Policymakers are talking a lot about energy and energy policy. What follows are some of the most frequently heard claims and proposals emanating from the campaign trail, along with realities that need to be considered when evaluating these claims.
RHETORIC: Oil Companies are to blame for the high price of gasoline.
REALITY: There are many factors affecting the price of gasoline.
- More than 80 cents of every dollar spent at the pump goes to the price of crude and taxes. The price of crude oil is set on global markets, not by oil companies, and it accounts for more than 70 cents of every dollar of gasoline price. And the government takes nearly twice as much in taxes (13 cents) as the industry makes in profit (fewer than 8 cents).
- While gasoline prices have increased dramatically this year, the price of crude oil has increased by $1.21 per gallon in 2008, compared with the price of gasoline, which is up 80 cents per gallon.
- Demand is strong in both mature economies and the developing world, especially in China, India and the Middle East. The market impact of tight supplies has been exacerbated by political instability, resource mismanagement and weather. Finally, the decline in the value of the dollar against other currencies has put American consumers at a disadvantage.
RHETORIC: Oil and natural gas companies are demanding greater access to America’s resources even though they own leases on millions of acres of federal lands that are already open to drilling. They would rather sit on these idle leases and make record profits than increase production. If they’re not willing to produce on these idle leases, they should hand them over to someone who will.
REALITY: Just because a lease is not producing oil or natural gas doesn’t mean it’s idle. Companies are actively exploring and developing the majority of their leases, but the entire process takes years and requires many steps, including securing government permits, analyzing seismic data and installing the machinery needed for drilling and production. Many leases prove not to contain enough oil and natural gas to be commercially viable, and companies can’t produce oil and natural gas where it does not exist. Over the past five years, American companies have paid billions to obtain federal leases, and if they don’t develop leases within a certain period of time, they return them to the federal government, forfeiting all investments.
RHETORIC: We can’t just drill our way to energy security – it won’t make a difference.
REALITY: At a time when we need all the energy we can find, increasing access to domestic sources of oil and natural gas would enhance our energy security. We have enough oil and natural gas resources to power 65 million cars for 60 years and heat 60 million households for 160 years. But more than 85 percent of coastal waters adjacent to the lower-48 states are off-limits to oil and natural gas exploration.
RHETORIC: Allowing oil companies to drill would ruin the environment on our lands and off our coasts.
REALITY: The industry has researched and developed breakthrough technologies, such as 4D seismic imaging and multi-directional drilling, which have helped reduce the industry’s environmental footprint dramatically. For example, today it’s possible to develop nearly 80 square miles of area below the surface from a single two-acre site on the surface.
RHETORIC: We need to get off oil and use renewable and alternative energy instead.
REALITY: The U.S. Department of Energy estimates that fossil fuels will continue to meet at least 80 percent of energy demand, both in the United States and globally, through 2030, even with tremendous growth in alternative and renewable sources of energy.
RHETORIC: U.S. oil companies have refused to invest in alternative energy and other clean technologies.
REALITY: The U.S. oil and natural gas industry invested almost $100 billion between 2000 and 2005 in emerging energy technologies, including $12 billion in non-hydrocarbons and $42 billion in greenhouse gas emission mitigation technologies from 2000 to 2006.
RHETORIC: Oil companies are making record profits and we should impose a windfall profits tax on them.
REALITY: While company profits are large in dollar terms, the earnings of oil companies aren’t much higher than those of the S&P Industrials. In fact, it is only in recent years that they have matched or exceeded those returns. Oil and natural gas industry profits are in line with other manufacturing industries. And there is no credible evidence that raising taxes on them would lower fuel prices.
RHETORIC: It’s time to end tax breaks for Big Oil and make these companies pay their fair share in taxes.
REALITY: Oil companies already pay on average almost twice as much in income taxes as other U.S. manufacturing companies – 40.7 percent, as a share of net income before income taxes, compared with 22.1 percent for other industries.
RHETORIC: Oil company executives and other company insiders are profiting at the expense of working class Americans.
REALITY: Tens of millions of Americans, many of them middle-class, own shares of oil company stocks through IRAs and mutual and pension funds, and they benefit from strong company earnings. Only 1.5 percent of industry shares are owned by corporate management.