Copyright 2000 Federal News Service, Inc.
Federal News Service
July 18, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 2672 words
HEADLINE:
PREPARED TESTIMONY OF LEXI SHULTZ STAFF ATTORNEY U.S. PUBLIC INTEREST RESEARCH
GROUP
BEFORE THE SENATE FINANCE COMMITTEE
SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT
BODY:
Mr. Chairman and Members of the Committee, my name is Lexi Shultz and
I'm a Staff Attorney with U.S. PIRG, the national office for the State Public
Interest Research Groups, non-profit, non-partisan public interest advocacy
groups active in 38 states. On behalf of our members around the country, I
appreciate the opportunity to testify on some of the existing incentives and
dangers of oil production. We need to develop an energy policy for the future
that will be better for the environment, better for national security, and will
provide a long- term solution rather than relying on a short-term plan and a
finite resource.
I. Environmental and Public Health Consequences of Oil
Production and Consumption.
Before I discuss existing or proposed
economic incentives for oil production, I am compelled to talk about the
devastating environmental consequences of all aspects of oil use. Any oil policy
that ignores those consequences paints an overly rosy picture and will worsen
the existing problems. Here are some of the major dangers Pennsylvania PIRG from
oil, with some specific examples:
OIL SPILLS AND LEAKAGES: Petroleum
production and transportation results in the leakage of at least 280 million
barrels of petroleum every year, contaminating water supplies, poisoning
wildlife and ruining landscapes. For example: The by now most infamous case is
the 1989 Exxon Valdez spill, which poured 11 million gallons of crude oil into
Prince William Sound. Eleven years later, there is still oil on the beaches, the
fishing industry is still in trouble, and only 2 of 26 species have fully
recovered. Exxon should not be singled out - in 1999, a Chevron owned tanker
spilled 110,000 gallons of fuel oil 30 miles south of San Diego because of a
pipeline failure between the Chevron ship and an onshore storage facility. BP
Amoco is responsible for a 400,000-gallon spill in 1991 that covered twenty
square miles near Huntington Beach, California, including part of a wetlands
wildlife sanctuary, killing endangered California brown pelicans. In Prudhoe
Bay, Alaska, in 1997 alone, there were 500 different spills, leaking 80,000
gallons of oil, diesel fuel, acid, drilling fluid, biocide, and ethylene glycol,
and other wastes into what was once a pristine wilderness - about 1 spill every
18 hours.
HAZARDOUS WASTE SITES AND WATER POLLUTION
On top of
the oil leaks from drilling and transport problems, oil refining is a major
source of chemical releases reported through the U.S. Toxics Release Inventory.
Chemicals that have been released by oil facilities include benzene, selenium,
chromium, and mercury. Oil companies are responsible for a large number of
Superfund sites. For example, four of the biggest companies, BP Amoco, ARCO,
Chevron and Exxon, are responsible for a total of 152 Superfund sites, with ARCO
responsible for the largest Superfund site in the nation - in Montana, for which
it agreed to pay the state $215 million in damages and fines.
In addition, each of these four companies has been fined for numerous Clean
Water Act violations. To give just one example, in May 1992, Chevron agreed to
pay $8 million in fines for 65 violations of the Clean Water
Act resulting from discharges from an oil platform off the California Coast.
AIR POLLUTION AND GLOBAL WARMING
The burning of oil is a major
factor in the world's air pollution and the build up of carbon dioxide in the
Earth's atmosphere. Because carbon dioxide is the basic product of fossil fuel
combustion and not just a contaminant, there is no practical technology for
preventing its release into the atmosphere when fossil fuels are burned. The
potential consequences of unabated global warming from carbon dioxide include
heat waves, infectious disease like the outbreak of West Nile Virus in some
areas of the country, severe drought, floods, and damage to ecosystems, such as
forests, coral reefs and wildlife habitats.
In addition, in 1997 alone,
burning oil produced 14.7 million tons of smog-forming nitrogen oxides. Smog
pollution causes an estimated 6 million asthma attacks and sends 150,000 people
to emergency rooms each year. In 1997, burning oil also produced 3.9 million
tons of sulfur dioxides, which lead to acid rain, and 1.5 million tons of
dangerous particulate matter, which are severe respiratory irritants and have
increasingly been linked to lung cancer.
Oil facilities have committed
numerous nitrogen oxide emissions and other Clean Air Act violations. For
example: In 1998, the Department of Justice filed a complaint against Exxon for
nearly 200 Clean Air Act violations. In 1996, ARCO and Snyder Oil paid an
$875,000 penalty for violating EPA nitrogen oxide standards at
a plant on the Wind River Indian Reservation. In 1992, Chevron agreed to pay
$1 million in penalties for illegal airborne emissions of
benzene, a potent carcinogen, at its Philadelphia, Pennsylvania petroleum
refinery. In 1985, the EPA won a $6 million judgment against
Chevron for Clean Air Act violations at an oil refinery in E1 Paso, Texas.
