Pompeo Bill Would Increase Petroleum Favoritism in Tax Code

Press Contact: Monte Shaw


Petroleum’s Century of Subsidies Protected While Alternatives Attacked

JOHNSTON, IA – The Iowa Renewable Fuels Association (IRFA) today reacted to a bill introduced by U.S. Rep. Mike Pompeo (R-Kan.) dubbed the “Energy Freedom and Economic Prosperity Act.”  The bill eliminates tax credits for new industries attempting to compete with petroleum while maintaining billions in taxpayer subsidies for Big Oil.

Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw stated:  “Rep. Pompeo’s bill ought to be named the ‘Petroleum Monopoly and Big Oil Prosperity Act.’  It’s hard to take seriously the Congressman’s comment that we can’t afford ‘taxpayer-backed subsidies to companies that don’t need them’ when his bill does not eliminate a single oil subsidy currently in use.  Rather the bill leaves intact oil subsidies that date back literally 100 years for the most profitable industry in the history of the world.  If the question is, ‘When can Big Oil stand on its own two feet without a taxpayer crutch?’ then Rep. Pompeo’s answer is apparently ‘not yet.’”

Pompeo’s bill immediately eliminates every tax credit for alternatives to petroleum, including cellulosic ethanol, biodiesel, and even wind.  However the bill only eliminates two small petroleum tax credits (marginal well incentives and enhanced oil recovery credits) that only go into effect when crude oil prices are well below current levels.  Ironically, despite the immediate elimination of all things alternative, the oil tax subsidies would not be eliminated until the end of 2014.

Left untouched in Pompeo’s bill are the petroleum tax subsidies that currently cost taxpayers billions each year including:

  • Percentage depletion allowance
  • Intangible drilling costs expensing
  • Deduction for tertiary injectants
  • Exception from passive loss limitations for oil and gas
  • Oil and gas excess percentage over cost depletion

Shaw continued:  “This bill simply tilts government policy even further in favor of petroleum.  Big Oil continues to be protected by the federal petroleum mandate and federal oil pipeline loan guarantees.  But that’s not enough.  Big Oil also wants to maintain its current smorgasbord of tax subsidies while cutting off alternatives.  Isn’t it embarrassing that the corn ethanol industry was mature enough to give up its tax credit after 30 years, but the oil industry is clinging to its Century of Subsidies?”

Western Capital Energy Development notes:  “The immediate deduction of the intangible drilling costs is very significant, and by taking this up front deduction, the risk capital is effectively subsidized by the government by reducing the participant’s federal, and possibly state income tax.”  Investopedia.com adds:  “No other investment category in America can compete with the smorgasbord of tax breaks that are available to the oil and gas industry.”

Shaw concluded:  “It’s time for a serious, well rounded review of America’s energy tax policy, but clearly the Pompeo bill is not the starting point.  This bill represents a big government, nanny-state approach to protecting Big Oil.”

Iowa is the leader in renewable fuels production.  Iowa has 41 ethanol refineries capable of producing over 3.7 billion gallons annually, with one wet mill and two cellulosic ethanol facilities currently under construction. In addition, Iowa has 12 biodiesel facilities with the capacity to produce 315 million gallons annually.

The Iowa Renewable Fuels Association was formed in 2002 to represent the state’s liquid renewable fuels industry. The trade group fosters the development and growth of the renewable fuels industry in Iowa through education, promotion, legislation and infrastructure development.