The Energy Industry: Big Oil, Corporate Welfare and Climate Change

The oil and gas companies that dominate the American energy industry are among the most profitable and powerful corporations in the world. Of the five largest Fortune 500 companies, three are energy corporations, with ExxonMobil claiming the top spot. In the second quarter of 2011 alone, the Big Five oil companies (ExxonMobil, Shell, ConocoPhillips, BP and Chevron) posted an astounding $36 billion in profits.

Despite Big Oil’s massive profits, the United States government continues to provide these large corporations with enormous tax breaks and subsidies, about $41 billion a year on average.

The special favors that American politicians grant to the energy industry can be attributed in part to the massive political contributions that oil and gas companies have made to their campaigns. Oil companies spent about $60 million on campaign contributions in the 2012 election cycle, about 90 percent of which went to Republican candidates. These contributions include about $8 million given to PACs supporting the failed presidential candidacy of Gov. Mitt Romney. The oil and gas industry also spent about $150 million on lobbying in 2011.

These campaign contributions and extensive lobbying efforts may help explain why Republican politicians like Rep. Paul Ryan (R-WI), who claim to oppose the federal government “picking winners and losers through the tax code,” have staunchly defended preserving the energy industry’s tax breaks.

Energy companies receive a massive return on their ‘investment’ in American politicians. The tax rate on American corporate profits is currently set at 35 percent. ExxonMobil, however only paid 2 percent in taxes on its $73.3 billion in 2011 profits, thanks to a variety of loopholes and tax breaks created by Congress at the behest of the energy industry.

The subsidies provided by the federal government to the energy industry also make addressing the growing threat of climate change more difficult by encouraging increased production of carbon-emitting fossil fuels. Ending subsidies to oil and gas companies would “cut global energy demand by 3.9 percent…the equivalent of 600 million tons of oil” by 2020, according to a report by the International Energy Agency.

President Barack Obama has pledged to lower the corporate tax rate from 35 percent to 28 percent, claiming that the high tax rate stifles the competitiveness of the American economy. The president has insisted that tax breaks that large corporations benefit from will be closed so that the tax rate can be lowered. However, the political influence of large corporations, including Big Oil, suggests that these loopholes, even if temporarily closed, will quickly find their way back into our tax code.


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