Big Oil defends tax breaks, massive profits

Big Oil was called before Congress yesterday to talk about high gas prices – but they spent their time defending the billions in tax breaks/credits/subsidies the industry gets courtesy of U.S. taxpayers. While mostly for show, the testimony was important to put Big Oil on the record in saying that after a century it apparently still needs government tax breaks to be successful.

While it is generally believed a bill to eliminate a stack of these tax breaks won't make it anywhere, Big Oil felt it needed to defend itself and, not surprisingly, everyone was on the same well-oiled page. ExxonMobile's CEO called the tax proposal "misinformed," "discriminatory" and "counterproductive." (Exxon, fyi, had profits of $11 billion in the first quarter of this year.)

I wonder what he has to say about incentives for the biofuels industry? And how are biofuels suppose to work their way into the system when like Big Oil controls the markets, dollars and reaps so much in terms of a tax advantage?

Of course the American Petroleum Institute (which supports tar sands oil but files lawsuits to prevent increased use of biofuels) is running TV ads trying to scare Americans into believing that "now is not the time to raise energy taxes" – and without directly saying so, essentially arguing that eliminating tax breaks for Big Oil is the same thing as raising taxes. Yet immediately eliminating the Volumetric Ethanol Excise Tax Credit (VEETC) for biofuels would do EXACTLY the same thing!

The difference is, Big Oil essentially has a monopoly on our fuel supply. Biofuels like ethanol are helping to change that. It will take time and perseverance – and the continued defense of myths and outright lies perpetuated online – but dropping the push for biofuels would be a giant step backward for the United States.

Yesterday, the Nebraska Corn Board distributed a news release that dealt a bit on the subject.

It noted that oil is in everything one way or another – from gas tanks to packaging to transporting to fabric to food – and high energy costs also significantly increase the cost of production no matter what’s being produced, from widgets to breakfast cereal.

“We’ve had very high oil prices for much of this year, and we’re all seeing it at the pump,” said Kim Clark of the Nebraska Corn Board. “Yet we’re also seeing the impact of higher energy costs in every transaction in every store because high oil prices have an impact at every step in the process for just about everything we buy. It’s taking dollars away from families and slowing our economic recovery.”

High oil prices also mean soaring profits for global oil companies – Exxon saw profits rise to $11 billion, up 69 percent from last year. Shell was up 22 percent, Chevron up 36 percent, ConocoPhillips jumped 43 percent and even BP, which is still paying for the massive oil spill in the Gulf, saw gains of 16 percent and $7.2 billion in earnings. Profits rival those in 2008 when oil hit $147 and Exxon earned more than $45 billion, more than any publicly traded company in history.

“Despite massive profits year after year, many of which go overseas, the oil industry continues to fight to keep U.S. tax breaks, tax credits and other subsidies, some of which have been in place for nearly a century, not to mention the military cost of keeping shipping lanes open,” Clark said. “How many decades do these companies need government support? Certainly we should consider the oil industry well established and able to stand on its own.”

At the same time, the oil industry and its many offshoot organizations continue to bemoan any incentives for biofuels. “They promote many myths and misinformation about biofuels like ethanol, and that is unfortunate because biofuels are our only hope of diversifying the fuel supply and producing more energy here at home,” Clark said. “Instead of being part of the solution, they continue to promote false ideas that only make us more dependent on oil, even if that oil comes from the Middle East.”

Would you like to make $90,000 a minute?

Here's how: Sell oil and gas.

Don't believe it can be done? Exxon did it in its second quarter this year.

That $90,000 a minute translates to $11.68 billion in profits, an increase of 14 percent from last year's second quarter. It also sets a new earnings record for a single quarter for any American company. And yes, that means Exxon broke it's own record.

This article in the New York Times sums up Exxon, the world's largest publicly traded oil company, and other oil companies' profits. Like Shell's $11.56 billion.

Here's a good line: Record earnings for the world’s largest publicly traded oil company have become almost as predictable as the surge of gasoline prices at the pump in recent years.

And we still have to debate what's really behind higher food costs?

High oil prices add $5.1 billion to cost of food programs

Exxon reached the top of the Fortune 500 list this year - thanks to revenues of $442.9 billion and profits of $45.5 billion.

In fact, oil companies were three of the top five companies on the list. (Chevron and ConocoPhillips were the other two.)

