ExxonMobil, the world’s largest oil company, hauled in a $32.6 billion profit last year. Chief executive Rex Tillerson got a 3 percent bump in his pay package, sending it above $28 million. And today the company gets its annual boost from the federal government: an estimated $600 million in tax breaks.
All told, the government gifts as much as $4.8 billion to the oil industry each year, more than any other country. Much of that comes not as direct handouts but instead via loopholes in the tax code; deductions for depleting oil reserves, for example, and write-offs for the expense of drilling a new well. These reflect a long-past era in which oil exploration was financially risky, and prices were low. Now oil prices and profits are high, and the government is losing revenue while promoting the continued exploitation of carbon-intensive fuels. In the face of a changing climate and a constrained domestic budget, the lunacy of such preferential treatment is hard to overstate.
“Perverse” is the word the Intergovernmental Panel on Climate Change found for such policies in its latest report, which was released in full on Tuesday. Globally, subsidies for fossil fuel production—amounting to $1.9 trillion in 2011, or 8 percent of government revenues, according to the International Monetary Fund—“prove to increase emissions and put heavy burdens on public budgets,” reads the report.
On the other hand, rolling them back could be a key part of a serious climate agenda. The IMF estimates that eliminating fossil fuel subsidies could lower emissions by 13 percent. That general principle, if not the exact figure, is supported by the IPCC, which wrote, “Lowering or removing such subsidies would contribute to global mitigation, but this has proved difficult.”
“Difficult” may be an understatement in the United States. As a recent article at Mother Jones lays out, the energy industry wields considerable influence in Washington. In the last fifteen years oil and gas companies spent more than $1.4 billion on lobbying, employing nearly 800 lobbyists, many of them culled from congressional offices. That expense is actually a shrewd investment: every dollar the five largest oil companies spend on lobbying reflects $53 in tax breaks. The industry also leverages millions in donations to candidates and political ads during each election cycle, discouraging politicians from taking a hard line on tax breaks.