It’s a story one hundred years in the making. It’s about greed, naked political power, and the exploitation of American Taxpayers. TCS Vice President Autumn Hanna joins Budget Watchdog AF host Steve Ellis along with Senior Policy Analyst Sheila Karpf and Research and Data Analyst Mia Huang to explain how the oil and gas industry has secured $93 Billion in unwarranted federal subsidies, tax breaks, and sweetheart leasing deals over the last decade. They say the House never loses. Well, in this case, the Feds are the House and they’re losing taxpayer money at a furious rate on this one.

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Episode 13 — Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about, and pushed in Washington. Brought to you by Taxpayers for Common Sense.

Announcer:

And now, host of Budget Watchdog AF TCS President, Steve Ellis.

Steve Ellis:

Welcome to all American taxpayers seeking common sense. You’ve made it to the right place. For over 25 years, TCS, that’s Taxpayers for Common Sense, has served as an independent, non-partisan budget watchdog group based in Washington, DC. We believe in fiscal policy for America that is based on facts.

Steve Ellis:

We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted, and that is why we are always following the money here at TCS. And that means watchdoging more than just the tax dollars that the government spends. It also means scrutinizing the money others are spending to get a better deal for themselves at taxpayers’ expense. And boy, do we have a doozy for you today?

Steve Ellis:

It’s a story 100 years in the making, it’s about greed, naked political power, and the exploitation of American taxpayers. We’ve assembled an expert panel to guide you through this, rip from the headline storytelling exercise. So let me bring them right in. TCS Vice-President Autumn Hanna, welcome back to Budget Watchdog AF.

Autumn Hanna:

I was here in episode one and I wouldn’t miss this for anything, Steve.

Steve Ellis:

Also with us today, Senior Policy Analyst for Taxpayers for Common Sense, Sheila Karpf.

Sheila Karpf:

Great to be here again, Steve.

Steve Ellis:

And making her debut appearance on Budget Watchdog AF, Mia Huang, TCS Research and Data Analyst. Welcome Mia.

Mia Huang:

Thank you, Steve.

Steve Ellis:

Dear podcast listeners, if this was a James Patterson book, the back cover would read like this, “For more than a century, the Federal government has been subsidizing the oil and gas industry through the tax code and the leasing system on Federal lands. Over that time, billions of taxpayer dollars have gone to support one of the world’s oldest and most profitable industries, and to preserve their massive subsidies and push for new ones, oil and gas companies and industry associations have amassed an army of lobbyists, and a war chest of tens of millions of dollars to influence policy makers every single year.”

Steve Ellis:

“And guess what? It works. It works incredibly well. Over the last decade, the oil and gas industry has spent $1,900,000,000 on lobbying, and they got back $93,000,000,000 in the form of Federal subsidies tax breaks and sweetheart leasing deals.”

Steve Ellis:

All right, podcast listeners, they say in Vegas that, “The house never loses.” Well, in this case, the Feds are the house and they are losing our money at a furious rate. Autumn, take us back to the beginning?

Autumn Hanna:

So the beginning takes us back to the turn of the century, the 20th century, when the income tax system was first created. The oil and gas industry was there on day one, when the intangible drilling cost deduction was established in 1916. It was followed by the percentage depletion allowance 10 years later, and the list goes on from there.

Autumn Hanna:

For folks that are interested in learning how this works more, we dig into all this in a 2014 report aptly named Understanding Oil and Gas Subsidies.

Steve Ellis:

Okay. So that is interesting, and if you think about it, this wasn’t some sort of struggling industry at that time. We’d already had the breakup of standard oil. This is a huge industry at that point, but don’t all industry sectors get a lot of subsidies, Autumn?

Autumn Hanna:

Yes, that’s definitely true, but the size and length of time that these subsidies have been around is what is most mind blowing. Many, including us, would say there’s a role for discrete time limited investments in research and development in the energy industry, where there is a public interest.

Autumn Hanna:

Many oil and gas producers are allowed to deduct more than the amount they have invested in an asset. It is this preferential treatment that has cost taxpayers billions of dollars, year after year. And don’t get me started on the losses we incur from our broken oil and gas leasing system. That’s an area we’ve devoted more than one podcast to already. So let’s just say the Feds do have a losing hand.

