right ahead, sir.
ARTHURWhat subsidy, which I assume by that you mean a tax benefit, does Chevron get that General Electric does not get?
GORDONAgain, I would point to this percentage depletion rule, which is essentially a way that oil companies can reduce or take a deduction on a certain percent, it's about 15 percent of the revenue of every barrel of oil that they produce. That's a very different type of depletion rule than a normal business gets and ends up being a huge -- a fairly large subsidy. It's about 1.3 billion per year to the industry.
REHMWhat about electricity?
GORDONGeneral Electric, of course, gets tax breaks. Gets the -- the domestic manufacturing tax credit is across businesses. They certainly get that. One thing they would argue is that for General Electric that what that does is keep some of their manufacturing in the United States that would otherwise be off shored. Manufacturing of some of their systems and equipment. They do wind turbine generators for instance. In the case of oil and gas, there's a very legitimate question. Can you, in fact, offshore the manufacturing of a resource that exists in one geographic location?
COLEMANCertainly you could offshore it. The money -- the investment can go anywhere the company wants it to. The resource is around the world. If a U.S. company is being treated unfairly in the United States by a tax policy, then it certainly can invest somewhere else. It can go offshore if it wishes. One of the things that -- on this percentage depletion, though, all natural resource companies, not just oil and gas companies, where you have a base -- an asset base which goes away. It's just like an asset of any other company which depreciates. It is allowed to go away and it's drawn down against the tax basis of that asset.
COLEMANSo this is not anything new. Natural resource companies around the world enjoy and have this provision on percentage depletion. It's not just oil and gas, it's timber, it's other resources which go away. So this is -- to say this is just applying to oil and gas and it's some sort of special subsidy is not. Is a business tax treatment around the world.
REHMAll right. To Ann in Farmington, N.H. Good morning, Ann, go right ahead.
ANNThank you. I was in an environmental science course this past semester and we were doing a study on gas and oil. And BP and Exxon Mobil did not pay a dime in income tax the year 2009, despite making record profits, so I don't know what taxes this guy is saying they're paying and I was just curious.
COLEMANWell, I don't have the breakdown of -- well, I do have, but for example, one quarter -- in second quarter of 2008, for example, Exxon Mobil are in $11.68 billion in profits, but they paid $32.36 billion in taxes that quarter. They -- one of the things I think we should look at is the question the International Energy Agency...
REHMYou're saying -- excuse me.
REHMYou're saying that they paid more in taxes than they made in profits, so they came out with a net loss?
COLEMANNo. But they had tremendous -- there are other taxes other than just income taxes that these companies pay. Large taxes.
REHMBut how are the taxes different from the subsidies?
GORDONIt's an interesting question. The taxes that they pay out. They're getting tax credits on some of these taxes that they're paying. There's been a huge amount of controversy about the numbers that these companies put out in terms of the taxes that they're paying. And, you know, it's beyond my expertise to talk about exactly what they are. I do know that those numbers include sales taxes, property taxes, all kinds of areas that are beyond the income tax and corporate tax, which is what we usually think of. But the three largest oil companies in the last decade made over a trillion dollars in profit. I guarantee they did not pay $3 trillion in taxes.
REHMAmy, you have said that the president's statement struck people by surprise. How so?
HARDERIt did because he took -- his inclusion of a lot of things related to energy struck a lot of people by surprise. The fact that he was so -- that he was so explicit about these oil and gas subsidies took some people by surprise, especially coming up on his 2012 re-election campaign. You know, this isn't -- this did not make Jack Gerard, the President and CEO of American Petroleum Institute, very happy and it's not going to help, you know, in the oil and gas states, which is a good part of the country. And so that took people by surprise. And then also, for him calling for an 80 percent clean energy goal by 2035, that was also to put his endorsement behind a clean energy standard, so to speak, caught a lot of people by surprise as well.
REHMSo the U.S. Chamber of Commerce has also disagreed. What has congress done thus far?
