Rex Tillerson, President-elect Donald Trump’s nominee for secretary of state, denied that tax breaks to fossil fuel companies amount to subsidies during his Senate confirmation hearing on Wednesday.
Yet Exxon Mobil Corp., the oil giant Tillerson worked at for 41 years and led for 10, receives between $700 million and $1 billion per year in government giveaways, according to a new analysis by Oil Change International, a nonprofit research firm that tracks the fossil fuel industry.
During the hearing, Sen. Jeanne Shaheen (D-N.H.) asked Tillerson if he would pursue a 2009 pledge ― led by the United States and backed by Russia, China, India and 16 other nations ― to scale back subsidies for oil and other carbon dioxide-spewing fuels. Tillerson argued that he would have little influence over incentives baked into the tax code, and said he was “not aware of anything that the fossil fuel industry gets that I would characterize as a subsidy.”
“The industry’s long-time argument is that liability loopholes and sweetheart tax breaks like the Intangible Drilling Costs are not a form of special treatment for the oil and gas industry,” Janet Redman, U.S. policy director at Oil Change International, wrote in the group’s analysis. “In reality, the IDC is specifically designed to make drilling, survey work, clearing ground, workers’ wages, drilling supplies — basically anything you need to produce oil and gas (aka ExxonMobil’s products) — less expensive for oil and gas companies.”
Exxon Mobil’s spokesman dismissed the analysis and pointed to a primer by the American Petroleum Institute, an oil and gas lobbying group.
“Oil Change International is not [a] credible source,” Alan Jeffers told The Huffington Post in an email. “As API points out, these frequently criticized provisions are the same as or analogous to those used by other industries.”
It’s possible that Tillerson was evading the question on a semantic technicality.
Roughly 13 percent of provisions in the Treasury Department’s tax expenditure report provide incentives to energy companies, according to the nonpartisan Tax Foundation. Some come in the form of tax credits for wind and solar production, while others allow fossil fuel companies to deduct the upfront costs of drilling or mining for oil, gas or coal.
Those deductions function in the same way that provisions to any other business work under the baseline tax code, allowing companies to dock heating costs, postage stamps and employee salaries from their annual tax bill.
“The word ‘subsidy’ is a bit of a loaded term, because in order to figure out whether or not a provision is a subsidy, you need to compare it to some kind of baseline as to how the tax code is supposed to work,” Scott Greenberg, an analyst at the Tax Foundation, told HuffPost on Thursday.
“As a credit, under all views, that’d be a subsidy,” he went on. “In the case of intangible drilling costs, it’s immediate expensing. Therefore, there’s a case to be made that this is not a tax subsidy and is in fact correct treatment of those capital investments.”
Still, the existing tax credit for marginal wells ― oil or gas wells that are nearing depletion ― counts as a subsidy, Greenberg said. The industry depends on such subsidies to avoid losing money by continuing to extract fuel, regardless of drops in the price of oil or gas.
But the issue at hand is the federal money allocated to the oil and gas companies in the form of deductions ― not how, technically speaking, those deductions are qualified.
“These guys get tax handouts left and right,” Ron Eckstein, communications director for the nonprofit Americans for Tax Fairness, told HuffPost. “[Tillerson] can categorize them as fossil-fuel or manufacturing or business, but Exxon has access to deductions that small businesses and regular families would never get. It’s indisputable.”
Yet the push to cut federal handouts to fossil-fuel producers isn’t about leveling the playing field between the world’s largest publicly listed oil company and mom and pop shops. It’s about incentivizing a move away from fuels that worsen global warming and toward zero-emissions energy sources. Study after study shows that even with the implementation of the Paris climate agreement that Trump now threatens to undo, global temperatures are expected to rise by more than 2 degrees Celsius, or 3.6 degrees Fahrenheit, by the end of the century. By that point, the effects of climate change ― more violent storms, rising sea levels, droughts, acidifying oceans ― may become far more intense and impossible to roll back.
“Oil and gas subsidies are designed to incentivize fossil fuel production, and the more oil is produced, the cheaper it is, and the more of it we burn,” Redman wrote. “That means greater greenhouse gas pollution and worse climate disruption.”