Center for American Progress
By Daniel J. Weiss and Jackie Weidman
Time magazine reported in December that “2012 will go down as most expensive year ever for gas.” The Energy Information Administration determined that gasoline averaged $3.63 per gallon—a dime per gallon more than the previous record set in 2011. The Energy Information Administration (EIA) reported that high gasoline prices were due to high crude oil prices—“with crude oil accounting for 66 percent of the retail cost of gasoline.”
Not surprisingly, higher gasoline prices took a bigger bite out of families’ budgets in 2012. According to data recently released by the EIA:
Gasoline expenditures in 2012 for the average U.S. household reached $2,912, or just under 4 percent of income before taxes. … this was the highest estimated percentage of household income spent on gasoline in the last decade, with the exception of 2008, when the average household spent a similar amount. Although overall gasoline consumption has decreased in recent years, a rise in average gasoline prices has led to higher overall household gasoline expenditures.
Where does all of this money go? Into the pockets of Big Oil, of course. While higher gasoline prices caused families pain at the pump, they were a boon to the world’s five largest oil companies. BP, Chevron, ConocoPhillips, ExxonMobil, and Shell made a combined $118 billion in profits in 2012, or an average of almost $500 in profit for every one of the nearly 250 million passenger vehicles on the road in the U.S. This huge 2012 haul follows the big five oil companies’ record profit of $137 billion in 2011. Download full data on Big Oil’s profits and activities in 2012.
Below we dig a little deeper into the big five’s latest earnings—including how they spent them—and explain why companies this profitable should not be receiving billions of dollars in tax breaks, especially when conservatives plan severe cuts in vital middle-class programs, including Medicare, education and cancer research.
Sitting on drilling leases
Despite their huge 2012 profits and their $70 billion in capital reserves, the big five oil companies actually produced less oil in 2012 compared to 2011. These five companies each have several hundred idle offshore leases that could produce oil if they were developed, according to an analysis for Rep. Ed Markey (D-MA).* This report found that “ExxonMobil, BP, Shell, Chevron, and ConocoPhillips, hold full or partial shares in more than 1,500 of these idle federal drilling leases spanning almost 8 million acres … according to previously undisclosed data obtained from the U.S. Department of Interior.”
Boosting the bottom line
While not investing in producing oil from their idle leases, four of the companies—all but BP—spent $42 billion, or one-third of their profits, repurchasing their stock. This practice enriches shareholders but it doesn’t add to oil supplies or to investments in alternative fuels or other new technologies.
The big five oil companies invested nearly $50 million of their abundant bounty to lobby Congress in 2012. They spent nearly $8 million on federal campaign contributions, with Republican candidates receiving $4 for every $1 donated to Democrats. A major goal of these political efforts was to retain their special tax breaks, which annually are worth $2.4 billion, according to the Congressional Joint Committee on Taxation. Last March Big Oil successfully lobbied against a Senate bill to eliminate the special tax breaks. The bill was defeated by a vote of 51-47, with 60 votes needed for passage.
These special tax provisions are part of what makes the oil and gas industry the most heavily subsidized energy source in the world over the past 100 years, according to “What Would Jefferson Do?,” a study by the venture capitalist firm DBL Investors. It determined that the oil industry received a total of $446 billion in government subsidies from 1918 through 2009. Meanwhile, the renewable energy industry received $5.5 billion over the past 15 years. U.S. taxpayers invested $80 in oil for every $1 invested in clean, renewable energy.
Jack Gerard, head of the American Petroleum Institute, repeatedly claims that “The oil and gas industry gets no subsidies, zero, nothing,” but this ignores reality. Economists recognize that there is no meaningful difference between tax expenditures and programs that spend money directly. President Ronald Reagan’s chief economic advisor, economist Martin Feldstein, noted that “These tax rules—because they result in the loss of revenue that would otherwise be collected by the government—are equivalent to direct government expenditures. If Congress is serious about cutting government spending, it has to go after many of them.”
