Effects of Oil Companies’ Subsidies on Gasoline Prices

In response to a previous piece, AltEnergyStocks analyst Tom Konrad writes:

I’m afraid you’re pretty far off on the likely rise in the price of oil. You may be confusing the direct subsidies (relatively small) with the externalities (much larger) Most of the subsidies are for domestic oil production, but gas prices are mostly the result of the global price of oil. The difference would be measured in pennies, if that…..

Tom then continues with his characteristically solid mathematical analysis, to which I respond: 

Thanks, Tom. I was quoting a professor of economics at the Monterey Institute whom I interviewed recently in what I wrote above (not that university professors are necessarily dialed into the truth). I suspect the real issue — in fact, the one that makes this such a difficult subject in the first place — is the manner in which we identify and quantify subsidies. Take this list, for instance:

 Construction bonds at low interest rates or tax-free

 Research-and-development programs at low or no cost

 Assuming the legal risks of exploration and development in a company’s stead

 Below-cost loans with lenient repayment conditions

 Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire

 Sales tax breaks – taxes on petroleum products are lower than average sales tax rates for other goods

 Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)

 The U.S. Strategic Petroleum Reserve

 Construction and protection of the nation’s highway system

 Relaxing the amount of royalties to be paid – apparently, we get about 40% of revenues from oil on public land vs. 60% – 65% in most other countries

And then, as you suggest, how do you deal with our unwillingness to force the industry to deal with the “externalities” – healthcare costs, long-term environmental damage, etc. — costs that are becoming increasingly clear and subject to quantification?

On top of that, you have the controversy about the military, the costs (measured in trillions of dollars) of waging wars in places that have no strategic interest EXCEPT for oil.

So, what do you count?  What do you ignore?  Unfortunately, it’s almost always a function of what you’re trying to prove, and on whose behalf.