Steve Ellis:

It is pretty ridiculous to think that they can actually deduct more than the amount that they’ve invested in an asset, and this seems so blatantly egregious. Why hasn’t anything been done to change the system, Autumn?

Autumn Hanna:

Well, not surprisingly, it comes down to political muscle and influence. We do call them big oil after all, but it’s still a good question, and it’s one that we’ve asked ourselves for years. We try to understand the where and how the oil industry keeps getting these century-old subsidies, and how they’re so well positioned to get more new forms of assistance, as we started during COVID?

Autumn Hanna:

And we documented that too in a report we released last December, and now we’ve put together a political footprint, something we’ve done before, but it is more interesting now to do in the wake of COVID. As Steve already mentioned, we have our new guest, Mia Huang joining us. She’s spent a lot of time digging into the weeds of the oil and gas industry over the last several months, and answering that question, really helping us understand how the oil and gas industry has maintained this dominance.

Steve Ellis:

And we’re so glad to have you join us today, Mia. It’s hard to believe some of the things in our latest report. It is really interesting… Well, disturbing information you discovered coming through the oil and gas industries political spending, and lobbying disclosures. So can you tell us a little bit about what you found, Mia?

Mia Huang:

So we collected data from the Center For Responsive Politics, and found the oil and gas industry spent $112,500,000 on lobbying last year, that is over $300,000 per day. On top of its lobbying expenditure, the industry spend a record high, $138,600,000 on campaign contributions during the 2020 election cycle, an increase of 22.7% over the previous election cycle.

Mia Huang:

It is clear that the demand shock brought on by the pandemic in 2020 may have caused the oil and gas industry to cut jobs, but it certainly did not make the industry cut back on campaign contributions to politicians.

Steve Ellis:

So Budget Watchdog AF listeners, Open Secrets, which is run by our friends at the Center For Responsive Politics that Mia mentioned is a great resource for lobbying campaign finance data. Okay, enough with that plug, tell us more, Mia?

Mia Huang:

Campaign spending by the oil and gas industry ballooned following the Supreme Court’s ruling in Citizens United versus Federal Election Commission in 2010. In fact, the industry’s campaign donations have grown from one Presidential election cycle to the next, at an average rate of more than 25%, and that’s even after adjusting for inflation.

Mia Huang:

On top of these impressive numbers, oil and gas companies spent hundreds of millions of dollars buying well-connected advocates. Around 68% of lobbyists working for the oil and gas industry last year, are revolving door personnel, people who formerly worked for government regulators in Congress as elected members, or as Congressional staffs.

Mia Huang:

These revolving door lobbyists often have the year or at least the email addresses of former colleagues, and are able to put the industry interests right in front of policymakers.

Autumn Hanna:

This is just outrageous, Mia. The research you found is just so intriguing, and one of the things that I know you also dug into, that I think makes us so egregious is how well these companies are doing, and really looking at their earnings report, though how unjustified these continued handouts are. Is that something you could share a little bit about as well?

Mia Huang:

Sure thing. We all know that 2020 was a hard year for everyone, but with the economy opening up, we thought it would be a good time to examine how the oil and gas industry is doing these days. After digging through oil and gas companies earning reports, we found that the top 20 US oil and gas companies ranked by market cap reported combined profits of $24,000,000,000 for the first two-quarters in 2021.

Mia Huang:

This is $1,000,000,000 more than what they earned during the same period in 2019, before the pandemic started.

Steve Ellis:

So you’re saying that they actually did better than they did in the first-quarter of 2019 when it was before the pandemic?

Mia Huang:

That is correct.

Steve Ellis:

Wow.

Mia Huang:

And I will say, soaring oil and gas prices are the main contributor to this recovery, for sure. The average oil price in the second quarter of 2021 was 137% above the average oil price in the same period of 2020. All of these top 20 companies doubled their revenues in this quarter, compared to same period last year.

Mia Huang:

Although some reported losses due to incorrectly betting on oil prices through the use of derivatives, overall, the oil and gas industry has made a strong recovery from [inaudible 00:09:05] hit cost by the pandemic. It is a highly mature and profitable business and should be able to stand on their own feet. It is really time to stop the industry from pocketing more than $4,800,000,000 in Federal subsidies per year, paid for by taxpayers.

