Washington—Senators Dianne Feinstein (D-Calif.) and Bill Nelson (D-Fla.) today introduced two bills to reduce federal subsidies for oil companies that conduct spill-prone, deep-water drilling.
Deepwater Drilling Royalty Relief Prohibition Act
Feinstein’s Deepwater Drilling Royalty Relief Prohibition Act ends federal incentives for deep-sea oil and natural gas drilling, prohibiting the Interior Department from waiving royalty payments that oil companies would otherwise pay in order to drill for oil and gas resources in waters deeper than 400 meters.
“The BP spill illustrated just how devastating oil spills in deep water can be. But even though we understand the great risks and lack the technology to drill safely, unwise incentives that push oil companies to drill deeper and deeper remain in place,” Feinstein said. “While oil companies continue to collect record profits, the government should not lose out on royalties that could fund clean energy deployment. This is especially egregious at a time when federal budgets continue to contract—it’s time to end this practice and collect reasonable royalty payments from large oil companies for exploitation of public resources.”
The bill takes two specific actions. First, it repeals Section 345 of the Energy Policy Act of 2005 that mandated royalty relief for Gulf of Mexico drilling in waters exceeding 400 meters. Second, it prohibits the Secretary of the Interior from using discretionary authority to provide royalty relief for oil and gas drilling with regard to drilling in waters more than 400 meters deep.
Five of the largest oil companies—BP, Chevron, ConocoPhillips, ExxonMobil and Shell—made a combined $118 billion in profits in 2012. But the big three American oil companies (ExxonMobil, Chevron and ConocoPhillips) paid effective federal tax rates in 2011 of only 13 percent, 19 percent and 18 percent respectively.
Oil Spill Tax Fairness Act
Nelson’s Oil Spill Tax Fairness Act changes the tax code to deny tax deductions for oil spill-related expenses including legal, clean-up and other costs. Under current law, a company responsible for causing an oil spill is also responsible for the cost associated with cleaning that spill up.
Nelson’s legislation would prevent that company from then turning around and writing those expenses off as a tax deduction. His measure was spurred by BP’s efforts to write off its clean-up expenses after the 2010 Deepwater Horizon explosion in the Gulf of Mexico created one of the largest oil spills in U.S. history.
“Given the record profits of the big oil companies, I don’t think they need any more help from taxpayers,” Nelson said.
The clean-up requirement is in essence a fine intended to deter oil companies from taking risky actions that might increase the risks of spills. By allowing them to claim a tax deduction for these fees, the deterrent’s effect becomes greatly limited.
The Oil Spill Tax Fairness Act would prevent an oil company from deducting legal, clean-up and other costs associated with oil spills as an “ordinary and necessary” business expenses under section 162 of the tax code. The legislation would apply to those responsible for an oil spill in U.S. territorial waters. It would not, however, apply to expenses caused by a natural disaster or an act of war.