HARDERRight. The U.S. Chamber put out a statement regarding President Obama's speech saying that it doesn't want the president to pick winners and losers. And that's essentially what they think the clean energy standard does, because it incentivizes clean sources over dirtier sources such as oil and coal.
REHMAmy Harder, she reports for the National Journal. You're listening to "The Diane Rehm Show." Kate Gordon.
GORDONSo the clean energy standard's an incredibly important issue and it was really significant that the president called for it in his speech. The clean energy standard is very similar to something every other country that we are competing with to become leaders in the world of innovation in manufacturing and production in inventions and clean energy technologies, all those countries have such a standard. China has a standard, the EU has a standard that says essentially a certain percent of all of the electricity produced in that country must come from renewable sources. China's extends that a little bit beyond wind, solar and geothermal and biomass.
GORDONBut the United States is strikingly absent from the list of countries that have put that in place as a priority. For that reason, many people in these industries believe our companies are suffering. We have not created the demand domestically for these industries that allows for wind, solar, geothermal, biomass companies to compete in this country. We're seeing...
REHMAnd why is that?
GORDONWell, what we're seeing them do, we essentially have not made a national commitment to a transformation of our energy system. We have not put a price on carbon. We have not put a renewable or a clean energy standard in place. We've barely even done national building codes, although we are a little better on that score. Other countries have done this and in other countries what that does is to essentially say there is going to be a market for your technologies into the future. We guarantee it because we are transforming our energy system. We are seeing companies leave this country to go to China. And not just China with, people will say, low labor costs, but to Germany with higher labor costs to the United States because we have no guaranteed market for these technologies.
HARDERThe clean energy standard is going to be one of the most focused on points in congress this year. It's interesting because he includes natural gas as part of that standard and I think that really changes the game a lot because natural gas, as Kate and Jack have said, is that it is already poised to gain an even stronger foothold. It's about 18 percent, almost 20 percent of the electricity production as we -- right now.
HARDERAnd so including natural gas could, some have said, push out the development of renewal energy. And that's -- and it also includes nuclear power and clean coal technology, which is not viable on a commercial scale yet. But Senate Energy Natural Resources Chairman, Jeff Bingaman, who will be writing this bill, has concerns about this standard and has not yet given it a full endorsement.
REHMSo Jack Coleman, if the U.S. subsidies went away for the oil industry, what would happen?
COLEMANWell, as I said, what you're talking about is taking away business deductions from the tax code. Obviously number one, it would be unfair treatment. Number two, we -- you would find that a lot less marginal oil and gas would be produced in this country.
REHMWhy is that?
COLEMANBecause if it's not economic and it's a low producing, well, you know, if these tax deductions are taken away, it may turn some of these wells into non-economic.
REHMI don't understand that. Is -- are you saying that if those subsidies tax deductions are taken away, then the industry might simply say, well, this is not sufficiently profitable for us to continue to drill here?
COLEMANThere are always -- all of these things will be looked at on a field-by-field basis. That's the way oil and gas industry works, so they do the economics, they determine what the after tax profit is and if it doesn't meet their needs, their standards for profitability, then they may not produce it.
REHMTell me again the...
REHM...profits that the oil industry made?
GORDONWell, I think there's two important points. One is per barrel. It costs -- per the EIA data -- again the Energy Information Administration costs about $10 to extract a barrel of oil from the Gulf, which is sold for about 90 at the moment. Those numbers, the profits are going up. The profits go up when there's world instability because that $10 number doesn't change, but the oil becomes more valuable when Egypt is in unrest and there's instability, so they're making $80 a barrel of profits, three -- a trillion for the three biggest companies over the past decade.
REHMKate Gordon of the Center for American Progress. Short break, right back.
REHMAnd we'll go right back to the phones now to Fennville, Mich. Good morning, Mark, you're on the air.