OFF-SHORE OIL DRILLING
Both onshore and offshore oil drilling is
involved with all of these kinds of environmental and public health dangers. But
offshore oil drilling poses some unique dangers, threatening to disrupt the
delicate balance of a vulnerable marine and coastal ecosystem and destroy scenic
coastlines. Offshore oil drilling activities include sea floor dredging for
pipelines, routine rig pollution and debris, and the releases of thousands of
pounds of drilling muds containing toxic heavy metals. A single offshore rig
emits the same quantity of air pollution as 7,000 cars driving 50 miles per day.
These actions kill or disrupt the reproduction of many types of marine mammals
and lead to the destruction of coastal wetlands, not to mention jeopardizing the
health of coastal residents. FloridaPIRG has long campaigned against offshore
oil drilling and we especially appreciate the work of Senator Mack (R-FL) in
helping keep Florida's beaches oil rigfree. It's clear that Senator Mack
understands the devastating environmental and economic consequences of offshore
oil drilling.
II. Existing Incentives for Oil Production The PIRGs
recently released a report called "Paying for Pollution," along with Friends of
the Earth and Taxpayers for Common Sense. Together, these three groups make up
the Green Scissors Campaign, which seeks to ensure that our tax dollars are not
spent in ways that are wasteful or encourage pollution.
"Paying for
Pollution" documents that, over five years, the coal, oil and nuclear industries
received $26.6 billion worth of direct subsidies and tax
breaks. Of this, the oil industry alone received $822.5 million
in direct handouts and at least $2.8 billion in tax breaks, not
even including the sizable percentage depletion allowance tax deduction. Last
year, Donald Lubick, Assistant Secretary for Tax Policy for the U.S. Department
of Treasury, testified at a Ways and Means Committee heating that, "over 75
percent of corporations in the oil and gas extraction industry did not pay any
domestic, corporate income tax," and further stated that "(t)his is an industry
that probably has larger tax incentives relative to its size than any other
industry in the country."
These subsidies cost taxpayers money and pad
the profits of an already profitable industry, whose profits are growing. For
example, in the first quarter of 2000: ExxonMobil had a net income of
$3.35 billion, up 108% over the same period last year.
-- ARCO had a net income of $333 million, up 136% over
the same period last year.
-- Chevron had a net income of
$1.1 billion, up 291% over the same period last year.
-- BP Amoco had a net income of $2.68 billion, up 296%
over the same period last year.
-- Texaco had a net income of
$602 million, up 473% over the same period last year.
Subsidies to these and other oil companies are expensive to taxpayers
and encourage our continued reliance on what we have seen is a very dirty and
ultimately unsustainable energy source. Reducing these subsidies could reduce
the pollution associated with oil and release public funding for cleaner,
sustainable energy alternatives like solar and wind. The PIRGs are therefore
very much opposed to any increased subsidies for the oil industry. In fact, we
find it completely unacceptable that the oil industry would ask for more
handouts just as their profits and gas prices are skyrocketing. It is clear that
handouts to the oil industry have not benefited consumers, but are instead being
pocketed by the industry.
Existing direct spending subsidies for the oil
industry, worth $822.5 million over five years, include the
following programs: The Department of Energy's Petroleum Research and
Development Program focuses on enhanced recovery, exploration, and refinement of
crude oil in the U.S. Among the beneficiaries of the program are Chevron,
Texaco, BP Amoco, ARCO, and Phillips Petroleum, mature companies that should not
need government research dollars, especially given their current and growing
level of profits. Gas and Oil Loan Guarantees, started in 1999, provides up to
$10 million in guaranteed loans to individual companies through
private banking and investment institutions, with taxpayers providing the
guarantees. Diesel Engine and Fuel Research and Oil Royalty Underpayment. On
March 15th, the Minerals Management Service released rules to ensure that
integrated oil companies use a fair market price on which to pay royalties to
the federal government, thereby stopping $66 million a year in
royalty losses. Unfortunately, the oil industry, which blocked the release of
these rules for years, has now sued to block these rules from taking effect.