Steve Ellis:

Derivatives, so this is basically the companies were betting on oil not going up, and so then that’s the reason why they ended up having these losses. And so it was really kind of their own gambling and their own hedging that actually ended up costing them. It wasn’t something in the market reality, correct?

Mia Huang:

You put that perfectly, Steve.

Autumn Hanna:

I think people are still talking about an industry that is in shambles and needs our help. And that’s one thing that the oil industry has been really good at, keeping that message alive and out there, and talking about how they need assistance. And this research here that you’ve done and looking at these earnings report really just demonstrates how effective they are at maintaining these subsidies with this well-oiled lobbying machine.

Steve Ellis:

It’s really eyeopening, and I have to say that a well-oiled machine, I don’t know if you intended that or not, but they definitely are. And they’re very adept at crying poor while being pretty rich. And it’s kind of funny Mia, as you were saying, that they can stand on their own two feet. Well, they’ve been getting these subsidies for more than a 100 years.

Steve Ellis:

I guess we can take away the crutch or something along those lines, but I wanted to bring in our other guests here, Sheila, because you’ve done your own analysis, and it’s not just the oil and gas industry that has special interest influence in Washington, DC. There’s also the biofuels industry that has an army of lobbyists and spends millions of dollars on political campaign contributions annually as well.

Steve Ellis:

So Sheila Karpf, please tell us a bit about the four decades of an influence from the ethanol industry?

Sheila Karpf:

Well, Steve, corn ethanol subsidies actually started way back in 1978, and they still live on to fight another day. The ethanol industry has used its muscle, just like the oil and gas industry, to influence members of Congress, primarily from the Midwest for decades. And this intense lobbying has led to a maze of tax breaks, loan guarantees, a Federal biofuels mandate, and numerous other subsidies over time.

Sheila Karpf:

Well, we got to celebrate the 10-year anniversary of the end of the $6,000,000,000 per year ethanol tax credit earlier this summer. The biofuels industry is still reaping taxpayer subsidies today. Since 2016, we calculated that the biodiesel and ethanol industry spent over $272,000,000 on campaign contributions and Federal lobbying.

Sheila Karpf:

In return, the industry received $12,000,000,000 in subsidies, and that’s just for the $1 per gallon biodiesel tax credit, not even mentioning any other Federal supports.

Steve Ellis:

Well, it’s not lost on me that the industry really benefits from first in the nation Iowa caucuses, and that every Presidential candidate kind of traipse through corn country every year. I’m reminded that the late Senator John McCain, when he was running for President in 2008, trying to kind of slough off his criticism that he was getting from being opposed to ethanol subsidies, would start on each of his speeches there saying, “I drink a glass of ethanol with breakfast every morning.”

Steve Ellis:

Certainly, they have a prominence that is disproportionate to their size. But so who are some of the companies that are receiving these subsidies, Sheila?

Sheila Karpf:

Many of the companies receiving these Federal subsidies, especially from the Department of Agriculture, USDA, include big Agro businesses like Cargill, Louis Dreyfus, and Archers Daniels Midland, or ADM. And podcast listeners with my colleague, Joshua Sewell, not on the podcast today. I just couldn’t resist a shout out to USDA on his behalf.

Sheila Karpf:

So speaking of USDA, the department started subsidizing biofuels infrastructure projects 10 years ago, and this was at the behest of the ethanol lobby, and worse yet, it happened behind Congress’s back. The oil and gas industry actually benefits from some of these subsidies, believe it or not.

Sheila Karpf:

In the last couple of years, companies like Shell BP and Kinder Morgan got taxpayer subsidies for new ethanol and biodiesel fuel pumps, storage tanks, and other infrastructure.

Steve Ellis:

When you said that they did this behind Congress’s back, didn’t they actually do this even in contravention to what the Congress had said? They’d said not to do it, so it wasn’t even like they were sneaking around Congress. They were actually going against the will of the Congress, and this was in both administrations. Am I right?

