Web Only / Features » January 13, 2017
Either Rex Tillerson Lied Under Oath, Or He Doesn’t Understand How Fossil Fuel Subsidies Work
At Wednesday’s confirmation hearing, Trump’s secretary of state pick denied that Exxon Mobil receives subsidies. It does.
If those subsidies were redacted, some 20 billion barrels of oil could stay in the ground.
It was after a long day downplaying climate science, playing coy about human rights abuses and “forgetting” basic details of his 41-year career at ExxonMobil that the company’s former CEO and prospective Secretary of State—Rex Tillerson—got a question from Sen. Jeanne Shaheen (D-NH) about fossil fuel subsidies.
Referring to the G20 nations’ 2009 commitment to phase out fossil fuel subsidies, she asked, “If confirmed, how would you as Secretary of State follow through on our international commitment to phase out those … subsidies?”
“I am not aware of anything the fossil fuel industry gets that I would characterize as a subsidy,” Tillerson answered flatly. “Rather it’s simply the application of the tax code broadly that applies to all industry.”
“How people should see that is Rex Tillerson lying under oath,” says Janet Redman, U.S. Policy Director at Oil Change International. The IMF, World Bank and World Trade Organization all refer to the kinds of special treatment Exxon and other fossil fuel companies receive through the tax code as subsidies.
In fact, Redman says, fossil fuel companies collect some $17 billion in state and federal subsidies each year. Exxon alone could reap as much as $1 billion in tax relief. Though federal reporting requirements don’t mandate companies to report which subsidies they enjoy, tax breaks like Intangible Drilling Costs apply specifically to (predictably) drilling operations that can only be performed by corporations in the oil, coal and natural gas business.
A new report (summarized here) from the Stockholm Environment Institute and EarthTrack finds that 45 percent of discovered but not-yet-developed oil reserves in the U.S. would depend on energy subsidies to be profitable at current oil prices. This means that if those subsidies were redacted, per the G20 nations’ commitment, some 20 billion barrels of oil could stay in the ground. “The effect of that is not building 100 coal fired power plan and letting them run for 23 years,” Redman says. If burned, the study estimates, the subsidized reserves would account for a full 1 percent of the carbon the world can burn—and up to a quarter of the oil the U.S. can burn—to keep a decent chance of staying below 2 degree Celsius temperature rise.
Part of the reason that so much further oil development is dependent on subsidies is that oil prices have faced a sluggish recovery since crashing in 2016. But even if those prices rebound, Redman says, “the subsidies will still flow. That money will just go directly to corporate pockets, which gives them more cash on hand to do more exploration or to pay lobbyists or make contributions to congressional campaigns.”
In other words, funds freed up by subsidies can be put toward things like Exxon’s considerable lobbying budget and pool of funds for climate denying think tanks, which it has funded to the tune of more than $33 million since 1998.
Redman adds, “These companies—some of the wealthiest and most powerful in the world—are not paying their fair share of taxes.”
Tillerson pled similar ignorance earlier in the day, stating that “to my knowledge, Exxon never directly lobbied against sanctions.” As several outlets pointed out, this isn’t true: While Tillerson was CEO, Exxon lobbied Congress on three different sanctions bills. (Exxon responded directly to the exchange via Twitter.)
But he isn’t alone in claiming subsidies aren’t really subsidies. In a 2016 report, the American Petroleum Institute—the lobbying arm of the fossil fuel industry, of which Exxon is a member—called the idea of fossil fuel subsidies “a well-circulated myth,” claiming “ there are no targeted tax credits currently being used by industry.”
Of course, Tillerson is in the running to be Secretary of State, not a fossil fuel lobbyist. If he is confirmed, those lines could become more blurred than ever.
Kate Aronoff is a Brooklyn-based journalist covering climate and U.S. politics, and a contributing writer at The Intercept. Follow her on Twitter @katearonoff.