MARKGood morning. Seems to me that we really kinda think about this in a kinda backwards notion. We justify these tax treatments on the basis that it's a legitimate expense to deplete natural resources. Which, if you think about it, these companies did not create these natural resources, they simply exploit them, you know, and I don't underestimate the difficulty of this, but that ought to be passed on to the consumer of these resources in order to save them for future generations.
MARKWe're essentially subsidizing the ability of these corporations to more quickly deplete a one-time gift from providence that is rapidly running out and I would really encourage people to take a look at the issue of peak oil, the notion that we've essentially hit the maximum amount of oil that we're ever going to pump in a given year and that, you know, we're going to steadily and slowly run out of this resource and then it's going to get more expensive and more difficult to produce over time. You know, because of this, we ought to be doing everything we can in the economic sphere to slow the consumption of this oil to make it more expensive and more valuable and begin to transition to these new forms of energy.
MARKBecause, you know, you start looking at the scenarios of how things could play out as the oil supply tightens around the globe with more and more people...
REHMAll right, Mark.
MARK...and it really starts to get ugly.
REHMThank you. Jack Coleman.
COLEMANYes. I'm glad he brought up the question of peak oil. This really gets to the question of access to energy resources, natural resources, around the world and in the United States. There's certainly a mistaken understanding by many people that has been forced on them by those who don't want natural resource development of this country that we don't have abundant natural resources to provide energy in this country. That is just absolutely untrue. As I mentioned before earlier about shale gas, we now have over 100 years worth of natural gas reserves in this country, so with regard to oil resources, we're finding them all the time.
COLEMANThe Bakken Oil Shale up in North Dakota and Montana, that is probably 50 to 75 billion barrels, that alone would take care of the natural -- the consumption -- all the consumption in the United States for eight to 12 years without any other oil and gas from anywhere else. We also the third largest oil producing country in the world. We have 800 -- according to the RAN Institute, 800 billion barrels of oil that can be produced from Western Oil Shale. Once again, though, this administration is not allowing -- 70 percent of that's under federal lands and this administration's not allowing that to be accessed for leasing and development.
COLEMANThere's so many resources that we could talk about that are available for the American people that the American people own and could be used to pay the National Debt that was just -- went over 14 trillion. Just producing all the known oil and gas in the offshore would pay for $12 trillion of that $14 trillion National Debt.
GORDONYou know, I agree that there's abundant natural resources in the United States. We have unlimited wind and solar, for instance, plus geothermal power and those are unlimited resources without a time horizon and without the need to dig into the ground, to cut off the tops of mountains or to go three miles under the ocean floor to get at them. So I think there's a huge need to develop our natural resources, I would just diversify what those are.
REHMHere's a comment from Patrick in Severna Park, Md. Good morning to you.
REHMGo right ahead.
PATRICKMy comment -- my comment basically is that your guest, Jack Coleman, he seems to get that we're allowed to unlimitedly touch these natural resources, that just because they're there, we should use them. I mean, things like shale oil or, you know, other things like fracking in order to fracture to get natural gas out, are releasing radioactive elements in slurry form into the environment. And I'm not really someone who's like a gun-ho environmentalist who's like protesting, but this stuff is damaging water supplies and he wants us to keep going into it? I mean, I'm overweight and just because food's in front of me doesn't mean I have to eat it. And he basically is making an argument saying that, the food there, let's all eat it now.
COLEMANI'm sorry that you think that. Frankly, we're not talking about eating this now, we're talking about resources that we have in this country that could take care of our -- all of our needs for 100 to 300 years. So, you know, nothing's going to happen all at once and I've not said anything about not developing economic renewable resources, but they need to be economic. I've already given you, earlier in this program, the huge subsidies that go out per kilowatt hour to solar and wind. If this country wants to be noncompetitive in manufacturing, the fastest way to get there is to make a large percentage of our power come from renewable resources.
