US Oil & Subsidies

[hcsharp]

I disagree.
Why does gasoline cost $4 a gallon in the U.S. and $10 a gallon in the U.K.?
Because in the UK and the EU gasoline is taxed to pay for the infrastructure it requires.

The US does the following - all effectively subsidize gasoline at the expense of the income tax payer:
#1 direct tax break gifts to big oil
#2 using income tax revenue instead of just insufficient gas tax revenue to build and maintain roads and highways
#3 fighting expensive wars to protect oil supplies
#4 not paying for its share of environmental and health damage

Not that I disagree as I have no knowledge, but I'm curious how that can be? If a subsidy has zero impact, what's the point? If Chevron got a subsidy and no one else did, wouldn't they be cheaper? If not, does that subsidy just vanish into the corporate coffers?

The oil companies basically sell gas for the most the market will bear. If they can get a higher price in Canada or Europe or China (after shipping) then they will sell it there, not in the US. Only the market will change the price, not whether or not they get any subsidies. ckessel if Chevron got a subsidy and BP didn't, they would both still sell their gas for the highest price the market will pay.

Rich I think you are basically saying the same thing I am. If the oil companies had to pay for all those things you listed in #1 - 4, they would still sell their gas for the most they could get for it. If that was less than their cost, they would cut production until the price came back up. They sell it in EU and UK for about the same price as in the States. The reason the consumer pays more there is because the government adds a larger tax.

The reason we have massive subsidies for the oil industry is not to keep prices low. It's because they have a very powerful political lobby and several very effective super-pacs.

[brianman]

The oil companies basically sell gas for the most the market will bear. If they can get a higher price in Canada or Europe or China (after shipping) then they will sell it there, not in the US. Only the market will change the price, not whether or not they get any subsidies. ckessel if Chevron got a subsidy and BP didn't, they would both still sell their gas for the highest price the market will pay.

Rich I think you are basically saying the same thing I am. If the oil companies had to pay for all those things you listed in #1 - 4, they would still sell their gas for the most they could get for it. If that was less than their cost, they would cut production until the price came back up. They sell it in EU and UK for about the same price as in the States. The reason the consumer pays more there is because the government adds a larger tax.

The reason we have massive subsidies for the oil industry is not to keep prices low. It's because they have a very powerful political lobby and several very effective super-pacs.

There's a reason why "highest price the market will bear" in a search engine returns "Economics 101" links in the results.

[Robert.Boston]

While the above analyses of the effect of subsidies are correct in a static analysis, I don't think that they fully capture the dynamic effects. There is a spectrum of exploration & production costs across different oil fields. If federal subsidies lower the cost of E&P to the oil producer, then more oil fields become (apparently) economic to develop. This increases the total supply of crude, which shifts the world price of finished products.

[78Lion]

While the above analyses of the effect of subsidies are correct in a static analysis, I don't think that they fully capture the dynamic effects. There is a spectrum of exploration & production costs across different oil fields. If federal subsidies lower the cost of E&P to the oil producer, then more oil fields become (apparently) economic to develop. This increases the total supply of crude, which shifts the world price of finished products.

Price sold has a much more direct correlation. Shale oil production would dry up if the price of gas fell to 2.50 a gallon as it would not be profitable to produce. It has been an known source for 100 years, yet production was non-existant until the price at the pump justified its production.

The amount of federal subsidy necessary to reduce cost to a point of viability hasn't been reached yet, though the lobbies continue to try to get more.

We might want to move this thread, or the tangent to an off-topic thread.

[Norbert]

While the above analyses of the effect of subsidies are correct in a static analysis, I don't think that they fully capture the dynamic effects. There is a spectrum of exploration & production costs across different oil fields. If federal subsidies lower the cost of E&P to the oil producer, then more oil fields become (apparently) economic to develop. This increases the total supply of crude, which shifts the world price of finished products.

Which means that the benefits of these subsidies are distributed over the whole world, and deplete US supplies of oil. It is like giving away oil.

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[dpeilow]

Chinese Oil Companies Apparent Victors in Post-Saddam Iraq

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Taxpayers on the Hook for BPs Gulf Spill | Fox Business

BP is moving to cut its tax bill by about $11.8 billion by writing off the costs of its devastating oil spill in the Gulf of Mexico as an ordinary business expense, a spill which wreaked havoc on the Gulf, killed wild life and damaged the local economy.


Then there are the real costs:

Gulf Oil Spill: Cleanup Has Cost Federal Taxpayers $87 Million So Far

Federal officials say cleaning up the massive oil spill in the Gulf of Mexico has already cost the government $87 million, making it the third-most expensive cleanup effort in the nation's history.

A senior financial analyst at the National Pollution Funds Center says an additional $38 million in emergency money has been assigned to the Deepwater Horizon spill, but it has yet to be spent.The most expensive cleanup was the Exxon Valdez spill, which cost $121 million. The second was $89 million for cleaning up a 1994 oil spill off the coast of San Juan, Puerto Rico.

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[hide][top]Fossil fuel subsidies “are public enemy number one”

Fossil fuel subsidies | TheGreenCarWebsite.co.uk

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Here's a good one to give to people who complain about EV subsidies.

...according to the report, which singles out the US as the largest subsidiser, with an estimated $US 502 billion in 2011.

IMF urges end to $1.8 trillion in energy subsidies

NPR Audio coverage
IMF: Gas Prices Don't Reflect True Costs : NPR