If the oil subsidies went away

An oil refinery blow off stack in Texas City, Texas. The defeat of a U.S. Senate bill to end oil company subsidies leads us to wonder: What would actually happen if subsidies ended?

Kai Ryssdal: I read a blog post yesterday that pointed out the federal government could have bought the Los Angeles Dodgers for about half of what it gives to the oil industry in subsidies every year -- $2 billion was the sale price for the Dodgers. Not that Washington ought to buy the Dodgers, but it was a pretty good comparison all the same.

President Obama ventured down the slippery slope of oil subsidies today. Not for the first time, he asked Congress to get rid of 'em. The Senate later -- also not for the first time -- ignored him.

They rejected a bill that would've repealed billions in tax breaks for Big Oil. Nobody actually thought it would pass, but is there any harm in wondering what would happen if it had?

From the Marketplace Sustanability Desk, Sarah Gardner reports.


Sarah Gardner: If you ask the oil industry to imagine a future without oil subsidies, here’s what they see.

Rayola Dougher: It would have hampered job creation, it would have increased our imports.  It would have damaged the retirement security of millions of Americans.

And it could raise gas prices to boot, insists Rayola Dougher at the American Petroleum Institute. But oil analysts we talked to said ending subsidies would have little if any effect at the gas pump. Other “sky-is-falling” sort of predictions from the industry were taken with a grain of salt as well.

Energy expert Phil Verleger says the industry’s $2 billion a year in tax breaks is a “drop in the bucket” considering it raked in over $130 billion in profits last year.

Phil Verlager: Margins right now in the oil business are very high and so I can’t believe there’ll be any reduction in investment expenditures at all.

But analyst Kevin Book at Clear View Energy Partners says long-term, that $2 billion in subsidies is factored into these companies’ stock prices and management would have to make it up to shareholders somehow.

Kevin Book: Mostly that means they’re going to make new investments somewhere else but it also implies they might be cutting some of their investments here. They’re multi-nationals, they don’t have to invest here. They’ll go where the best return for shareholders is.

Book suspects some Republicans in Congress want to end oil subsidies but they’re waiting until the end of the year when they could trade their votes for an even bigger prize: extending the 2001 and 2003 Bush tax cuts.

I’m Sarah Gardner for Marketplace.

About the author

Sarah Gardner is a reporter on the Marketplace sustainability desk.

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