With production slowing and a few fossil fuel projects on hold, industry is focusing on squeezing taxpayers for every dime they can.
Originally published on the NRDC Expert Blog.
by Joshua Axelrod
While the world shelters in place, and policymakers must prioritize COVID-19 until the current crisis is in hand, polluting industries have, across the board, used this time to push for rollbacks of public safety measures, financial responsibilities, and as much government oversight as they can get away with. They’ve proposed all sorts of policy changes that would extract billions of dollars from American taxpayers.
The fossil fuel industry already gets at least $20 billion in subsidies from the U.S. government each year. Now it wants to use the pandemic as an excuse to siphon off more aid that should be going to taxpayers and communities bearing the brunt of the pandemic’s public health and economic consequences.
Below are some of the fossil fuel industry’s extraordinary bids for relief as it faces the fallout of a decade or more of its own financial irresponsibility.
- In the early days of the COVID-19 crisis, Secretary of the Treasury Steve Mnuchin floated a proposal to appropriate $20 billion, to be spent over 10 years, to fill the Strategic Petroleum Reserve (SPR). Because of current space limitations and the price of oil at the time, this would have allowed the U.S. government to potentially siphon up significant volumes of excess production, creating an artificial price floor for oil out to 2030 — a time by which climate models say we must have made significant progress in ending our fossil fuel consumption altogether.
- The SPR-buy proposals have since gotten a bit more modest, with legislation introduced in both the House and Senate that would appropriate $3 billion for the government to use through the end of 2021 to fill up the SPR.
- Within the CARES Act, signed in March, there are pots of money that fossil fuel companies could exploit, and there is evidence that some have already been awarded millions of dollars. Of particular concern is the $454 billion allocated to “eligible business” — sometimes referred to as the “corporate slush fund” — with few limitations on who can receive the funds, especially after President Trump immediately moved to limit oversight of disbursement.
- Pro-oil Senators and Representatives, as well as some U.S. oil producers, have spent time urging Secretary of the Interior David Bernhardt to suspend royalty, rent, and other financial responsibilities those producers have to the federal government and American taxpayers. Indeed, there are now reports that the Bureau of Land Management is “prioritizing” these requests and has released guidance for companies to navigate the process for making these asks. Similar to SPR purchases, if granted, these financial waivers would total billions of dollars “handed back” to fossil fuel producers.
- There has been a huge amount of lobbying to give fossil fuel producers access to Federal Reserve debt facilities, and recent reporting reveals intense pressure from the fossil fuel industry requesting the Fed to change its rules to allow companies with particularly bad debt to have access to funds. Analysis of existing Fed programs suggests that the fossil fuel industry currently could access up to $45 billion.
- Meanwhile, over at Treasury, which has greater flexibility than the Fed to pick “winners,” Secretary Mnuchin has floated the idea of creating a dedicated lending program for fossil producers, meaning yet more money could be funneled into the industry at rock-bottom financing rates.
- Another group of pro-oil Senators is now proposing a suite of tax break extensions for the industry that would further subsidize coal (which is in permanent and near-total decline in this country) and provide further federal support for enhanced oil recovery — a technology falsely touted as “climate friendly” that is really just another way to pump more oil out of the ground using carbon dioxide.
While all of the above are typical run-of-the-mill “bailouts for irresponsible, polluting industries while failing to build safer, cleaner, more resilient economies,” a few additional proposals demonstrate just how far President Trump and his administration are willing to go to help the fossil industry:
- In perhaps the wildest scheme proposed, President Trump has even suggested that the federal government pay U.S. fossil fuel producers not to produce. In other words, pay them to keep oil, gas, or coal in the ground.
While Trump’s aim would be to boost oil prices, it is ironic to see his proposal sync up with strategies of climate campaigners around the world. For years, some climate advocates have proposed nationalizing bankrupt oil and gas producers to allow the government or some other entity to wrap up their business, end production, and safely keep their potential future carbon emissions underground. Smart policy — something the President’s idea does not approach — would make sure that government spending to keep oil in the ground was used solely to support the oil and gas workforce and states and other localities dependent on fossil fuel revenues, not shareholders, owners, and executives of these companies.
