Oil industry barely hangs on, thanks to brave Republican defense of subsidies

Posted by David Roberts at 10:53 AM on 01 Feb 2008

Read more about: energy | oil | politics | business

You may recall that a couple of months ago, Republicans in the Senate threatened a filibuster to defend about $13 billion in oil company subsidies.

In other news, Exxon Mobil just posted the largest annual profit by a U.S. company in history -- $40.6 billion. It also set a record for the largest ever quarterly profit -- $11.7 billion.

The second biggest U.S. oil company, Chevron, saw its profits rise 29% to $4.88 billion for the quarter.

Clearly, this is an industry that desperately needs government help. Renewables are just going to have to wait until oil gets through this crisis.

For story: Oil industry barely hangs on, thanks to brave Republican defense of subsidies
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Unjustified subsidy

The economic case for government subsidies can be made in one of two ways. The first is the argument based on externalities: the idea being that one person's behaviour creates benefits for others, but that those others do not compensate the actor. An example might be a landowner who refrains from cutting down trees uphill from rivers. All river users benefit from the flood control and lack of silt. In this case, it might make sense for the government to pay the landowner to save the trees - in providing the subsidy, the government encourages a more socially optimal behaviour. This justification doesn't work for the oil industry. Due to the pollution and greenhouse gasses they create, they actually harm people in ways not reflected on the balance sheet.

The second argument for subsidies is the `infant industries' argument. The idea here is that it can take a while for a new business to reach the level of existing businesses in the field. A brand new textile industry in an African state may not initially be able to produce goods at a cost and level of quality competitive with existing industries in Asia. In such cases, you can justify a temporary program of subsidy, intended to get the industry running. Once again, this doesn't apply to the petroleum industry. It is hardly so small as to require cosseting.

It is always hard for politicians to say that an industry should be smaller, or should not exist at all, but, in the case of petrochemicals, that is probably the only position that makes economic and ecological sense.

a sibilant intake of breath

by sindark at 12:14 PM on 01 Feb 2008

The 2006 balance sheet ...

at finance.yahoo.com/q/is?s=XOM&annual suggests to me, although I might be reading it wrong, that $40.6 billion in year-2007 profit will be after $28 billion in income tax is paid.

The interval of the supposed $13 billion in subsidy is not a single year but, IIRC, about 14 of them, and there's also a lot of consumption tax revenue on E-M's products. It would be foolish to suggest that renewables' PTCs and, where applicable, feed-in tariffs are not well-funded, in part, by fossil fuels' subsidy to government. Of which there's plenty left over for bloggers with day jobs as public servants. Of course, if those servants' work is not fulfilling, no amount of money from FF consumers and producers will stop them from the mass resignations they're known for.

How shall the car gain nuclear cachet?

by GRLCowan at 12:26 PM on 01 Feb 2008

Bush Energy Plan

I think this was the best Bush could come up with for an energy plan, tax breaks to the oil companies. I am sorry Edwards dropped out, he was most verbal about getting lobbyist out of government. When you have oil corporate lobbyist writting legislation and getting it passed, this is what you get. The very best government money can buy!

The eons of time and nature was good to us down here. It was not until we become civilized that destroying our habitat become fathomable or fashionable.

by Pompey Road at 2:29 PM on 01 Feb 2008

Another perfect storm................

..... is taking shape in the form of a gigantic blast of 'success' called economic globalization, that can be seen as a soon to become unsustainable consequence of the selfish politics of neo-conservatism and the unbridled economics of market fundamentalism.

The clouds on the far horizon are turning from white to black. Some kind of impending ecological collapse or else calamitous economic disaster appeas to loom ominously in the offing.

Steven Earl Salmony
AWAREness Campaign on The Human Population, established 2001
http://sustainabilitysoutheast.org/

by stevenearlsalmony at 2:03 PM on 02 Feb 2008

ADVERTISING POLICY

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