History of U.S. Oil Subsidies Go Back Nearly a Century

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President Barack Obama announced he is supporting a bill in the Senate that removes subsidies for oil companies. CBS News reports the legislation, sponsored by Sen. Robert Menendez, D-N.J., was voted down in a procedural move. Menendez needed 60 votes to pass the bill but only got 51 votes to move forward. The bill would have ended oil subsidies to large companies such as ExxonMobil, Chevron, BP, ConocoPhillips and Royal Dutch Shell.

Here's a look at the history of subsidies for oil exploration in the United States.

Origins

The Congressional Research Service states the fledgling oil industry in the United States first received government assistance in 1916. That was when intangible drilling costs were able to be fully deducted from a company's expenses for tax purposes. In 1926, a write-off for cost depletion was introduced. That provision allowed oil companies to deduct costs based upon overall gross receipts and not just the actual value of the oil.

Both of those subsidies still exist. The Obama administration claims the average subsidy for huge oil companies is $4 billion per year. The bill in the Senate would have saved $24 billion in 10 years. The White House claims when gas goes up one cent per gallon, oil companies make $200 million more per month.

Statistics

The American Chemical Society cites a report by Double Bottom Line Venture Capital that explains how the oil industry has reaped benefits from subsidies. From 1918 to 2009, the average annual subsidy was $4.86 billion. By comparison, the nuclear energy industry gets around $3.5 billion per year.

When the study adjusted for inflation to 2009 dollars, the oil and gas industry received subsidies amounting to $1.8 billion per year in the first 15 years of the fledgling industry. The American Coalition for Ethanol estimates that when combined with state and local government aid to large oil companies, subsidies amount to anywhere from $133.8 billion to $280.8 billion annually from all sources of taxpayer aid that goes to the oil and gas industry.

Current Status

The Obama administration contends the oil industry no longer needs help. The three largest oil companies made $80 billion in profits combined in 2011, which amounts to $200 million per day. The White House also asserts America uses 20 percent of the world's oil but only has two percent of the world's oil reserves. Oil drilling continues in all areas of the United States and oil rigs are plentiful in the Gulf of Mexico, the White House blog states.

The New York Times had an article dated July 3, 2010, in the middle of the Gulf oil spill. Deepwater Horizon rented the sunken rig to BP. The company used an oil industry subsidy to write off 70 percent of the cost of the rent for the rig which amounted to a deduction of $225,000 per day.

William Browning is a research librarian.

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