Quantcast
Energy

Despite $93 Billion in Profits, Big Oil Demands Continued Tax Breaks

By Daniel J. Weiss and Miranda Peterson

The 2013 profit totals are in for the big five oil companies—BP, Chevron, ConocoPhillips, Exxon Mobil and Shell. Their financial reports indicate that they earned a combined total of $93 billion last year, or $177,000 per minute. After years of oil production declines, the big five oil companies actually increased their total production in 2013, predominately due to BP and ConocoPhillips almost doubling their total production.

Photo courtesy of Shutterstock

The companies’ higher oil production yet lower profits indicate that it is becoming more expensive to produce oil as the number of newer, easier and cheaper fields shrink. This is why, despite their outsized earnings, the oil companies are not only fighting to keep their tax breaks but also lobbying to lift the crude oil export ban. But doing so could hurt working families, our economy, and our energy security. Instead, we need to invest in cleaner transportation alternatives.

As mindboggling as it sounds, Big Oil’s $93 billion in profits in 2013—impressive by any standard—were nonetheless a 27 percent reduction in profits compared to 2012, primarily because gasoline averaged 16 cents per gallon—or four percent—less. Despite the decreases, Exxon Mobil, Shell and Chevron still had the first, seventh and eighth, respectively, highest profits of any global public company on the 2013 Fortune 500 list. BP finished 30th, while ConocoPhillips ranked 50th, mostly because it spun off its refining business partway through 2012.

It would not be surprising if the big five oil companies use their 2013 decline in profits as another excuse to pressure Congress to retain their $2.4 billion-per-year tax breaks. The largest of these special provisions allows these companies to qualify for the “limitation on section 199 deduction attributable to oil, natural gas, or primary products,” which will cost taxpayers $14.4 billion over 10 years, according to the Congressional Joint Committee on Taxation. This tax break was enacted in 2004 and was designed to encourage manufacturing to remain in the U.S. rather than move overseas. It ought not apply to oil and natural gas production since the oil and gas fields cannot be moved to another nation.

The Joint Committee on Taxation found that the second-largest deduction was for “modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers.” This provision is worth $7.5 billion over 10 years. Seth Hanlon, former Director of Fiscal Reform at the Center for American Progress, best describes why this tax break is unwarranted:

Our tax system allows companies that do business abroad to reduce from their tax bill any income taxes paid to other governments. The rules are supposed to prevent oil companies from claiming credit for royalty payments to foreign governments. Royalties are not taxes; they are fees for the privilege of extracting natural resources.

… oil companies have been permitted to claim credits for certain payments to foreign governments, even in countries that generally impose low or no business tax (suggesting that these payments, or levies, are in fact a form of royalty). Dual capacity taxpayer rules, therefore, are a subsidy for foreign production by U.S. oil companies.

The decline in profits is also why the American Petroleum InstituteExxon Mobil, and other oil companies are lobbying to lift the crude oil export ban, which would enable them to sell their domestic oil at the world, or Brent, price that fetched nearly $10 per barrel more than the domestic, or West Texas Intermediate, price on Feb. 7. Lifting the ban would force the U.S. to import more expensive foreign oil to replace the exported domestic oil, which could raise gasoline prices. Banking giant Barclays Plc predicts that lifting the current ban could add $10 billion annually to gasoline prices paid at the pump.

If there is any good news here for American families and businesses, it is that gasoline prices, which hit a record high in 2012, were lower in 2013. This cut at the pump reduced the average household’s annual gasoline expenditures.

The fact that profits decreased in 2013 despite production increasing calls into question the big five companies’ reliance on finding and developing more difficult, dangerous oil fields—such as those in the Arctic Ocean. It is fairly clear that such a business model is not economically sustainable. Instead, they—and we—could benefit from greater investment in cleaner, alternative transportation technologies.

Of course, when it comes to spending their money, the priorities of oil companies are fairly obvious. All of the companies, except for ConocoPhillips, spent a combined total of $32 billion, or nearly 40 percent of their total profits, to repurchase their own stock. This increases the value of the remaining shares, providing a bounty to senior executives, boards of directors and other large shareholders. The CEOs of these five companies had a combined compensation of $96 million in 2012, the last year for which data are available, or nearly $20 million per CEO. This is nearly 400 times greater than the $51,107 median income for a family of four during that same year. These five major oil corporations also spent $45 million on lobbying in 2013; every $1 spent on lobbying helped the companies protect $53 of their tax breaks—an outstanding rate of return.

In addition to receiving unjustified tax breaks, the big five oil companies also benefit from the lack of federal limits on carbon pollution generated by oil and gas production, transportation, and refining. The U.S. Environmental Protection Agency reported that “petroleum and natural gas systems” and refiners were the second- and third-largest sources of carbon and other climate pollution among the major industrial sectors that must report their emissions. Since there are no federal limits on this pollution, American families and businesses must bear the costs of more climate pollution, such as damages from extreme weather events, heightened smog and tropical diseases. These—and other—oil companies can dump their carbon and other climate pollution in the sky for free. And at our expense.

