Subsidies for oil and natural gas companies – why they’re not so good for our future

Under President Obama’s new budget plan, one proposed new source of revenue is from taxes and royalties from oil, natural gas, and coal companies. Currently there are many tax breaks that oil, gas, and coal companies can take advantage of. One tax break, mentioned by the Wall Street Journal is the Section 199 deduction. According to the IRS, this incentive allows (mainly) energy companies to deduct from 6 to 9% of qualifying income. President Obama has asked Congress to repeal the tax breaks for oil, natural gas and coal companies in an effort to raise revenue for his proposed budget. The second part of the proposed plan aims at increasing royalties that are gathered from energy production by private companies on federal lands and in federal waters.

What’s the reasoning for removing tax breaks for the above-mentioned energy companies? Well, if these tax breaks were removed, 44 billion dollars of revenue would be raised over the course of ten years. The increase in royalties would lead to 2.5 billion dollars in increased revenue in the same time period. 46.5 billion dollars would put only a small dent in the budget deficit, but it’s a start. President Obama plans to use 2 billion dollars from all the revenue generated from eliminating tax breaks and increasing royalties to fund clean-energy research.

With removed tax breaks, it is quite likely that oil, natural gas, and coal companies will increase the prices they charge consumers in an effort to maintain after-tax profit margins. If that is the case, then consumers of electricity, heating, and gasoline will be negatively affected in the short-run. However, I believe there will be a positive long-term impact. Non-renewable energy companies may find that they need to diversify into renewable energies as tax obligations increase. Also, if consumers are in fact negatively impacted by higher prices, they may use less energy by driving less, making their homes more energy efficient, and investing in higher-MPG vehicles. This, of course, is all speculation.

What is known for sure is that the money for the proposed budget has to come from somewhere and the proposed actions will help the United States move towards cleaner energy and less dependence on foreign oil.

Oil and Coal companies should receive no subsidies. They should, actually, be taxed more heavily because they produce negative externalities: pollution. Natural Gas is the better, cleaner alternative to the above-mentioned fossil fuels, but it is still a non-renewable source of energy.

Drive a lot? Switch to natural gas

Waste Management recently switched their garbage trucks to Compressed Natural Gas. Two months ago, the first natural gas powered food truck was introduced in New York by Mayor Bloomberg. And taxi cab drivers in Afghanistan are converting their cars to compressed natural gas in increasing numbers specifically because it is much cheaper than gasoline. Companies are switching their fleets to natural gas, still at a small, but ever-increasing rate. So should you be converting your vehicle to natural gas too?

Well, the downsides can’t be overlooked. To start, to convert a vehicle to natural gas requires you to give up most, if not all, of your trunk space because of the large natural gas containment tank required. Also, there are relatively few compressed natural gas fueling stations available. Prices of natural gas a volatile and fluctuate based on the season.

Now, the bright side. The relatively cheap price of natural gas is what’s driving many companies to switch to its use in company vehicles.

Average price per gallon:

• Regular Gas: $3.57
• Diesel: $3.98
• Compressed Natural Gas (Gallon Equivalent): $2.11

Natural gas is the cleanest burning hydrocarbon which means it’s better for environment and for our health. The EPA is currently planning to introduce new rules that would reduce the amount of sulfur in gasoline from 30 parts per million to 10 ppm which would increase the cost of gasoline production by roughly 10 cents per gallon, the Wall Street Journal reports. This plan comes in an effort to reduce smog and is backed by the Obama administration. According to the American Lung Association, the use of lower-sulfur gasoline in cars currently on the road would be the equivalent of taking 33 million cars off the road in terms of its effect on pollution.

Is using natural gas really better for the environment than using oil? That’s hard to say because while natural gas burns cleaner, the extraction method of fracking, which has made natural gas so cheap is a controversial method which pollutes surrounding bodies of water.

There is a calculator offered on www.cngnow.com that allows you to plug in how far you drive yearly and then calculates for you the fuel savings and break even point of converting your vehicle to CNG. The average American drives about 13500 miles per year, in a passenger vehicle that gets 22.5 MPG. That American wouldn’t get her investment for a basic conversion system back until after 7 years after installation

My findings are as follows: If you drive long distances weekly, don’t use all the space in your trunk, can afford a small upfront investment and want tremendous fuel cost savings then it’s time to convert to natural gas. Otherwise, you may want to wait a few more years until prices for conversion kits drop, oil prices rise, natural gas prices decrease even more, or you start having to commute longer distances