Moreover, contrary to claims by Big Oil lobbyists, the big three publicly owned U.S. oil companies—ExxonMobil, Chevron and ConocoPhillips—paid relatively low federal effective tax rates in 2011. Reuters reports that their tax payments were “a far cry from the 35 percent top corporate tax rate.” Their effective federal tax rates in 2011 were: ExxonMobil, 13 percent; Chevron, 19 percent; and ConocoPhillips, 18 percent.
Sen. Lisa Murkowski’s (R-AK) just-released energy plan argues that these special oil tax breaks should be retained because they help “companies’ ability to make the capital expenditures needed to bring re‐sources to market.” This claim ignores that the big five oil companies have $70 billion in cash reserves—ample capital to bring oil to the market.
Maintaining the existing special tax breaks for the big five oil companies makes little sense. In essence, the policy allows Big Oil to force Americans to pay them twice: first at the pump for high gasoline prices, and again by robbing the U.S. Treasury of $2.4 billion annually—money that is replaced with tax revenue from the middle class. After posting enormous profits in 2012, elimination of these unnecessary special tax breaks for the largest oil companies is long overdue.
Visit EcoWatch’s ENERGY page for more related news on this topic.
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Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress. Jackie Weidman is a Special Assistant at the Center.
* According to the report, “The definition of idle, or inactive, leases used in this report is the same definition used by the Department of Interior. According to the department, idle leases are those leased areas that are not producing and have no approved exploration or development plan. Certain activities such as geophysical and geotechnical analysis, including seismic and other types of surveys, may be going on in some of these areas.”
Though made in large part of plastic, glass, ceramics, gold and copper, they also contain critical resources. The gallium used for LEDs and the camera flash, the tantalum in capacitors and indium that powers the display were all pulled from the ground — at a price for nature and people.
"Mining raw materials is always problematic, both with regard to human rights and ecology," said Melanie Müller, raw materials expert of the German think tank SWP. "Their production process is pretty toxic."
The gallium and indium in many phones comes from China or South Korea, the tantalum from the Democratic Republic of Congo or Rwanda. All in, such materials comprise less than ten grams of a phone's weight. But these grams finance an international mining industry that causes radioactive earth dumps, poisoned groundwater and Indigenous population displacement.
Environmental Damage: 'Nature Has Been Overexploited'
The problem is that modern technologies don't work without what are known as critical raw materials. Collectively, solar panels, drones, 3D printers and smartphone contain as many as 30 of these different elements sourced from around the globe. A prime example is lithium from Chile, which is essential in the manufacture of batteries for electric vehicles.
"No one, not even within the industry, would deny that mining lithium causes enormous environmental damage," Müller explained, in reference to the artificial lakes companies create when flushing the metal out of underground brine reservoirs. "The process uses vast amounts of water, so you end up with these huge flooded areas where the lithium settles."
This means of extraction results in the destruction and contamination of the natural water system. Unique plants and animals lose access to groundwater and watering holes. There have also been reports of freshwater becoming salinated due to extensive acidic waste water during lithium mining.
But lithium is not the only raw material that causes damage. Securing just one ton of rare earth elements produces 2,000 tons of toxic waste, and has devastated large regions of China, said Günther Hilpert, head of the Asia Research Division of the German think tank SWP.
He says companies there have adopted a process of spraying acid over the mining areas in order to separate the rare earths from other ores, and that mined areas are often abandoned after excavation.
"They are no longer viable for agricultural use," Hilpert said. "Nature has been overexploited."
China is not the only country with low environmental mining standards and poor resource governance. In Madagascar, for example, a thriving illegal gem and metal mining sector has been linked to rainforest depletion and destruction of natural lemur habitats.
States like Madagascar, Rwanda and the DRC score poorly on the Environmental Performance Index that ranks 180 countries for their effort on factors including conservation, air quality, waste management and emissions. Environmentalists are therefore particularly concerned that these countries are mining highly toxic materials like beryllium, tantalum and cobalt.
