Drilling into Big Oil for renewable energy funds

Sam Eaton Jan 10, 2007

KAI RYSSDAL: Higher oil royalties or not, House Democrats are putting the finishing touches on an energy package that isn’t likely to pull any punches. From the Marketplace Sustainability Desk, Sam Eaton has this look at what’s in store for Big Oil.

SAM EATON: Being an oil company right now is a little like being a corporate version of the Hollywood socialite, Paris Hilton. Fat with cash, easy to hate. In Washington, Big Oil has become a target newly empowered Democratic lawmakers — including Harry Reid, Steny Hoyer and John Kerry — can’t resist.

HARRY REID: For too long our country’s energy policy has had only one concern: oil company profits.

STENY HOYER: We’re gonna make sure that we’re not subsidizing oil companies.

JOHN KERRY: There is simply no way to drill our way out of this crisis, we have to invent our way out of it.

One the first casualties in the House Democrats’ energy package due out next week is likely to be the repeal of a 2004 tax cut for the oil industry. Representative Jim McDermott introduced a similar proposal last year that failed. He says this time around the voters have spoken.

JIM MCDERMOTT: Well, this is a downpayment given to us by the American people to make change in the society. And one of the areas that we have to deal with is our addiction to oil.

House democrats hope to divert billions of dollars into a renewable energy fund by rolling back subsidies for Big Oil — everything from the $10 billion in fudged royalty payments to the billion dollars of oil incentives built into the 2005 Energy Policy Act.

Critics of the Democrats’ plan have expressed doubts that anything other than rhetoric will come of this. Former Democratic Representative Phil Sharp now heads the D.C. think tank, Resources for the Future. He says the oil industry may not get off the hook that easily.

PHIL SHARP: If the House adopts real proposals over those 100 hours, those are ready for action then in the U.S. Senate. In the past, that would have taken months to have gotten to that stage. So I don’t think one can trivialize this.

House Democrats have yet to determine how the renewable energy fund would be used. The challenge, Sharp says, is making sure the policies they set in place are the right ones. First on Sharp’s list is capping carbon dioxide emissions, the main contributor to global warming. He says that would put a higher price tag on burning fossil fuels, driving market forces to come up with the most cost-effective alternatives.

But Big Oil’s lobbying group, the American Petroleum Institute, is crying foul. The Institute’s chief economist, John Felmy, compares Democrats’ efforts to recover royalties from the botched lease sales to places like Russia and Latin America where contracts aren’t always honored.

JOHN FELMY: This is not Bolivia. This is the United States of America that we rely on contracts and we rely on agreements between two parties. We think it’s wrong to force renegotiations.

Felmy also believes Congress’s attacks on oil subsidies are misguided. He says the oil industry only receives about a billion dollars in direct subsidies. As for the tens of billions of dollars in tax breaks and waived royalty payments? Doesn’t count.

FELMY: They’re incentives to take massive risk in drilling in thousands of feet of water and possibly coming up with nothing. You need to incentivize industry because, ultimately, we have to do prudent things for our shareholders.

But a semantic debate over the difference between subsidies and incentives isn’t likely to be the biggest battle the House Dems energy plan sparks. Some Democratic leaders are calling for hearings on how to best divvy up the billions of dollars that would go into the alternative energy fund. And that’s a move that’s likely to set off a feeding frenzy among the different renewable energy camps.

I’m Sam Eaton for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.