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White House Goes After Oil And Gas Subsidies--Again

There's plenty of thrilling budget news today, what with the president's proposal for the 2011 fiscal year now up on the OMB site. On energy matters, the big eye-catcher is the fact that White House wants to scrap some $36.5 billion in tax breaks for fossil-fuel producers over the next decade:

For the petroleum industry, the cuts primarily come from repealing companies' ability to write down depletion of wells and intangible drilling costs such as renting rigs and axing the domestic manufacturing tax deduction. The administration also increased the amortization period for independent producers for some exploration costs, costing the industry $1.1 billion over the next decade. ...

The White House targeted $2.3 billion in similar tax benefits for the coal sector between 2011-2020.

It's not like this idea materialized out of thin air. Last year, the G-20 nations all pledged to start phasing out fossil-fuel subsidies as a step toward reducing greenhouse-gas emissions. The White House is proposing to redirect some of that money toward cleaner energy sources: The budget also has $5 billion in new loan guarantees for renewable projects and $36 billion in new loan guarantees for nuclear reactors. Though, granted, the president can propose whatever he wants; what really matters is whether lawmakers follow through. And the tax breaks for oil and gas producers have a lot of support in Congress—last year, in the FY2010 budget, the White House wanted to repeal $31.5 billion worth of fossil-fuel subsidies, and that idea was buried.

Meanwhile, it's worth asking what effect this would actually have on oil and gas production. The petroleum industry responded to the news this morning by predicting doom. But for another view, economist Alan Krueger went before Congress last September and estimated that junking the tax breaks would only decrease domestic production of oil and gas by less than 0.5 percent. Natural gas prices would, in the absolute worst case, nose up by about 1 percent, while world oil prices would hardly budge at all (that's because U.S. oil production is relatively small in the global scheme of things). Of course, that also means that, by itself, repealing the subsidies won't have a huge environmental impact, either.

(Flickr photo credit: mikebaird)