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Costly Oil Subsidies Drag Us Down; Clean Energy Investments Will Build a Healthier Economy

Peter Lehner

Posted December 13, 2012

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In the prolonged showdown over the fiscal cliff, Democrats and Republicans claim to agree on two goals – reducing the deficit, and doing so in a way that builds a stronger economy in the long run. A sensible approach toward energy would contribute to those outcomes by saving money, creating good, middle class jobs, and reducing pollution that impacts the health of our communities and our pocketbooks.  

As the President has repeatedly and rightly made clear, any realistic budget plan must include substantial new revenues. A good place to start would be putting an end to a hundred years of handouts to Big Oil. Thus far in 2012, the oil industry has pulled in $90 billion in profit. That’s $304 million every day flowing to one of the world’s most profitable industries. You wouldn’t think such an enterprise would need to rely on public largesse.     

Yet Big Oil continues to be subsidized by the American taxpayer even as automatic budget cuts loom. The President has identified approximately $4 billion annually in tax loopholes for oil and gas companies that should be closed, and that has been echoed in the House, where 70 Democrats recently wrote to Speaker Boehner, urging him to eliminate these wasteful subsidies.

But that represents only the tip of the iceberg. A more comprehensive approach to ending handouts to dirty energy could produce much more taxpayer savings. For example, oil companies routinely exploit an accounting method known as Last In First Out Accounting to minimize their tax liability when oil prices are high and Americans are suffering. Oil and gas companies also generate unfair windfall profits using a loophole in the Foreign Tax Credit that allows them to claim benefits that exceed the policy’s intent. When added to the other fossil subsidies, these two items alone would nearly double the budget benefits to almost $80 billion over ten years. However, Congress should go even further and take a hard look at oil and gas royalties, our mining laws, and coal leasing programs which have historically padded the pockets of polluters at the expense of taxpayers, as highlighted in a GAO report released this week. 

Moreover, ending oil and other dirty energy giveaways would do more than reduce taxpayer’s burden. It would also begin to address a much bigger drag on our economy—the hidden costs of our dirty energy infrastructure. By choosing to invest in clean energy and stopping oil subsidies, Congress can start building an economy that is cleaner, healthier, and made to last.

The National Academy of Sciences estimates that the total public health cost of fossil fuel use in the United States—burning it in our power plants and gas tanks--is $120 billion annually.  Pollution from fossil fuels makes our children sick and drives extreme weather that costs the nation billions in destroyed homes, lost crops, crippled infrastructure, and devastated communities.

At a time when every federal dollar counts, it’s time to take a hard look at subsidies that do nothing to strengthen our economy while undermining the health and welfare of America’s families and communities.

The second step to addressing the fiscal cliff is to continue investing in what works. Job growth is critical to our economic health, and dollar for dollar, clean energy investments produces four times as many jobs as fossil fuel investments. Employment data show that the clean energy industry is a powerful job creator, with a growth rate of nearly 11 percent from 2003 to 2010. These are local, hands-on jobs, like building components for cleaner cars and wind turbines, installing solar panels, and weatherizing homes. These are jobs that can transform and revitalize communities, from manufacturing hubs to farm towns. The wind industry alone has doubled in size since 2009, and supports 75,000 jobs in 44 states. The big five oil companies, on the other hand, laid off nearly 11,000 people from 2005 to 2010.

From a purely economic perspective, our investments in clean energy have paid off. The cost of wind energy has come down 38 percent since 2008; solar is nearly half the price it was in 2010. The cost of oil, however, has been on upward trend for the past decade, even as U.S. oil production has increased. No Congressional maneuver can put the brakes on the oil price roller coaster. We can, however, help reduce the cost of clean energy and create more green jobs by continuing to support programs such as the Production Tax Credit for renewable energy.

And unlike oil, clean energy protects our health. Our current wind energy production prevents the release of 65 million tons of carbon dioxide, 75,000 metric tons of sulfur dioxide emissions and 50,000 metric tons of nitrogen oxide emissions annually—emissions that are linked to cancer, lung disease, heart attacks, asthma, and climate disruption. That makes moving toward clean, renewable energy sources that enjoy bipartisan support even more fiscally prudent when you calculate the true cost of dirty energy. 

Congress should capitalize on this important opportunity to negotiate a clean route off the fiscal cliff. That means ending handouts to dirty energy and supporting clean energy policies that are helping to create jobs and protect the health of all Americans.

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CBC NewsDec 13 2012 11:11 PM

Oil price gap costing Canada billions

The wide gap between oil’s global benchmark price and what Canadian producers can get for their oil is costing Canada $2.5 billion a month, according to new research that sees the spread remaining for years even if new pipelines are built.

Normally, the price gap between Brent North Sea oil and Western Canada Select oil is $10 to $15 a barrel, says Charles St-Arnaud, an analyst at Nomura Securities. But currently, that spread is a near-record $50 a barrel.

“The significant spread is due to a lack of possible export markets for Canadian oil and this situation will likely persist until Canadian oil manages to flow into export ports or areas of demand in North America,” St-Arnaud says in his report.

He notes that Canada imports more than 40 per cent of the oil it consumes, even though it is a big exporter of oil. “This is the result of the pipeline network that brings oil from the Western provinces to the U.S. Midwest, with no branch bringing oil to the eastern part of the country.”

The oil Canada imports is priced at lofty Brent levels, while Canadian producers have to sell their oil at a big discount. “Oil flowing from Canada to the U.S. is viewed as oversupply, depressing the price for Canadian oil,” he says.

Oil glut in the U.S.
The surge in oil production in the U.S., refining disruptions and a pipeline network that isn’t quite up to the job are all combining to force down prices for Canadian producers, with the result that the larger-than-usual price gap is now costing Canadian producers $30 billion a year in lost revenue.

A sign showing opposition to the $5.5-billion Enbridge oil pipeline from Alberta to the northwest coast of British Columbia sits on a property in Kitimat, B.C. (Darryl Dyck/Canadian Press)A revenue loss of that size translates into weaker corporate profits, lower tax revenues for government and a lingering drag on Canadian growth that amounts to 1.6 per cent of GDP, he estimates.

There are no quick or easy solutions to the price spread problem, St-Arnaud says. He notes that many of the various proposals to deal with delivery problems – the Keystone XL pipeline from Alberta south to the Gulf of Mexico, the Northern Gateway pipeline from Alberta to Kitimat, B.C., increasing the capacity of the TransMountain pipeline that runs from Alberta to Vancouver, and the reversal of Line 9 between Sarnia, Ont., and Montreal – carry some political and/or environmental opposition.

Even if new pipeline infrastructure does get built, St-Arnaud says most of the projects are unlikely before 2015, leading him to forecast that the divergence of the Canadian price of oil “will persist for some years.”

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