Yet some headlines last week (and tweets and blogs this week) declared that corn-based ethanol was raising food prices - without qualifying where the bulk of food price increases came from - primarily higher energy costs that we all paid to oil companies.

These higher energy costs also drove up the price of producing crops like corn, so the impact there is double.

Exxon's revenues are more than 8 times the value of the entire corn crop this year and last year. Last year's corn crop value: $54.6 billion. This year's: $50.8 billion. At the same time, the cost of producing those crops soared (thanks to high energy prices) and set new records.

Shouldn't the headlines on the Congressional Budget Office report have been "High oil prices add $5.1 billion to cost of food programs"?

(Here's the math for that: If ethanol was responsible for 15 percent of the increase in government food costs, or $900 million, than the total increase in the cost of food programs was $6.0 billion. Subtract $900 million from $6.0 billion and you get $5.1 billion...or $5,100 million. If ethanol was responsible for only 10 percent, high energy costs would be responsible for $5.4 billion.)

The best alternative to oil is not more oil. It's renewable fuels like ethanol. Otherwise next year or the year after we'll be again staring at $100 oil and $4 gas.

It's only a matter of time.

Oil's Washington juggernaut

That headline is from CNNMoney.com - click here for the full article.

The article explains how much money Big Oil has spent in D.C. lobbying Congress so far this year.

The Big Spender award goes to Exxon, which has passed $8 million in lobbying. That sounds like a lot, but when you have $11.68 billion in profits in one quarter (in three months!), a mere $8 million gets rounded off. In fact, $8 million is only 0.068% of the company's second-quarter profits, an unnoticeable blip on someone's line-item (paid for at the pump by you and I).

Fossil fuels - $72 billion in subsidies

A recent article from DTN pointed to report from the Environmental Law Institute that found that between 2002 and 2008, federal subsidies to fossil fuels were much higher than any subsidies given to biofuels or other renewable energy sources.

This, despite an international focus on the merits of cutting back the use of fossil fuels to reduce greenhouse gas emissions.

The study, which you can download here (.pdf), reported that subsidies for fossil fuels totaled about $72 billion between 2002 and 2008. Subsidies for renewable energy totaled just $29 billion - with corn-based ethanol getting about half of that amount. (This makes sense, since the corn ethanol industry expanded so rapidly during this time to become -- and remain -- the most widely used renewable transportation fuel in history.)

Here's a good quote from the study:

Most of the largest subsidies to fossil fuels were written into the U.S. tax code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.

Much of the subsidies for fossil fuels comes in the form of several special tax breaks.

During the study period, the report said that subsidies for fossil fuels generally increased (except last year...when companies like Exxon were making $90,000 a minute) while funding for renewables generally increased, but dropped in 2006-07 and then increased again last year.

(Sorry I can't link to the DTN story...but I can email it to you if needed. Just post a comment.)

The study was mentioned in several news reports today that focused on President Barack Obama calling on a global end to government subsidies that encourage the use of fossil fuels. Obama is hosing the G-20 economic summit opening tomorrow and he's supposed to propose a gradual elimination of such subsidies.

As reported by CBS online:

"Later this week, I will work with my colleagues at the G-20 to phase out fossil fuel subsidies so that we can better address our climate challenge," Obama said Tuesday at the United Nations global warming summit.

Nebraska Ag Classic confronts HSUS issues

The 6th Annual Nebraska Ag Classic was held in Kearney this week to help understand the growing challenges the agriculture industry is facing. The main discussion for Thursday’s general session was focused on animal rights groups, animal welfare in Nebraska and what lies ahead for the future of agriculture. David Martosko, from HumaneWatch.org, was the opening speaker, specifically addressing why the Humane Society of the U.S. (HSUS) hates agriculture and what agriculture needs to be doing. Additionally, Martosko moderated a panel discussion with experts in the animal welfare activism arena: Jack Fisher from Ohio Farm Bureau, Chad Gregory from United Egg Producers and Craig Head from Nebraska Farm Bureau.