But it is not only nature that suffers from the extraction of high-demand critical raw materials.
"It is a dirty, toxic, partly radioactive industry," Hilpert said. "China, for example, has never really cared about human rights when it comes to achieving production targets."
Dirty, Toxic, Radioactive: Working in the Mining Sector
One of the most extreme examples is Baotou, a Chinese city in Inner Mongolia, where rare earth mining poisoned surrounding farms and nearby villages, causing thousands of people to leave the area.
In 2012, The Guardian described a toxic lake created in conjunction with rare earth mining as "a murky expanse of water, in which no fish or algae can survive. The shore is coated with a black crust, so thick you can walk on it. Into this huge, 10 sq km tailings pond nearby factories discharge water loaded with chemicals used to process the 17 most sought after minerals in the world."
Local residents reported health issues including aching legs, diabetes, osteoporosis and chest problems, The Guardian wrote.
South Africa has also been held up for turning a blind eye to the health impacts of mining.
"The platinum sector in South Africa has been criticized for performing very poorly on human rights — even within the raw materials sector," Müller said.
In 2012, security forces killed 34 miners who had been protesting poor working conditions and low wages at a mine owned by the British company Lonmin. What became known as the "Marikana massacre" triggered several spontaneous strikes across the country's mining sector.
Müller says miners can still face exposure to acid drainage — a frequent byproduct of platinum mining — that can cause chemical burns and severe lung damage. Though this can be prevented by a careful waste system.
Some progress was made in 2016 when the South African government announced plans to make mining companies pay $800 million (€679 million) for recycling acid mine water. But they didn't all comply. In 2020, activists sued Australian-owned mining company Mintails and the government to cover the cost of environmental cleanup.
Another massive issue around mining is water consumption. Since the extraction of critical raw materials is very water intensive, drought prone countries such as South Africa, have witnessed an increase in conflicts over supply.
For years, industry, government and the South African public debated – without a clear agreement – whether companies should get privileged access to water and how much the population may suffer from shortages.
Mining in Brazil: Replacing Nature, People, Land Rights
Beyond the direct health and environmental impact of mining toxic substances, quarrying critical raw materials destroys livelihoods, as developments in Brazil demonstrate.
"Brazil is the major worldwide niobium producer and reserves in [the state of] Minas Gerais would last more than 200 years [at the current rate of demand]," said Juliana Siqueira-Gay, environmental engineer and Ph.D. student at the University of São Paulo.
While the overall number of niobium mining requests is stagnating, the share of claims for Indigenous land has skyrocketed from 3 to 36 percent within one year. If granted, 23 percent of the Amazon forest and the homeland of 222 Indigenous groups could fall victim to deforestation in the name of mining, a study by Siqueira-Gay finds.
In early 2020, Brazilian President Jair Bolsonaro signed a bill which would allow corporations to develop areas populated by Indigenous communities in the future. The law has not yet entered into force, but "this policy could have long-lasting negative effects on Brazil's socio-biodiversity," said Siqueira-Gay.
One example are the niobium reserves in Seis Lagos, in Brazil's northeast, which could be quarried to build electrolytic capacitors for smartphones.
"They overlap the Balaio Indigenous land and it would cause major impacts in Indigenous communities by clearing forests responsible for providing food, raw materials and regulating the local climate," Siqueira-Gay explained.
She says scientific good practice guidelines offer a blueprint for sustainable mining that adheres to human rights and protects forests. Quarries in South America — and especially Brazil — funded by multilaterial banks like the International Finance Corporation of the World Bank Group have to follow these guidelines, Siqueira-Gay said.
They force companies to develop sustainable water supply, minimize acid exposure and re-vegetate mined surfaces. "First, negative impacts must be avoided, then minimized and at last compensated — not the other way around."
Reposted with permission from DW.