Obama budget seeks to end oil, gas subsidies

WASHINGTON Mon Feb 1, 2010 4:16pm EST

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WASHINGTON (Reuters) - The Obama administration on Monday asked Congress for a second time to end some $36.5 billion in subsidies for oil and gas companies, saying it would help fight global warming.

In its proposed budget for the government's 2011 spending year that starts October 1, the administration said eliminating the subsidies would "foster the clean energy economy of the future and reduce our reliance on fossil fuels that contribute to climate change."

The industry tax breaks that would be lost include: deductions for certain drilling costs, tax credits for low-volume oil and gas wells and a manufacturing tax deduction for oil and gas companies.

"We will not continue costly tax cuts for oil companies," President Obama said.

The changes would take effect on January 1, 2011, and save $36.5 billion over 10 years, according to the budget proposal.

This is the second year the administration has sought to end the subsidies. The move has been strongly condemned by oil and gas companies, which argue that abolishing the tax breaks would reduce domestic drilling, cost jobs and increase U.S. reliance on foreign energy suppliers.

"With America still recovering from recession and one in 10 Americans out of work, now is not the time to impose new taxes on the nation's oil and natural gas industry," said Jack Gerard, president of the American Petroleum Institute.

Devon Energy Corp spokesman Bill Whitsitt said repealing the tax breaks would "slow down a real revolution" in growing natural gas exploration.

"We applauded the president last week during his State of the Union address for stating his desire to increase domestic energy production," said Charles Drevna, president of the oil refiners trade group. "The additional taxes on our businesses run counter to those stated objectives, however, and will do nothing to stimulate increased investment."

U.S. Interior Secretary Ken Salazar disputed the oil and gas industry's contention that removing the subsidies will slow domestic oil and gas production.

"All you have to do is to look at record profits in the oil and gas world over last several years and, in my view, you're going to continue to see a great interest in oil and gas because it's an essential part of our economy today," Salazar said. "I think the oil and gas industry will do just fine."

The White House justified its action by pointing out that the United States and other industrialized countries agreed last year to phase out fossil fuel subsidies, which could reduce global greenhouse gas emissions by 10 percent.

It also said ending the subsidies would not have much of a financial impact on energy companies, as $36.5 billion represents about 1 percent of expected domestic oil and gas revenues over the coming decade.

While the Obama administration slammed the oil and gas industry in its budget, renewable energy got a funding boost.

Research and development for solar energy was given $302 million, up 22 percent; wind energy received $123 million, a 53 percent increase, and geothermal energy was given $55 million, up 25 percent.

(Additional reporting by Ayesha Rascoe and Joshua Schneyer; Editing by Walter Bagley)

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Comments (7)
What a clown. Hello, higher energy prices. At least it’s all in the name of faked Global Warming. My family will feel much better about paying more for energy as we shiver through another Global Warming snowstorm.

Feb 01, 2010 11:58am EST  --  Report as abuse
Workonthis wrote:
Last week during the discussions of industry leaders in Davos, Shell CEO Peter Voser stated the oil industry would have to find up to $27 trillion of investment over the next 20 years to meet demand. Ending these $36.5B in subsidies will have a minuscule impact on the oil industry. It will also fail to promote alternative energy systems. I hope Mr. Obama’s new budget does a lot more promoting and a little less tweeking of our energy problems.

Feb 01, 2010 12:11pm EST  --  Report as abuse
Obama is just twisting the knife he’s put in the back of the economy. So-called “green” energy is aptly named, because it takes so much more green from our pockets. It will never be as efficient as what we have at our disposal already, coal, natural gas, oil, and nuclear. The progressives only ensure that the collective is equally miserable. Come on, get here November, 2010! It feels like forever before we can vote these fools out.

Feb 01, 2010 12:44pm EST  --  Report as abuse
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