Jesse Mobley

What Does Big Oil Fear? Innovation!



Posted: Friday, August 05, 2011

by Jesse Mobley
EconomistNow

I love to read the writings of the brave few who call for tax reform for Big Oil companies. Most are scared that if tax incentives for the oil industry are stripped, then prices at the pump will shoot to the stars. Over the past decade, notably during the Bush Administration, Big Oil has been given financial steroids to aid in the reduction of the price for the average household, but has that happened? The obvious answer is no. Since 1991 gas prices have increased more than 280% while CPI (Consumer Price Index) has increased by only 64, meaning that gasoline has increased in price more rapidly than most products.

I personally believe that innovation is the key to lowering energy prices worldwide. Government protection of Big Oil is nothing more than an unnecessary double tax on the people. Obviously regulations to help these companies have failed, and there is nothing actually being done to shield consumers and businesses from the second wave of tax at the pump. So how do you get prices to drop through competition and the market? Bringing alternative fuel sources to the market in a serious manner will increase competition and allow the market to balance the price. As stated before, tax incentives have done nothing to help with prices so this leads most to believe that Big Oil sets prices through supply and demand. Alternative energy options such as solar and wind power can shake up the supply and demand which I believe is needed to bring these prices to bay.

Taking Big Oil tax breaks and transferring them to the innovative alternative fuels will insure competitiveness in the energy industry. It has been stated that solar and wind power sources could be competitive with fossil fuels by the end of the decade without any subsidy, but imagine what innovative gains could happen if we finally allocated tax incentives and subsidies to the correct side of the energy industry. No longer should Big Oil get to write off intangible drilling costs such as labor and drilling fluid, nor should they be allowed to dodge the IRS for 15% of oil well production. Even more so, they shouldn’t have the right to deduct a total of 6% of their net income. My question is do they even pay taxes? Some Big Oil CEOs state that removing these tax breaks will cause job depilation and wavering price swings, but I do not share the same outlook. Jobs, production, and more importantly prices are dictated by the households and firms who purchase this commodity in masses, and essentially supply and demand will decide the outlook for Big Oil. I suggest a change from simplistic and short-term eco-friendly tax breaks to a more stable system to not only encourage market competition but also to help make further steps into a cleaner tomorrow.
Jesse Mobley

Founder and Chief Editor of EconomistNow

Vice President of HopeWater LLC

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