Our $24 Billion Oil Rig: Why Are We Giving Giant Handouts to the World's Richest Companies?

Let me put it simply: the continued existence of oil subsidies amounts to one of the most obvious and enduring failures of American democracy.

Hyperbole isn't my thing. But I'll stand by that sentence—no matter how closely it may resemble some sophomoric screed plucked from the annals of high school newspaperdom—until Congress figures out how to stop funneling billions of taxpayer dollars into oil industry coffers every year.

Here is why: Nobody likes oil subsidies. Nobody except for oil companies and their immediate and indirect beneficiaries.

The oil industry is home to the most profitable companies in the world, companies that make record profits when prices soar at the pump. Together the big five companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — earned a total of $33.5 billion, or $368 million every day, during the first three months of 2012, even as oil production declined. That's on top of a combined record profit in 2011 of $137 billion. On average, during the first quarter of 2012, oil CEO compensation grew by a shocking 55 percent.

And yet these companies receive between $10-40 billion dollars a year in tax breaks and direct subsidies (A recent report by Double Bottom Line Venture Capital says that the industry has reaped an average annual subsidy of $4.86 billion since subsidies began in the U.S. in 1918; by comparison, the nuclear energy industry gets around $3.5 billion per year. And as a new report by the Brookings Institution, the World Resources Institute and the Breakthrough Institute points out, unless Congress makes a move, government subsidies for clean energy is set to drop from a peak of $44.3 billion in 2009 to $16 billion this year and $11 billion in 2014 — a 75 percent decline.)

The government’s oil money has been gushing for decades upon decades. Some subsidies were originally designed to help oil companies recover the costs for exploration and recovery, others to help them write off taxes they pay for doing business in other countries.

But if you've spent any money on gas recently, you would have noticed that oil subsidies don't keep oil prices low. The (ostensible) aim of subsidies is to help fledgling or struggling industries we deem important compete with entrenched ones—we subsidize clean energy companies because everyone agrees more solar and wind power is a good thing, but neither can compete with coal or natural gas as the market currently exists. However, at a time of soaring oil prices – due to Middle Eastern turmoil, the rising cost of crude, high demand, and the sinking value of the dollar – there has never been a richer, more established, more profitable industry than modern day Big Oil.

Even the former CEO of Shell says the industry can live without subsidies. About this there is little disagreement. Below, find a brief list of the various parties that have voiced, on the public record, a desire to end federal handouts to oil companies:

• 74% of Americans, as per the most recent poll
• Barack Obama
• George W. Bush
• Nearly every Democratic senator
• Republican Speaker of the House John Boehner

Scan that list again. Shouldn't the stated, unambiguous opposition to an expensive policy registered by each of those parties be sufficient to eliminate said policy in a functioning democracy? If three-quarters of all Americans want oil subsidies killed, along with the president of the United States, a bipartisan coalition of congressmen, and the heads of the companies themselves, how could the fact that they continue to stick around be justified in a democratic system?

It can't.

There's only one reason that oil subsidies continue to be awarded to the most profitable companies on the planet, and it has nothing to do with consensus-based decision making, rational policy analysis or the democratic process. It's because the oil companies like their subsidies, and their deep pockets and towering influence in the beltway speak louder than 74% of Americans. Thus, in Washington,

The policy preference of 230 million Americans < The financial objectives of Big Oil.

On March 29 the Senate voted down the Repeal Big Oil Subsidies Act, S. 2204 (pdf), sponsored by Sen. Robert Menendez (D-NJ), which would have eliminated $24 billion in tax breaks over the coming decade for the big five oil companies while investing in clean energy technology. This included an extension of a production tax credit for wind energy, intended to save 37,000 jobs. The bill received a majority of votes, 51 to 47, but this was nine short of the votes required for passage. Meanwhile, House Republican leaders are proposing to cut investment in things like women's health programs in order to avoid rises in student loan interest rates.

In spite of their massive profits, the major oil companies insist that cutting subsidies would raise oil prices and hurt jobs. They make their case through massive campaign donations (overwhelmingly, these days, to Republicans), and with one of the slickest and best fleets of lobbyists on the Hill. For instance: When the Senate voted most recently to preserve $24 billion in handouts to the biggest five oil companies, a quick background check revealed that, combined, the pro-subsidies senators have received $23.5 million in campaign contributions from the industry.

Over in the House of Representatives, the chair emeritus of the House Committee on Energy and Commerce is Rep. Joe Barton (R-TX), he who famously apologized to BP at the height of the Gulf Spill. He's the oiliest member of Congress; he's received over $1.6 million from the oil and gas industry, and can consistently be counted on to do its bidding. The oil industry gave a total of $347 million in campaign contributions to the 111th Congress, and received, in return, $20 billion in subsidies from that same Congress, which would be a 5,900% return on investment. The entrenched economic stakes of oil aren't limited to the U.S. of course: the International Energy Agency estimates that subsidies for fossil-fuels like oil and coal amounted to $409 billion in 2010, a figure expected to rise to $600bn by 2020, or 0.7 per cent of global GDP.

Presidential candidate-to-be Mitt Romney is plenty oil-soaked as well—his campaign and primary Super PAC have already collected over $1.75 million in contributions from oily donors this year. Though he hasn't explicitly stated whether or not he supports repealing the industry's tax breaks, I'd invite you, dear reader, to take a wild guess about what tack he'd take.

The handouts aren’t just lining big oil’s pockets, but shifting the industry’s tax burden to the middle class taxpayer. As Martin Sullivan, a former Treasury official, told the Times in reference to Apple’s billions in avoided taxes, "when America's most profitable companies pay less, the general public has to pay more." But it simply doesn't matter how many Americans want to do away with the handouts: the promise of financial and tactical support from the nation's largest and richest corporations easily overrides a candidate's allegiances to his or her constituents.

Every year, Democrats make a show of trying to repeal oil subsidies. Most recently, Obama has led the charge. They know that they will likely be met with failure, but they know that oil subsidies are so damn unpopular with Americans that the spectacle will inevitably tarnish the GOP's image, if only marginally and ephemerally so.

But such is the enormity of the influence of the oil industry that the GOP is willing to take that flack, time and again. Any accrued unpopularity is just collateral damage. Under the current formula, it's worth it to politicians to buck voter demands for the sake of keeping Big Oil in their corner.

And that is a failure of democracy. There is no other way to put it. Because of the influence wielded by a few corporations and wealthy individuals, government is unwilling to adapt to the very clear-cut demands of the people. Oil subsidies mark the spot where our democracy breaks down, the smaller-ticket policy preferences that are out of bounds to the demands of the American people.

There's little sign that anything is likely to change soon. Nonprofit groups like 350.org and green powerhouses like the Sierra Club regularly inveigh against the injustice inherent in a system that heaps billions on Big Oil and is increasingly stingy with the kinds of cleaner energy we actually need more of. We should be using that money for developing renewable sources, they argue, and they're right. Besides, if the subsidies vanished, no one would notice except oil industry execs—gas prices would barely be affected in the short term. It'd merely help level the playing field for alternative fuels. But as long as capital has free reign over Washington, that's simply not going to happen.

In a functioning democracy, no policy is invincible. Monied interests have erected a wall around them, and there's literally nothing we can do to break it. Well, almost nothing. We could build a more functioning democracy.