A Cease in Federal Subsidies May Cause Severe Harm to the Oil & Gas Industry

Last month, a new study found that cutting $4 billion in federal subsidies to the oil and gas industry would have limited impact on production and consumption. Gilbert Metcalf, an economics professor from Tufts University, concluded in his report for the Council on Foreign Relations, “Cutting oil drilling subsidies might reduce domestic oil production by 5 percent in the year 2030. As a result, he [Metcalf] thinks, the worldwide price of oil would inch up by only 1 percent. He assumes the price of oil will hardly be affected because other countries would increase production as the flow of U.S. crude slowed. Demand would hardly budge, as the price of gasoline at the pump would rise by at most 2 cents a gallon.”

However, those conclusions are misleading.

The American Petroleum Institute conducted its own study and concluded, “Cutting some federal subsidies would reduce domestic production of oil and gas by 15 percent in 2023. Almost a quarter of a million jobs would be lost by 2019, the study said, and the United States would be at the mercy of foreign oil.”

Those are very different findings for the same scenario. Federal subsidies for the oil and gas industry receive a lot of criticism and negative attention, with some organizations going so far as to call for an end to these programs by 2020. “Mr. Metcalf’s conclusions suggest subsidies could be eliminated without causing much pain,” New York Times reporter Eduardo Porter summarized about the professor’s study for the Council on Foreign Relations. “And if the United States cuts its supports, it will have better standing to demand the same from the many countries that provide big consumer subsidies encouraging the consumption of fossil fuels.”

Quite simply, oil and gas subsidy reform would have a much deeper impact than implied by Metcalf’s research. Subsidies encourage oil and gas businesses to continue their efforts in the United States. Without these federal subsidies, companies might find it better for their bottom lines to move production abroad. This would lead to layoffs and decreased revenue stateside.

Yes, there is an argument to be made for the positive environmental impact of oil and gas subsidy reform. Yet there must be some middle-of-the-road compromise that will help our environment while limiting the reduction of federal subsidies for this crucial industry. Simply eliminating all federal subsidies will likely do more harm than good, which is why it is so important to find a solution that encourages oil and gas businesses to continue their U.S. operations while sustaining our environment.

Posted in Industry News.