Afraid of being jobless?

Hello Reader,

Today, I read an article that caught my attention. For years now, I've heard the generic claim that oil companies receive absurdly large government subsidies. However, I've rarely heard "large" spelled out as a quantifiable number. Well, it turns out that "large" is apparently $4 billion per year (on average). Now, as best as I can tell from the article, that is $4 billion of real tax money that is not paid by oil industry companies to the federal government each year. This is compared to the approximately $93 billion per year (during 2006-2008) that those same companies do pay according to the American Petroleum Institute.

The argument apparently goes that without these tax incentives (aka subsidies) oil companies would move their operations to other countries. To frame this argument in another manner, without what effectively amounts to a 4% tax break (not paying $4 billion out of what would otherwise be $97 billion in taxes) all of these oil companies, which apparently provide 9.2 million jobs in the US, would move to other countries leaving Americans jobless! For some reason, I have a hard time believing that argument.

For one thing, according to NationMaster.com, which cites the CIA World Fact Book as its source, the US apparently only had 20,970,000,000 barrels of proven reserves in 2008 and was producing 8,457,000 barrels/day in 2007. Doing the math (and initially assuming constant production) this works effectively out to roughly 7 years of remaining oil production capability.

Of course, oil production is not nearly that straight forward (the closer a country gets to the end of its proven reserves the slower its production), and US oil production will likely last much longer than 7 years but at an ever-declining rate. It is also prudent to consider that proven reserve numbers are flexible in that new technologies or new wells can cause that number to increase. However, to make the long story short, the United States' ability to hold sway as a major oil producing nation is limited.

Considering that some of the subsidies now offered to oil companies in the US were implemented as early as 1913 in order to help those companies develop, it seems fitting that those same companies should start to pay back some of that start-up money before they are forced to relocate due to a shortage in supply. More importantly, it makes more sense for that money to be used to find a replacement for the oil industry, which is getting to the end of its useful life, by way of transferring the subsidies to other energy industries that are likely to last beyond the year 2100.

One example would be to redirect that money to wind and solar energy companies and manufacturers. Not only would this allow for a great domestic expansion of our current renewable energy portfolio in the US, but it might also re-engage entrepreneurs and manufacturing companies as well. This could also make for an interesting shift in dynamics considering that the majority of the world's demand for wind turbine and solar panels is currently outside of the US (with China leading the charge).

Just imagine if the United States government could muster the political will to remove the $4 billion per year oil company subsidies and divert that money to kick-start manufacturing and energy companies that would not only stay in the US (as opposed to threatening to leave) but could possibly help to reduce our trade deficit with countries like China and improve our own national utility grid! All of this in what amounts to a zero sum game for Washington politicians, the IRS, and the national debt.

Additionally, as more renewable energy generators are produced and installed, this will require some additional infrastructural support of the electricity grid (read as more jobs and investment opportunities). In turn (and perhaps in some cases simultaneously) an improved utility grid will necessarily create opportunities for reducing emissions and moving from petroleum-powered to electrically-powered vehicles.

This means that there is a way to reduce our subsidies to oil companies operating domestically, reduce our dependence on all oil companies (and countries), improve our electricity grid and our transportation system, and secure domestic jobs for decades to come. When I lay it out like that, I have to ask: Why has this not happened yet?

Is the math too obscure? Is the information that well hidden? Are lobbyist for oil companies that influential? Is the political climate in Washington that sticky? Or do Americans just want to keep giving oil companies tax breaks for fear that many more jobs will evaporate overnight?

Please, somebody set me straight!

Thanks,

Sean Diamond

This post references:
As Oil Industry Fights a Tax, It Reaps Subsidies
By DAVID KOCIENIEWSKI
Published: July 3, 2010
In the New York Times
http://www.nytimes.com/2010/07/04/business/04bptax.html