The Big Oil Anti-Free Market Agenda

The petroleum industry and its front groups are fond of complaining that renewable fuels, like ethanol and biodiesel, receive special treatment from the federal government in the forms of tax incentives, mandates, and infrastructure programs.

Ironically, this line of attack by Big Oil is simply an effort to divert attention away from the truth:  no industry in American history has – and continues – to benefit from federal government subsidies and protections more than petroleum.

That is not a level playing field.

Big Oil is Protected by a Federal Petroleum Mandate

The biggest hurdle to consumer fueling choice is the Federal Petroleum Mandate, which requires that the vast majority of fuel you buy be from petroleum.

Most people are unaware that Federal law requires that any fuel you put into your vehicle be first approved by the EPA.  Of course gasoline was grandfathered into this system.  If you use an unapproved fuel in your car or truck, you are subject to a $37,500 per day fine.

Unless you are one of the four percent of Americans who drive flexible fuel vehicles, the EPA-approved fuels are E0, E10 and E15.  From a petroleum perspective that means the approved fuels range from 100% petroleum down to 85% petroleum.  American motorists are under an 85% federal petroleum mandate.

If you choose a higher ethanol blend, like E30, because it costs less, performs better and is locally produced, you can be fined each day roughly the amount an average Iowan takes home after taxes during an entire year.

That is not the free market.

Big Oil is the Only Subsidized Fuel

Big Oil has routinely attacked targeted, limited tax credits for alternatives to petroleum fuels, saying the government should not “pick winners and losers.”  But the facts are different.  The only liquid transportation fuels in use today receiving tax subsidies are gasoline and diesel made from oil.

While the tax credits for ethanol and biodiesel have been allowed to expire, today the oil industry enjoys billions in permanent tax subsidies UNIQUE to the petroleum industy.  Just a partial list of the billions of dollars of subsidies (some dating back to 1913) available only to the oil industry includes:

• Percentage depletion allowance
• Marginal oil well incentives
• Enhanced oil recovery credits
• 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

These Big Oil tax subsidies are current and cost the taxpayers billions.

DTN has reported:  “Looking at state and federal tax and other incentives available exclusively to the oil industry, DTN's tally comes to $17.9 billion annually.”

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.”  (emphasis added)

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.”

Buried deep on its website the American Petroleum Institute’s even brags:  “Taxpayers have had the option to expense [intangible drilling costs] since the inception of the Tax Code.”

After 100 years of subsidies it is fair to ask:  When will Big Oil be able to stand on its own two feet without a taxpayer crutch?

Big Oil Uses Monopoly to Thwart Competition

Given 100 years of government support, Big Oil has created a near fuel distribution monopoly.  Today a small number of companies control the refineries, they control what goes into the pipelines, and thereby they often control what can be sold at the “independent” corner gasoline station.

The impact of Big Oil’s monopoly is very real and very powerful. 

Consider this, even though E15 has cleared the mountain of federal regulations (anti-free market barriers to entry) to become a legal fuel, Big Oil will still be able to freeze E15 out of entire markets for much of the year.

In Iowa we have consumers that want to buy E15 and we have retailers that want to sell E15.  Some of those retailers are “branded” by Big Oil and their contracts won’t allow it.  But Big Oil can even prevent E15 from being sold by the independent retail stations in the summer.

From September 16th through the end of May, we can blend 15 percent ethanol with the type of gasoline typically found in Iowa that is blended with standard 10 percent ethanol.  So E15 could be sold during that time.  But due to discriminatory federal fuel regulations, from June 1st through September 15th we will not be allowed to make E15 using the same gasoline as we do to blend E10.

Further, Big Oil has made it clear that it has no intention of putting a gasoline in the pipelines to Iowa that is necessary for blending with 15 percent ethanol under the federal regs.  That is a clear example of how Big Oil’s fuel distribution monopoly can prevent free market competition and thwart the will of those retailers and consumers who want to use E15.

Big Oil Fights Against Free Market Competition/Consumer Fuel Choice

The petroleum industry spends tens of millions of dollars each year in a multi-faceted effort to maintain its “most favored fuel” status within federal energy policy.  Big Oil repeatedly takes legislative, regulatory, and judicial actions to protect its near monopoly on the US liquid fuel supply.  Big Oil does not want a level playing field or free market competition.

Consider just some of Big Oil’s recent actions:

1.           Big Oil sued the EPA to prevent the sale of E15.

2.           Big Oil sued the EPA to rollback the 2011 federal biodiesel RFS requirement.

3.           Big Oil hypocritically lobbied to preserve its federal tax breaks as “necessary” while urging Congress to end incentives for renewable fuels.

4.           Big Oil lobbied Congress to use an appropriations gimmick to ban E15 from entering the marketplace.

5.           Big Oil uses its near monopoly power over petroleum distribution to prevent the proper E15 summertime blendstock from being widely available.

6.           Big Oil bars its branded retailers from selling higher ethanol blends like E15 or E85 under the canopy or listing the fuels on their pricing signs.

7.           Big Oil urged the EPA to adopt an absurdly anti-E15 mandatory pump label while resisting pump labels informing consumers of the concentration of known human carcinogens in petroleum fuels.

8.           Big Oil opposes country-of-origin labeling for gasoline, thereby denying consumers the        ability to choose domestic options.

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For more information, visit the Iowa Renewable Fuels Association website at:

www.IowaRFA.org