Martosko explained a harsh reality check to the ag producers in the audience. Animal rights activists are not like us and they will follow through on what they say, usually because they have the funds to do so. The philosophy, or as some consider it their religion, animal rights activists believe:
1. The purpose of human life is to reduce suffering
2. Animals and people have the same moral value
3. Using animals (every cow, pig, sheep, chicken, etc, ) always leads to suffering

Therefore, they view themselves as more virtuous than you, that humans were meant to save animals, and that the best outcome for food animals is just to use fewer and fewer of them. Josh Balk, outreach director of the “factory farming” campaign at HSUS said, “We just have to reduce the number of animals that are raised for food.” Or as Martosko put it, “HSUS is trying to eliminate suffering by eliminating the sufferer.” Doesn’t that say, destroy animal agriculture?

HSUS’s framework is basically a “communications campaign”. They make themselves sound good with their big crusades about saving animals. Their game is to be on the offense because they certainly are making agriculture play the defense. With their offense, they set an agenda, move the ball, score most all of the points, and determine the pace of the action, which results in an endless game that can only be defeated by its own errors and ineptitude. Like HSUS wants, those in animal agriculture have just gotten used to playing defense. Martosko made it blatantly clear that this needs to be a priority – ag needs to be on the offense!

Martosko also explained why HSUS is such a lobbying powerhouse. In 2008, they outspent Exxon Mobile, and this yearwill have a bigger payroll than the White House as well as more office space. Also, they outright lie about having 11 million members and constituents. Their documentation clearly shows that all people who sign-up to support HSUS receives the magazine subscription are technically allowed to vote – which makes them members. In 2009, they sent out no more than 450,000 magazines.

It all came to a summary when Martosko finished with this important immutable rule:

• “Public opinion is everything.”- Abraham Lincoln
• 82% of Americans whose overall impression of the HSUS is “favorable” 
• 71% of Americans believe HSUS is a pet shelter
• 59% of Americans believe HSUS contributes most of its money to pet shelters

The public simply thinks that HSUS is their local animal shelter, or that HSUS is giving money to their local shelter (which they give less than 1/2 of 1% to). It is a “common knowledge” fact that people don’t know when or where they heard it from – similar to the fact that most people know it is safer to travel in airplanes than in cars.

We need to step off of always being on the defense and be pro-active – play offense. Yet, Nebraska is trying. A coalition of agriculture supporters, the Alliance for the Future of Agriculture in Nebraska (A-FAN), is currently conducting a consumer education campaign that shows the true face of agriculture through commercials of Nebraska’s farmers – leading them to the becomeafan.org website where they can learn more and see more videos. Even the state Governor has taken a stand at a recent meeting when he said, “The Humane Society of the United States is anti-agriculture and they’re out to destroy animal agriculture—and if they want to come to Nebraska, we’re going to fight them and we’re going to beat them."

It’s important for the corn and grain industry to be proactive against animal rights groups like HSUS because we support our livestock producers. Now, let’s all take our turn and tell someone the truth about HSUS.

Mirror mirror on the wall

The oil industry seems to be quick to blame corn ethanol and grain prices for high food costs. But maybe they should look in the mirror, especially since the price of grain has little to do with food prices. Energy and oil prices, though, impact everything.

“Farmers have been taking it on the chin while oil companies are raking in record profits,” said Don Hutchens, executive director of the Nebraska Corn Board, in this press release.

Exxon alone had profits of $40.7 billion last year, while the five leading oil companies had a combined profit of $123 billion. Ironically, the entire U.S. corn crop for 2006-07 had a gross value of $32 billion, and only 20% of that crop was used to produce ethanol.

“When you compare the profit of one oil company last year to the total gross value of an entire year’s U.S. corn crop, you can quickly understand why Congress is asking oil company executives to explain why their profits are hitting record levels while the American consumer pays for those profits at the pump and supermarket,” said Hutchens. “The oil companies are also fighting to keep $18 billion in tax breaks over the next decade.”

Hutchens is referring to a hearing called in Washington, D.C., this week to question the oil industry.

The National Corn Growers Association says a more logical explanation for this year’s food inflation can be found in examining energy pricing trends. Retail diesel and gasoline prices are up nearly 40% since January 2007 — and fuel contributes to costs at every step in the supply chain. A recent analysis by economist John Urbanchuk of LEGC found: “By a factor of two to one, energy prices are the chief factor determining what American families pay at the grocery store.”

Yet the oil industry plays dumb. Or maybe they have a magic mirror to boost their egos.