And Then There’s The Things You Couldn’t Even Make Up
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Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942 There are things in this world which simply look plain stupid, and
[See the full post at: And Then There’s The Things You Couldn’t Even Make Up]Roel, This OECD governments subsidising oil companies thing has been bugging me for a very long while. Below is my understanding / view of things. Appreciate if you can correct me where I go wrong and explain your side.
The oil industry can be split into maybe 5 parts:
1. Exploration
2. Development (building pipelines and platforms)
3. Production
4. Refining
5. RetailIt is traditional in OECD accounting practices that CAPEX can be paid over the life of the asset (offset against tax initially – you get a big tax rebate that you then repay over time). In the oil industry, exploration costs are counted as CAPEX initially. Successful exploration effort gets charged to profits over the life of the asset. Unsuccessful exploration costs have no asset to charge against and companies are allowed to write down these losses against their aggregate pool of assets. The $88 billion so called subsidy is I believe simply $88 billion of losses that oil companies get to write off against the substantial taxes they pay.
So what is the aggregate tax bill paid by the oil industry world wide? I don’t know. I hope someone can answer. In the UK, companies producing oil pay something like 65% tax on the oil produced. And then there is an additional 60+% tax paid by consumers at the pump. Virtually all the revenue ends up in the hands of the government – and you are portraying this as a subsidised industry.
Without the exploration relief there would be no exploration and there would not have been exploration which would mean that you and none of your readers would be here!
In the UK the renewables industries are running on consumer paid subsidies – ROCs and FIts – paid for mainly by the poor. The oil industry forks out a huge amount of tax that pays for the hospitals and well fare that keeps the poor alive.
Happy to be corrected if my view of the Orwellian Greenspeaking Gruniad is at fault.
PS – looking at your $37 billion to $88 billion graphic, I believe it is this way because the ol industry PAYS SO MUCH TAX!
37+88 = 125
88/125 = 70%It is the very fact that the oil industry pays such a high rate of tax that makes these numbers.
PPS – in fact I think unsuccessful exploration is treated as R&D – and anyone who knows anything about the oil industry will know that exploration is innovative R&D out of the top drawer.
I’m not 100% sure of my facts here. But if I’m correct, then the general tenor of the Gruniad is that unsuccessful R&D expenditure should no longer be tax deductible. Good luck to the world with that!
Roel, sorry about leaning on TAE on this one. I may be wrong. But its an itchy itch that has been itching a long while.
Government support and subsidies are everywhere. Step right up and get your Obamaphones!
“The $2 billion a year Lifeline program has handed out more than 13 million free cellphone plans across the country in the first six months of this year. In Colorado, the program handed out more than 117,000 free cellphone plans in the first half of this year, or about 20,000 cellphones every month.”
Who is getting rich off of this? The cellphone providers who get paid for the service each month AND for providing the cellphones. Plus, “Payouts under the program have shot up from $819 million in 2008, as more wireless carriers have persuaded regulators to let them offer the service.” I bet they have. “Americans pay an average of $2.50 a month per household to fund a number of subsidized communications programs, including Lifeline.” So taxpayers are subsidizing the carriers, all under the guise of helping the poor, which as you’ll see from below is not really happening.
““Want to sign up for a free phone?” an agent representing Total Call mobile asked a CBS4 producer. The representative then asked if the undercover producer had a food stamp card, a Medicaid card or any other evidence that he qualified for a phone.
“No,” replied the CBS4 employee. But one of the cellphone agents then ordered his colleague to “push it through,” by using someone else’s food stamp card to provide eligibility for the CBS4 employee.
“Did you just use that guy’s food stamp card for me?” questioned the CBS4 employee.
“Yeah,” responded the Total Call representative. “It’s verification that you are on some kind of assistance program. It’s to get you through.”
He promptly gave the CBS4 worker a free phone. The Total Call agent said he received $3 for every phone he is able to give away.”
Let’s sing it all together: “The land of the free and the home of the depraved.”
https://online.wsj.com/articles/SB10001424127887323511804578296001368122888
everybody thinks government money is free money, and yet it is everybody’s money in general but nobody’s in particular….make me have fond memories of when the only example anyone could cite was of paying farmers not to grow crops, JUST CRAZY… before tax policy was seen as an economic goody bag to encourage or discourage the activity du jour…strip alll that out of the budget and what is left? i really am curious what that number might be
Smashing VIX (volatility) by short selling it, has made volatility go negative recently.
However high the risk (infinite when VIX is negative, I read) this is a really nifty way to juice the stock market up into the close.
Who would do that?
https://www.zerohedge.com/news/2014-11-11/todays-359-pm-wtf-moment-dayActually, it makes perfect sense from the perspective of peak oil. They want increased discovery and decreased consumption. In a world of scarce oil, that is a survival tactic.
Ishkabibble, I had a somewhat different thought. The opposite thought actually. Given that the authorities have not been able to stimulate economic activity though extraordinary monetary policy, why not try manipulating the price of the most important energy input artificially low to try to jump start growth again? They won’t stop at anything to hasten a return to growth, will they? Sure it causes pain to the North American suppliers in the near and mid term, but they will have their 15 minutes of fame sometime in the future when those supplies are really needed.
Euan,
I doubt that we can say much about this in anything but very general terms. You’d have to know what costs and taxes, including hidden ones, are exactly in play. That said, I doubt even more that the world’s perhaps most politically empowered corporations pay high taxes; it would shatter a well-established pattern.
Here are some more estimates; they vary very widely:
Fossil Fuels With $550 Billion in Subsidy Hurt Renewables (Bloomberg)
Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy, the International Energy Agency said. Oil, coal and gas received more than four times the $120 billion paid out in subsidy for renewables including wind, solar and biofuels.
Energy Costs – Necessity, Not Folly
According to the SEEDS model, the total trend cost of energy this year should be of the order of $5 trillion.
Euan,
Thanks for the insights.
If the definition of “subsidy” is actually the deduction of a routine business expense, such as exploration, then things make more sense, and become less shocking.
I can’t find a definition of “subsidy” in relation to the oil industry.
It’s the critical piece, huh?I’m not certain that this IEA statement about definition of “subsidy” for fossil fuels is the right one, but it derives implied-subsidy from the difference between aggregate consumer cost, minus a calculated “market cost”, based on theoretically derived virtual markets in various areas.
https://www.iea.org/publications/worldenergyoutlook/resources/energysubsidies/methodologyforcalculatingsubsidies/
The subsidy numbers given here appear a bit different, but maybe it’s raw/unfiltered.
https://www.iea.org/publications/worldenergyoutlook/resources/energysubsidies/
That’s pretty fancy.
It looks like any government support of transportation infrastructure, like railroads, roads, shipping and pipelines, would count as a subsidy.
Over subsidies like price controls for gasoline in Iran and Venezuela sure count
This analysis makes it look like the implied subsidies are set up in a way to favor economic activity in general. So far, total economy rides fossil-fuel use pretty closely, from what I have seen.
Applying subsidies to certain parts of any economy might help avoid economic collapse/reset and/or revolution.
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