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.

Kate Aronoff January 13, 2017

Rex Tillerson at his senate confirmation hearing for secretary of state. (Melina Mara/The Washington Post via Getty Images)

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.

If those subsidies were redacted, some 20 billion barrels of oil could stay in the ground.

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.
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