Tax breaks for the oil industry are worth at least $2.8
billion over five years, not including large deductions allowed under the
percentage depletion allowance, for which I was unable to estimate the value to
the oil industry alone. These tax breaks include: The Enhanced Oil Recovery
Credit Program, which allows oil companies up to a 15% income tax credit for the
costs of recovering domestic oil, including costs of equipment, labor, supplies,
and injectants. Intangible Drilling Costs that allow integrated oil companies to
immediately deduct 70% of their intangible costs, such as wages, fuel, repairs,
hauling, supplies, and site preparations, while the other 30% may be deducted
over 5 years. Other businesses must treat these costs as investments in a
property, like the oil itself, and must deduct them over the lifetime of that
property. By allowing faster deduction, these provisions save the oil companies
money, at taxpayer expense. Passive Loss Tax Shelters that encourage investments
in oil companies and promote continued oil exploration by providing tax breaks
for investors and others deriving some income from oil companies. Percentage
Depletion Allowances, which allow oil and gas companies to deduct 15% of capital
investments to reflect the declining value of the well.
III. Proposed
Tax Incentives and Handouts:
Donald Lubick, Assistant Secretary for Tax
Policy of the Treasury Department, recently testified that "the (tax) code has
gone almost as far as it can go, and each marginal tax reduction ....is not
going to help.many people."
For that reason, current proposals to
provide tax exemptions for marginal oil and gas wells, and deductions for the
costs of oil and gas exploration and development are a bad idea. Not only will
they continue to benefit an already profitable industry, at the expense of both
taxpayers and renewable energy sources, but they will most likely not have the
desired effects. Similarly, proposals to provide more royalty relief to
companies that have already been underpaying what they owe by
$66 million a year flies in the face of reason.
Instead, we should be dedicating more tax credits and research dollars
towards wind and solar power. We should also provide tax credits for consumers
who purchase cars that are more fuelefficient than current standards, with the
credit increasing depending on how much above standards the vehicles are.
IV. Recommendations for Steps Towards a Cleaner, More Economical and
More Sustainable Energy Future
The ultimate goal in our national energy
policy should be to move away from energy sources that are both dirty and
non-renewable, such as oil and other fossil fuels, and turn to energy sources
that are much cleaner and limitless in supply, such as solar and wind power.
Such a shift will ensure better national security, as the only sure-fire way to
eliminate our dependence on foreign oil will be to eliminate our dependence on
oil altogether. Finding ways to make solar and wind our major energy sources
will also ensure that we do not have energy shortages and that we leave our
children and their children as clean and beautiful a place as possible in which
to live.
Because oil is finite in supply, we will eventually be forced
to make this switch. Whether we do so in full crisis mode after having destroyed
irreplaceable natural resources and wilderness or in a planned fashion and with
our last wild places still intact will depend on the policies we make today.
With that in mind, I make the following recommendations:
1. Increased
Investments in Renewable Energy and Energy Efficiency: By 2020, nonhydro
renewable energy sources like solar and wind should produce at least one-third
of the nation's power, and the energy efficiency of homes, buildings,
transportation and industries should be doubled. To get to that point, we will
need a massive increase in the amount of direct funds and tax breaks for the
outspent renewable energy research and development programs, and provide further
tax incentives to improve the energy efficiency of buildings and of cars.
2. Saving Oil and Protecting Consumers by Raising CAFE
standards: Until we are ready to switch to renewables, we should
conserve the greatest possible amount of oil. To that end, raising CAFE
standards by 6% per year for a decade would save more oil than we
import from the Persian Gulf and what is projected to be in the Arctic Refuge
and offshore California. Currently, the CAFE standards are the
lowest they have been since 1980, despite the fact that Honda and Toyota are
already marketing cars that can go up to 850 miles on a tank of gas. In 1975,
when the CAFE standards were first imposed, oil consumption
decreased by 3 million barrels a day. We must raise CAFE
standards so that light tracks are held to the same pollution standards
of cars, and all vehicles have a combined average standard of 45 miles per
gallon by 2010 and 65 miles per gallon by 2020. This simple act will not only
conserve oil but also protect consumers against the severe impact of fluctuating
gasoline prices.
3. Preserving Our Wild Spaces: Conserving oil will
remove any argument for drilling in wilderness and open spaces. Pristine
wilderness areas like the Arctic National Wildlife Refuge, which has no roads or
trails and is home to herds of caribou, muskox, bears, wolves and migratory
birds, are irreplaceable. The U.S. Geological Service recently estimated that
there are 3.2 billion barrels of economically recoverable oil in ANWR, which
will last for only 6 months. It would be incredibly shortsighted to destroy this
unspoiled ecosystem for such a small benefit.
4. Stop subsidizing a
mature and profitable oil industry at the expense of taxpayers and the
environment: Finally, we must stop encouraging, through tax breaks and direct
handouts, our continued dependence on oil and other dirty fossil fuels. Enough
is enough oil companies are mature and profitable enough to pay for their own
research. We should reserve our scarce tax dollars for the competitively
disadvantaged renewable energy industry, and start encouraging the production
and use of energy sources that will lead us into a cleaner and healthier future.
END
LOAD-DATE: July 20, 2000