And here’s a final doozy that would actually have U.S. oil producers paying the U.S. government, but shows the lengths that some in the U.S. fossil industry are willing to go to prop up prices using federal resources:
- In a sign of how desperate some oil producers are, and how near to overflowing crude oil storage is globally, the Department of Energy is considering plans that would allow producers to pay the U.S. government to store oil in the SPR. This would be similar to the negative oil prices that occurred in mid-April, where producers are forced to pay buyers to take oil off their hands. But, at least for a period, the net effect would once again be to siphon up oversupply and artificially boost oil prices.
At the end of the day, the fossil fuel industry should not be receiving bailouts. For the millions of Americans suffering from job losses, what’s essential is to provide fair treatment to protect workers across all industries, including those suffering through one of the many boom and bust cycles in the oil and gas industry. This will help address the economic hardships workers currently face and support a just transition to a non-extractive economy. The undeniable fact is that the depth of the fossil fuel industry’s pain is of its own making, especially in the U.S. Rampant borrowing, unchecked production growth, irresponsible leasing, dividend payments — the list of financial freewheeling is long and points to one fact: the industry chose to remain willfully blind to the economic cracks in its rosy façade and did nothing to prepare for a downturn or even a mild economic shock.
When we get beyond the perfect storm of COVID-19 and the Saudi Arabia–Russia price war, it will become clear what a waste it would be to give handouts to the fossil fuel industry. Many remedies above would create a situation where the price of a given fossil fuel falls below a certain level because the government has paid money or bought up barrels to keep the price artificially high. This market manipulation would only last for as long as the policy is in place. For example, allowing the government to fill petroleum reserves until the end of 2021. At that point, if production was still outstripping consumer demand — a plausible scenario given signs that we are heading toward an economic depression — another price collapse could be just over the horizon. It would be a smart bet that industry would then come knocking again, desperate for the next handout and providing proof that throwing billions of American tax dollars down oil wells is not a policy that brings any lasting benefit except to companies whose entire financial model is increasingly unsustainable.
Then there is the omnipresent reality of accelerating climate change. COVID-19 has provided a real-life, accelerated picture of what happens in energy markets when policymakers fail to prepare for either shocks to the system (global pandemics) or long-foreseen systemic risks (climate change) and to implement structural, durable, and beneficial reforms. Climate forces us to transition away from fossil fuels. Ignoring that reality is inviting a longer, more painful version of the economic hardships we’re experiencing now.
Instead of throwing money at the fossil fuel industry with all of its current flaws, unwillingness to adapt to our climate reality, and brazen disregard for human health and well-being, there are proactive policies we can pursue today. As my colleague outlines in detail, these include:
- Supports for workers suffering adverse health consequences from careers spent in the fossil fuel industry.
- Increased funding for mine and well reclamation and cleanup directives already enacted under federal law.
- Increased funding for energy transition, economic diversification, and job training efforts already taking place on the regional level through several existing federal programs.
If pursued at the scale necessary to confront climate change realities, policies that channel resources to local governments and regions can create an economically sound transition away from fossil fuels that protect today’s fossil fuel workers from the economic strain common in their boom and bust industry. At the same time, we can redeploy the fossil fuel workforce, with proper investments, into other industries that don’t sacrifice public health and the environment, such as the clean energy sector, since America ultimately needs to wean itself off of dependence on fossil fuels altogether.
Few, if any, industries receive the amount of government support that props up the fossil fuel industry. From direct subsidies, to tax breaks, to regulatory exemptions, the industry and its executives have long enjoyed a preferential status that needs to end. Meanwhile, the needs of workers and fossil-fuel-dependent communities must be met and we need to build an economic future free of fossil fuels.
The future does not run on fossil fuels. Taxpayer funds should be invested in the economy of the future, not a fading fossil past.
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