Despite the decline in profits in 2013, BP, Chevron, ConocoPhillips, Exxon Mobil and Shell are some of the richest, most profitable companies in the world. They produce a valuable commodity that is essential to our economy. However, their proposal to eliminate the crude oil export ban, their battle to keep some unnecessary federal tax breaks, and their uncontrolled climate pollution all could or do impose real costs on American families. It’s up to President Obama and Congress to retain and adopt policies that benefit all Americans, not just Big Oil’s bottom line.

Visit EcoWatch’s ENERGY page for more related news on this topic.

Show Comments ()

EcoWatch Daily Newsletter

Sponsored
Champurrado (Mexican hot chocolate) is a beloved holiday favorite. PETA

8 Festive Vegan Drinks to Keep You Cozy This Winter

By Zachary Toliver

Looking for warm vegan holiday drinks to help you deal with the short days and cold weather? This time of year, we could all use a steamy cup of cheer during the holiday chaos. Have a festive, cozy winter with these delicious options. (Note that you must be 21 to enjoy some of the recipes.)

Keep reading... Show less
Popular
Pexels

For a Happier, Healthier World, Live Modestly

By Marlene Cimons

Gibran Vita makes every effort to get rid of the dispensable. He lives in a small home and wears extra layers indoors to cut his heating bills. He eats and drinks in moderation. He spends his leisure time in "contemplation," volunteering or working on art projects. "I like to think more like a gatherer, that is, 'what do I have?' instead of 'what do I want?'" he said.

Keep reading... Show less
Climate
An underwater marker in front of Cortada's studio helps predict how many feet of water needs to rise before the area becomes submerged. Xavier Cortada

As Miami Battles Sea-Level Rise, This Artist Makes Waves With His 'Underwater Homeowners Association'

By Patrick Rogers

Miami artist Xavier Cortada lives in a house that stands at six feet above sea level. The Episcopal church down the road is 11 feet above the waterline, and the home of his neighbor, a dentist, has an elevation of 13 feet. If what climate scientists predict about rising sea levels comes true, the Atlantic Ocean could rise two to three feet by the time Cortada pays off his 30-year mortgage. As the polar ice caps melt, the sea is inching ever closer to the land he hopes one day to pass on to the next generation, in the city he has called home since the age of three.

Keep reading... Show less
Food
GMVozd / E+ / Getty Images

How to Ferment Vegetables in Three Easy Steps

By Brian Barth

A mason jar packed with cultured or fermented vegetables at your local urban provisions shop will likely set you back $10 to $15. Given that the time and materials involved are no more than five minutes and $2, respectively, one imagines that the makers of cultured vegetables have spent eight years training with fermentation masters in some stone-age village, or that they've mortgaged their house to pay for high-end fermenting equipment to ensure that the dilly beans come out tasting properly pickled.

Keep reading... Show less
Sponsored
Popular
Orangutan in Sumatra. Tbachner / Wikimedia Commons

Norway to Ban Deforestation-Linked Palm Oil Biofuels in Historic Vote

The Norwegian parliament voted this week to make Norway the world's first country to bar its biofuel industry from importing deforestation-linked palm oil starting in 2020, The Independent reported.

Environmentalists celebrated the move as a victory for rainforests, the climate and endangered species such as orangutans that have lost their habitats due to palm oil production in Indonesia and Malaysia. It also sets a major precedent for other nations.

Keep reading... Show less
Oceans
Australia's Great Barrier Reef. Steve Parish/ Lock the Gate Alliance / Flickr / CC BY 2.0

Scientists Discover 'Most Diverse Coral Site' on Great Barrier Reef

Australian scientists have found the "most diverse coral site" on the Great Barrier Reef, observing at least 195 different species of corals in space no longer than 500 meters, The Guardian reported.

The non-profit organization Great Barrier Reef Legacy and marine scientist Charlie Veron, a world expert on coral reefs, confirmed the diversity of the site, also known as the "Legacy Super Site" on the outer reef.

Keep reading... Show less
Sponsored
Renewable Energy
Buses head out at the Denver Public Schools Hilltop Terminal Nov. 10, 2017. Andy Cross / The Denver Post via Getty Images

Why Aren't School Buses Electric? These Coloradans Are Sick of Diesel

By Corey Binns

Before her two kids returned to school at the end of last summer, Lorena Osorio stood before the Westminster, Colorado, school board and gave heartfelt testimony about raising her asthmatic son, now a student at the local high school. "My son was only three years old when he first suffered from asthma," she said. Like most kids, he rode a diesel school bus. Some afternoons he arrived home struggling to breathe.

Keep reading... Show less
Popular
jessicahyde / iStock / Getty Images

Hemp May Soon Be Federally Legal, But Many Will Be Barred From Growing It

By Dan Nosowitz

Senate majority leader Mitch McConnell has, perhaps unexpectedly to those who find themselves agreeing with only this one position of his, been a major force for legalizing industrial hemp. Industrial hemp differs from marijuana in that it's bred specifically to have extremely low concentrations of THC, the primary psychoactive chemical in marijuana; smoke industrial hemp all you want, it'll just give you sore lungs.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!