REHMHere's an interesting point from Phillip in San Antonio who says, "In light of the current economy and staggering debt and deficit, why not eliminate all subsidies for energy? Certainly makes sense for oil. And if wind, solar, geothermal sources are to succeed, let them develop and compete in the civilian market. That takes me back to the 100 years of subsidies. From the beginning, did the U.S. government offer tax relief and subsidies to the oil companies as they were beginning to develop resources?" Kate.
GORDONAbsolutely. The U.S. government has always incentivized sort of emerging technologies and energies and it's very -- I would certainly not advocate taking away all energy subsidies. You're talking about very different markets for very different technologies here. We have an existing infrastructure that's already been built with a lot of government help, the highway system, the rail system, the ports. We have and existing infrastructure that moves oil, gas, coal from place to place very efficiently and that also helps to extract it. You're talking about taking away subsidies for that as well as for emerging industries competing against that infrastructure with no price on carbon or other way to level the playing field.
GORDONNot a good idea if we're actually interested in making a transition to a new kind of energy system. Other countries that have been extremely -- to Jack's point, extremely economically profitable. Germany's a great example. The lowest unemployment rate in the EU, lower than the United States. Sixteen percent of its electricity right now comes from renewable sources and Germany is online to try to get to a much higher percentage in the next 10 to 20 years.
COLEMANGermany, though, is a very high cost manufacturing country. If that's what we want the United States to be, is only be able to afford very expensive manufactured products, to be able to make that here, then that's the method we could go to. But once again, you know, we have to think about a broad based -- and I'm not against financial support for R&D for new technologies. This is great, whether it's in oil and gas or whether it's in renewable energy, I do think the government has a real role there to help develop the technologies which will lower our cost, but -- and frankly, in oil and gas. New technologies are being developed all the time which make more and more oil and gas economic to produce in this country.
REHMThat's a good point, Kate. Why not continue to subsidize those new technologies?
GORDONWell, I think there's a couple things. First, we are in a budget constrained environment and we will have to make hard choices, but second, this isn't only about lowering the costs of all existing technologies. There are other interests at play, here. There's an environmental cost to high carbon extractive industries that we as a nation are having a hard time recognizing. But the fact is that even if we can't recognize it, the rest of the world to whom we are selling our products and technologies has recognized it. Even if we are not ready to admit Climate Change and Global Warming are a crisis, we're part of a global economy that would be buying our technologies and products, were we ready to start producing them and giving them the kind of help and encouragement that other countries have done.
HARDERPresident Obama has in the past gotten rid of the funding for the oil and gas R&D and has instead shifted in the fossil fuel realm, he has shifted a lot of that funding to clean coal technology, known as Carbon Capture and Sequestration, sort of an olive branch to the fossil fuel industry. And so he has gotten rid of a lot of the funding for the oil and gas and has instead, as he did in the State of the Union, shifted that funding to be for clean energy technologies.
REHMHere's something from Donny in Louisville, Ky., who says, "We're not even talking about how the oil companies are supported by our military, making sure the oil gets to us." What about that, Jack Coleman?
COLEMANWell, number one, oil and gas has been fueling and energizing the world. Now, you know, we talk about their business tax deductions for oil and gas is because that was the energy we had, coal, oil and gas. You know, there was no renewable energy 100 years ago, so there couldn't be any renewable energy tax deductions. Had there been, we would've had them. But yes, one of the things -- I do agree that yes, there are a lot of expenses in the National Defense Budget which are used to maintain security on the seas, not just for oil and gas, but for shipping in general. Pirates off the coast of Somalia are not just focusing on oil and gas tankers, they're focusing on tanker, you know, container ships, they focus on everything.
COLEMANYou have to have a strong navy to protect the United States' interest and the world's interest. But sure, I do believe that we should become more self-sufficient in North America. I was the principal drafter of a piece of legislation that became law in 2005 called the Set America Free Act, which set a standard for 25 years that we would be energy self-sufficient within Canada, Mexico and the United States using energy efficiency, renewable energy, oil and gas, coal, all of our energy resources.