Sheila Karpf:

Absolutely Steve, you’re right. Great memory. It goes back to 2011. When the US Department of Agriculture started to subsidize ethanol blender pumps and other biofuels infrastructure without Congress’s authorization. They pulled money from another program that was supposed to fund renewable energy. Then in the 2014 Farm Bill Congress said, “Nope, you need to stop that. You shouldn’t subsidize this industry any longer.”

Sheila Karpf:

And what did USDA do? Within a year, they had more subsidies coming out the door from a different program, with a different acronym, pulling money out of thin air. Then they did it again, even during the Trump administration last year. And we’re continuing to see this money go out the door today.

Steve Ellis:

Yeah. And I think we did even a Golden Fleece for that Blinders for Blender pumps. And that was Secretary Vilsack, well, then Secretary of Agriculture, Vilsack, now back for a return engagement here in the Biden administration. And speaking of that, thanks for the USDA shout out, Sheila. And I’m sure Josh appreciates that he’s still present, even if he’s not speaking on this podcast.

Josh Sewell (on tape from previous episode):

The seeds were planted way back then.

Steve Ellis:

So did I hear correctly though, that now the Congress is planning on expanding the subsidies for these biofuel infrastructure projects?

Sheila Karpf:

Yes Steve, that’s right. And it’s kind of unbelievable that this has gone on for so long. And even with the shift to electric vehicles, we’re still subsidizing this mature industry, but this subsidy spigot surely continues. The FY22, Fiscal Year ’22 budget reconciliation package that’s being considered right now would add a record $1,000,000,000 for biofuels infrastructure subsidies.

Sheila Karpf:

And this is thanks a lot to lobbying and influence from the ethanol industry in particular. Taxpayers have already wasted over $200,000,000 on similar projects, but another $1,000,000,000 would be added. And there’s separate carve-outs for other programs too. I was just reading through the bill. There’s $1,000,000,000 for aviation biofuels being proposed in addition to a new aviation biofuels tax credit.

Sheila Karpf:

And the corn ethanol and soy biodiesel lobbies are even trying to change some of this bill language to allow corn and soy based fuels to qualify for the tax credits. This is the aviation biofield tax credit, even though it’s meant to benefit the next generation and non-food based biofuels. Corn and soy base fuels do more harm than good for the climate. So expanding subsidies for them would be a dead end for not only the climate, but also taxpayers.

Sheila Karpf:

So in summary, Steve, the biofuels industry just can’t stop asking for more government handouts, despite more than 40 years of taxpayer subsidies. It’s a never ending gravy train, if you will.

Steve Ellis:

Yeah. Their subsidies are just middle-aged compared to the oil and gas industries geriatric subsidies, so clearly neither of them are necessary. And then we’ve given them cash. We’ve given them market preference. We’ve required a certain amount to be used. We’ve basically taken a belt and suspenders, and another belt, maybe another set of suspenders approach to the biofuels industry to support them.

Steve Ellis:

And at the same time, it hasn’t really led to this growth of next generation biofuels.

Sheila Karpf:

That’s right, Steve. Going back in time, because both you and I and Autumn have been working on these issues for a long time, we know that, that was the goal of the 2005 Energy Bill when the renewable fuel standard was created. And then when it was expanded in the 2007 Energy Bill.

Sheila Karpf:

Congress, during President Bush, wanted to expand biofuels and have all these great non-food based biofuels created from perennial grasses and wood residues, et cetera, but that hasn’t come to fruition over all of these years, and like you said Steve, despite all of these subsidies.

Sheila Karpf:

So that mandate is set to expire at the end of next year, and independent analysts have said that, “We’re not going to meet any of the targets that Congress set that many years ago, and we’re not going to have achieved any of the goals of helping the climate or moving toward those next generation of biofuels.”

Steve Ellis:

Thanks Sheila. As I’m listening to this, and I’m thinking about all this money that’s going into this system, what do we need to do to stop the subsidies to change the gears here, and actually protect taxpayer? So I’m just throwing it out to all of you.

Autumn Hanna:

One of the things that I was thinking about a lot when Sheila was speaking again, going through the laundry list of subsidies that we’ve given to the biofuels industry, and that are on the table here in budget reconciliation, is also the missed opportunities with budget reconciliation to cut back on some of these subsidies.

