Wednesday, June 08, 2011

Why Maintain the Tax Breaks for Big Oil?

Writing for Fortune, columnist Dan Primack says it's time to end the tax breaks for oil companies:
For too long we've heard petroleum advocates say that solar, wind, and biofuel are failed experiments. They've had their chance, but have been unable to demonstrate cost-effectiveness.

What this ignores, of course, is that American oil and gas companies have had a century of built-in advantages. For example, they are allowed to deduct "intangible drilling costs" -- including labor and drilling fluids -- the moment a well is tapped (even if it proves to be dry). And then there's the "depletion allowance," which allows certain extractors to shelter around 15% of a well's production from the IRS. And deductions for royalties paid to foreign governments. And the oil and gas liability cap that remains at just $75 million, more than a year after the BP (BP) rig explosion. Then there's Section 199, which allows profitable oil and gas companies to deduct 6% of net income.
Yes there are incentives for renewable energy, but these are dwarfed by federal subsidies for fossil fuels.
Primack also points out that renewable energy incentives tend to be short lived, like the loan guarantees for wind power that were yanked earlier this year. In contrast, similar loan guarantees for nuclear power have gone begging for six years. He makes the case that renewable energy advocates should embrace the elimination of all energy subsidies.

I don't agree. Even if all federal subsidies for fossil fuels were to disappear, the enormous negative externalities of coal would still not be priced into the market. But Primack does make a persuasive case for making the playing field more level.

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