GORDONI'm glad Don brought up the military because there's not just a financial cost, there's a human cost. I was at the Pentagon recently and heard the statistic that for every 40 runs of oil to fuel the outposts out in Iraq and Afghanistan, one person is usually killed, for each of those 40 trips that are taking new oil out. This is why the military has become a leader nationally in transitioning away from oil toward biofuels wherever possible and toward other types of renewable technologies. The military's actually a great example for the rest of us and it's very forward thinking on the national security implications of these choices.
REHMHere's an e-mail from Mike in Jacksonville, "Please inform your guests that business," pardon me, "expense deductions for oil companies doesn't sit any better with me than subsidies. How those deductions can be justified is beyond me. The oil companies play games with the public year after year by increasing prices around the holidays, during the summer months, always citing a supply shortage. We are not stupid, we know why things are the way they are, the rich want to get richer, plain and simple." Jack.
COLEMANWell, this issue of raising prices unilaterally without any justification has been investigated time, after time, after time by the federal government, has not found to be legitimate.
REHMHow does it happen? Why is it that during those peak times of usage, you get prices going up?
COLEMANPrice is how an economy rations use. When you go into the heavy driving season, and there's only a certain amount of refined product capacity in our refineries for gasoline and diesel, then the more pressure you put on that supply, the price goes up. This is not anything unusual, this is the way the world works in economics.
GORDONI don't necessarily agree that the companies are out to harm the consumer at times of peak driving. I do think, though, that this points to the problem that we talked about earlier which is this, this is an incredible volatile market. The prices go up for all kinds of reasons. The prices go up because Saudi Arabia's leadership changes, the prices go up because of riots in Egypt. The prices go up constantly. This is a very difficult thing to game, which is why we need to diversify.
REHMKate Gordon and you're listening to "The Diane Rehm Show." Let's go now to Cincinnati, Ohio and to Kenneth. Good morning to you.
KENNETHHello. Good morning. My question, I suppose, is specifically for Mr. Coleman. I have to ask whether, Mr. Coleman, you are aware of that you actually recognize and will admit that there is a planetary environmental crisis that we are, all of us on the same planet, in the midst of?
COLEMANWe're all on the same planet last time I looked, but I'm not certain that I would agree that we have a planetary crisis. There are issues that the world always has to deal with. There's not been a period of time since humans have been here that there haven't been. What I am trying to say is that we -- I think everyone knows that we are transitioning to a broader basket of energy sources. That needs to happen. It is going to inevitably happen.
REHMAnd considering the fact that 100 years ago, as the oil companies were just starting their research and development and received subsidies at the very beginning, doesn't it make sense, 100 years later, to again review that policy and perhaps look at other sectors of the industry that might need that money more than huge profit making companies like Exxon, like Chevron and so on?
COLEMANWell, let me just say again, these business deductions, for operating an oil and gas company, are very small compared to the overall economy and the overall tax base of this country, that's number one. Number two, I don't think that we should focus on any one industry. I think we -- if we (unintelligible)...
REHMBut we've been focusing on oil for an awfully long time.
COLEMANWe have not. We have had standard business deductions and business operating tax treatment, which has been not just for the oil and gas, but...
REHMNine percent as opposed to 30 percent that people who make in the upper incomes are making. The oil companies are paying nine percent in taxes?
COLEMANThe effective tax rate for oil and gas companies is 48 percent. That is the effective tax rate...
COLEMANCompared to 28 percent for the other standing (word?) industrials.
REHMOkay. And we'll have to have another program to define effective. And I want to thank you all so much. Amy Harder of National Journal, Jack Coleman, he's managing partner at EnergyNorthAmerica, LLC, Kate Gordon, she'd vice-president for Energy Policy at the Center for American Progress. Thank you all.
REHMAnd thanks for listening, I'm Diane Rehm.
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