Autumn Hanna:

So we obviously are a group concerned with how this package will be paid for. We’ve put out many statements, laid out principles for budget reconciliation, and this is all on our budget reconciliation resource page, so folks can get that on our main page.

Autumn Hanna:

And so pay for is our big thing, eliminating subsidies. It’s a great way to come up with money to pay for other priorities. And we had hoped to see the big oil and gas tax breaks on the chopping block, as ways and means was moving its package through budget reconciliation.

Autumn Hanna:

And those subsidies that I mentioned earlier, the intangible drilling costs, the IDCs as they’re known, or the percentage depletion odds, these are billions of dollars that we could get in revenue if we were to eliminate these and they were left off the chopping block.

Autumn Hanna:

So clearly again, this is something we can see that the industry is exerting dominance and coming out as victors. So they’ve won in every tax reform bill before, 1980s, they won in the tax bill and 2017, big oil had a big windfall after that so-called tax reform bill.

Autumn Hanna:

And again, it looks like they’re on this trajectory to maintain their tax breaks, even when we are coming up with huge packages of tax cuts and ways to raise revenue, and looking at how other sectors are going to have to increase their taxes, but oil and gas is coming out on top.

Steve Ellis:

Yeah, absolutely. Thanks for that, Autumn. And they are kind of the cockroaches of tax policy, that they seem to survive various efforts to reform them. But in this case too, it’s really striking to me, is that one of the big efforts of this reconciliation package is to deal with climate change.

Steve Ellis:

And here’s a case of where you could actually help deal with climate change by subtracting subsidies to greenhouse gas emitting oil and gas industry. And so, I hope that Congress steps back from the brink and recognizes they need this revenue, and this revenue can help them offset some spending on some other climate related things.

Sheila Karpf:

We talk a lot about eliminating underlying subsidies that are doing more harm than good for the climate, and we’ve talked a lot about those today. Oil and gas, biofuels, the list goes on and on. And unfortunately, even though Congress has had a goal of reducing climate risk and reducing those costs, the packages that we’re seeing in front of us right now are actually doing the opposite.

Sheila Karpf:

We’re seeing a continuation for 10 years, for instance, for the biodiesel tax credit, which is not only expensive, it distorts markets and it’s not good for the climate. So we need to see Congress shift in a different direction and actually get to the underlying problem here.

Autumn Hanna:

Yeah. These are clearly incentives for increased fossil fuel production and increased consequences when it comes to climate impacts. The fact that we’re working at cross purpose here with these proposals for the intended goals, is something that’s so outrageous and something that we’re really trying to bring to light.

Autumn Hanna:

This isn’t about picking winners and losers for us. This isn’t about saying that oil and gas and the biofuels industry just need to go away, but it is about saying that there are unnecessary and wasteful subsidies propping up these industries that just aren’t justified.

Steve Ellis:

We know that these climate costs are coming down on taxpayers too. So it’s like even like kind of a lose-lose lose, and that we’re going to be bearing these costs going forward. So Mia, after doing your research and digging into this, what is the most striking idea or thing that you’ve found that you really want Budget Watchdog, AF listeners to know?

Mia Huang:

Have you not been listening Steve? Like we mentioned, over the last decade, the oil and gas industry spent $1,900,000,000 in political spending. And what did they get in return? $93,000,000,000 in Federal subsidies in terms of preferential tax treatment, as well as sweetheart terms in leasing system, that is just guaranteed windfall every year, year after year.

Mia Huang:

It’s really time to stop, continue to hand out to the oil and gas industry, which is well-equipped to stand on their own feet.

Steve Ellis:

Absolutely, absolutely. And I was listening, Mia. So there you have it Budget Watchdog AF listeners, greed, naked political power, and the exploitation of American taxpayers. It’s time we write a new ending to this story. Are you listening Congress?

Steve Ellis:

And to you, thanks for listening to Budget Watchdog AF. Subscribe and share, Taxpayers for Common Sense has your back America. We’re reading the bills, monitoring the earmarks, and highlighting those wasteful programs that poorly spend our money and shift long-term risk to taxpayers.