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  • What If Oil Producers Actually Received Subsidies Like Wind Energy Producers?

    With the current debate over ending oil producers’ subsidies the question arises as to what subsidies do the producers actually get.  It is a surprisingly complicated question.  Wind producers also get subsidies that take complex forms—investment tax credits, production tax credits, mandates, property tax exemptions, etc.  But the major federal subsidy for wind producers is the option to take a 30 percent investment tax credit or to receive a 2.2 cents per kilowatt-hour production tax credit.

    “2.2 cents” doesn’t seem like much, but, depending on the time of year, it falls somewhere between 25 percent and 100 percent of the wholesale price of electricity.  Forty percent if frequently used as the average.

    So, what would an oil-production subsidy look like if it were the same magnitude?

    Deepwater drilling rigs can cost over $400,000 per day.  With other costs, a rough per-well figure would be $100,000,000 per well.  If an oil company could get the same 30 percent investment tax credit as wind producers, the government would write the company a $30,000,000 check for each well completed.  For the lower cost, shallow-water wells, the government would write a check closer to $3,000,000 for every well drilled.

    If on the other hand, the oil company opted for a production tax credit (and it was set at 40 percent of the 2010 average price of about $75 per barrel) then the government would write the oil company a check for $30 for each barrel produced (onshore as well as offshore).

    If a subsidy like that was the deal oil companies had, then cut away.  But the $4 billion per year that oil’s detractors keep repeating works out to $0.60 per barrel, and upon closer examination they do not even qualify as oil-industry subsidies.

    Heritage’s Nick Loris and Curtis Dubay have sorted it all out. Of course, there are subsidies for the oil and gas industry, but they come from the Department of Energy, not from unfair tax benefits, and they work out to about a nickel per barrel.  So, leave it to Washington to misidentify and exaggerate the problem.  It’s as though they are firing a shotgun at the chandelier when the problem is a gnat in the salad dressing.

    Posted in Energy [slideshow_deploy]

    20 Responses to What If Oil Producers Actually Received Subsidies Like Wind Energy Producers?

    1. Kari, MN USA says:

      I heard that the so-called subsidies are, in essence, legitimate tax deductions for equipment depreciation, something all businesses (including farmers) are able to claim.

      Seems like a witch hunt to me! (when the reason gas prices are soaring have far more to do with government greed than any oil company).

      • matt helminger says:

        NO energy companies of any kind,should get subsidies of any kind! They need to make it in the free market

    2. hmrhonda, Missour says:

      This article clearly explains why the democrats and Claire tax cheat McCaskill are disingenuous. Thank you.

    3. Pingback: PA Pundits - International

    4. SenatorMark4 says:

      There is no reason NOT to expect the Democrats to demonize any productive part of our society in order to increase the tax burden for their eventual redistribution. They buy votes with income redistribution. "Shared sacrifice" and all that. What we really need is Shared RESPONSIBILITY! Your income is reported with W-2's, IRS Form 1099-MISC, and numerous other forms of reporting for eventual 'income, redistrubuted' tracking. Where is the 1099-GOV for all that redistributed income? You canNOT manage something you can't track. Is it really true that the $8000 first homeowner benefit ended up reporting $500 million in fraud? IF I got an $8000 decrease in my mortgage I'd get a 1099-C. Did they get 1099-GOVs?

    5. Bobbie says:

      the "target" of the government democrats, are the "oil industries." EMPLOYERS OF THE FREE MARKET!!!

      the government has been and will do everything to distort and corrupt TO GAIN CONTROL! DESTROYERS OF THE FREE MARKET!

    6. Pingback: This Week in the Congress

    7. Joseph Somsel says:

      One should also compare the tax code depreciation schedules for wind vs. oil/gas. I did a piece compare wind vs. nuclear and was amazed at how the depreciation schedule (MACRS technically) gave investors in wind an early windfall.

      Yet the same investment in nuclear produced twice as much electricity per year.

      I suspect that one would find the same result with wind vs. oil/gas.

      Our government seems to hobble the productive and subsidize the wasteful.

    8. LenoreMO says:

      I sure do agree with the two above posts!! Greed is right!!

    9. Eugene Vancouver WA says:

      The Energy Department figures said of all the energy subsidies the oil companies

      get 13% and the rest get 87% so at that rate if 13% equals 4 billion then the Green Energy get at the very least 30 billion and that produces next to nothing

      and triples the price of corn at the same time. Happy Days.

    10. DOC TN says:

      This just confirms that Obama and the Democrats only want the American Taxpayer to THINK they are doing something about high gas prices. The only way to lower gas prices is to have more oil than demand. It is not that America hasn’t cut down on its’ consumption, it is that India and China are increasing their usage. So if the U.S. starts drilling for its own oil then we can keep our cost down and start selling our oil at higher prices to other countries just like Saudi Arabia does.

    11. Pingback: One Tiny Cheer for Obama on Drilling | The Foundry

    12. Gordon Murray, Austi says:

      ALL government subsidies for any and all industries need to be terminated. 20% per year, with all subsidies removed after 5 years.

    13. Pingback: Let’s Nail Democrats on Their Duplicity with Energy Subsidies | RedState

    14. Pingback: Let’s Nail Democrats on Their Duplicity with Energy Subsidies | Tea Party Base

    15. This was Obama's intention before to the last election. Have we seen any progress as far as renewable energy goes.

    16. Lida Maerz says:

      Being a powerful speaker is fine, but eventually you have to "get something done".

    17. This was Obama's goal leading up to to the 2008 election. Is there any evidence of any progress as far as biofuel incentives goes.

    18. Peter Mokhiber, Mari says:

      I hope this helps evaluate the subject. The DOE – EIA annual (http://www.eia.gov/forecasts/aeo/) reports the following. From 2009-2035 electric generation requirements increase 19.65%.

      In 2009 Renewables Accounted for 11.09%(Hydro, GeoTh, Muni/Waste, Wood/Biomass, Solar, Wind) increasing to 15.27% by 2035. How much should be spent on such a small increase.

      Combined, Solar and Wind produce less than 18% (2009) and 25.44% in 2035 of the renewables sources. By 2035 Solar and Wind will contribute less than 4% of the total electric generation required.

      How much should we pay for an additional 1.94% required generation capacity?

    19. g.r.r. says:

      Hmmm. Interesting question, but it begged a number of issues:
      1) what is the security value of having local energy vs. imports? I would say pretty high.
      2) does Alternative energy then get to have similar subsidies that Nuke, Oil, Coal, and natural gas have enjoyed over the last 100 years esp. during their formative years?

      Oh, well, so much for honesty.

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