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Friday, December 22, 2006
Interior Shows Waste in Oil Royalty Program
The latest in a NYT series on how well the federal government treats the oil and gas industry shows just how wasteful this nice treatment is.
The article focuses on an Interior Department study that found almost no benefit to giving energy companies a royalty break for drilling on public property. Over 40 years, these breaks will cost around $48 billion- and probably won't produce a drop of oil that wouldn't have otherwise been pumped.
The report estimates that the current incentives would have a tiny impact that is far exceeded by swings in market prices.
The report predicted that the current incentives would lead to the discovery of only 1.1 percent more reserves than if there had been no incentives at all. Total oil production from 2003 to 2042 would be about 300 million barrels more, or less than 1 percent, than it would have been anyway. Natural gas production would be 0.6 percent greater than it would have been otherwise.
But the cost of those royalty incentives would be high: about $48 billion less in royalty payments over the 40-year period. That loss would be offset by a slight increase in the prices that companies pay when bidding for leases in government auctions, but analysts said the net cost would still be above $40 billion.
What a great study. Could the government do one of these studies on every revenue break we give to businesses? That could give the 110th Congress much more "low-hanging fruit" to pay for programs under PAYGO. We might even get a better government out of it, too.
And I would be remiss not to link to the other notable in today's Times, Paul Krugman's provacative op-ed arguing against deficit reduction. A free version is here.
Posted by Matt Lewis
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