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  • Energy Tax Facts
  • 27 Jun 13

POTUS’ Climate Action Plan Wrong on O&G Taxes

This week, the President laid out his Climate Action Plan – a national strategy with the goal of mitigating climate change and preparing for its potential impacts. Of note was the President’s rhetorical support for natural gas as a key fuel for both reducing America’s carbon emissions while shoring up our national security. As the President’s plan states:

“…while there is more work to do, we are more energy secure than at any time in recent history. In 2012, America’s net oil imports fell to the lowest level in 20 years and we have become the world’s leading producer of natural gas – the cleanest-burning fossil fuel.”

Unfortunately, just as the President touts the critical importance and need for American natural gas, he simultaneously calls for a tax increase on energy producers – an action that will all but halt his proposed strategy and curb the energy security our nation has worked so hard to achieve. As IPAA explains in the Wall Street Journal:

“The Independent Petroleum Association of America, which represents small and midsize oil and gas producers, said in a statement that the speech was contradictory. ‘The president accepts the many benefits of increased use of natural gas such as jobs, cleaner air and less reliance on foreign energy,’ said IPAA president Barry Russell in the statement. ‘Yet at the same time his continued proposal to increase taxes on the industry will strip away capital that could decrease American natural gas and oil production’ by up to 25%, he said.”

Once again, the President calls for an “elimination of U.S. fossil fuel tax subsidies” yet fails to recognize that the oil and natural gas industry does not receive subsidies, rather the same tax treatment as a wide array of U.S. businesses and manufactures. The standard Intangible Drilling Costs (IDC) tax deduction, for instance, has been around since 1913 and enables producers to recover and reinvest the costs of exploring for new American oil and natural gas supplies. By enabling independent producers to expense and deduct certain costs – the same way technology companies do for research and development and bakeries do for sugar and flour – the men and women of the oil and gas industry can continue to develop our natural resources. U.S. production at the current scale would otherwise be uneconomical and unachievable if these tax policies were eliminated. After all, drilling oil and natural gas wells is a capital intensive process that entails significant capital risk with no guarantee of resource production.

The President’s plan to increase taxes on America’s 7,000-plus independent oil and natural gas producers — who drill more than 90 percent of the nation’s wells — would only harm our nation’s Climate Action Plan, not to mention his administration’s “all-the-above” energy agenda and our national energy security. It is time for the Administration to acknowledge the real energy tax facts,