President Obama spoke in the Rose Garden this morning about his desire to increase taxes on the largest American oil and gas producers. We believe there are bipartisan solutions to our nation’s energy challenges, but unfortunately his remarks were again filled with mistaken and misleading claims that will do nothing to reduce prices at the pump. 

Rhetoric:   “…oil companies are also getting billions a year in taxpayer subsidies – a subsidy they’ve enjoyed year after year for the last century.”

Reality:  The industry subsidizes the federal government, not the other way around.  In 2010, the five largest oil companies alone paid $55 billion in local, state, federal, and foreign taxes – not including rents, royalties, fees, and bonus payments.  So while wrong, this statement does reveal the president’s mindset – that not taking even more of a company’s earnings is somehow a “subsidy” and the same as “handing out taxpayer dollars.”  By the White House’s logic, any dollar earned, but not seized by the government is a subsidy.  Remember, too, that in Treasury’s official budget explanation the administration claimed the current tax code somehow results in the “overproduction” of domestic oil, and declared that both “detrimental to long-term energy security” and “inconsistent” with its preferred cap-and-trade program.          

Rhetoric: “We can’t just drill our way out of this problem.  We use more than 20% of the world’s oil, but we only have 2% of the world’s known oil reserves. That means we could drill every drop of American oil tomorrow – but we’d still have to buy oil from other countries to make up that difference.  We’d still have to depend on other countries to meet our energy needs.”

Reality: Yet again. The president has been awarded two Pinocchios by The Washington Post’s Fact Checker for repeatedly making this highly misleading claim.  In truth, we are an oil-rich country, with more than 220 billion barrels of recoverable resources, according to the Energy Information Administration’s latest oil and gas model.  To make it seem like the U.S. is both running out of oil and using it at an unsustainable rate, the president purposely excludes all lands that have not been drilled.  For more on this, see either Washington Post column (here and here), or the op-ed Senator Murkowski published last year.

Rhetoric: “…one analysis shows that every time gas goes up by a penny, these companies usually pocket another $200 million in quarterly profits.”

Reality:   Perhaps then, it’s time to focus on policies that would actually bring prices down. Oil prices have risen because of strengthening demand, supply disruptions in certain parts of the world, and instability in the Middle East.  But prices do not always have to go up – with the right policies in place, prices would also go down, and this talking point would become a moot point.  Instead the effort to increase taxes would reduce investment and, ultimately, supply.  In any case, it’s better to have revenue remain in the U.S., where it can be invested in research and pay down the debt, than in the hands of OPEC.  

Rhetoric: “Under my administration, we’ve opened up millions of acres of federal lands and waters to oil and gas production.” 

Reality:  The Obama administration is operating under a Five-Year OCS plan developed by the Bush administration, and has actually cancelled both onshore leases and offshore lease sales.  As a result, less acreage is available now than when President Obama took office.  He has recently touted a lease sale in the Central Gulf of Mexico that was already scheduled under the current plan.  He’s also trumpeting steps that his administration is taking that may lead to a lease sale off of the East Coast after 2018, even though he cancelled the sale that was already scheduled to take place in 2011.  That’s not “opening” anything.

Rhetoric: “We’ve added enough oil and gas pipeline to circle the Earth and then some.” 

Reality:  Most new pipelines do not require approval from the president – and only some require approval from any federal agency.  That’s probably why the president said “added” instead of “approved.”  Only a few pipelines have required presidential approval in recent years, most notably the Alberta Clipper and Keystone XL.  Rather than remind his audience that he just rejected a pipeline that would require no subsidy, create thousands of jobs, and improve our nation’s energy security, the president has resorted to this questionable statistic to try and deflect blame.    

Rhetoric: “The fact is, we’re producing more oil right now than we have in eight years, and we’re importing less of it too.  For two years in a row, America has bought less oil from other countries than we produce here at home – for the first time in over a decade.  Simply put, American oil is booming.”

Reality:  This is happening in spite of, and not because of, President Obama’s policies.  Production is up on state and private lands but fell significantly on the federal lands under the president’s control last year. Our source? The Energy Information Administration, which found that federal oil production fell 14 percent between 2010 and 2011.   

Rhetoric: “Meanwhile, these companies pay a lower tax rate than most other companies on their investments – partly because we’re giving them billions in tax giveaways every year.”

Reality: We’re not sure how the president came up with this.  According to the American Petroleum Institute, the effective tax rate paid by oil companies was 41.1 percent in 2010 – far higher than the average rate of 26.5 percent paid by other manufacturers.  According to a study cited by the Wall Street Journal, oil development projects also face far higher tax rates than other forms of energy.

Rhetoric: “Investments in wind power and solar power and biofuels; in fuel-efficient cars and trucks and homes and buildings.  That’s the future.  That’s the only way we’ll break this cycle of high gas prices that happens year after year after year.” 

Reality: The president should know that wind and solar power, as well as efficient homes and buildings, have nothing to do with “high gas prices.”  And he should also know that a bipartisan majority in Congress supported both advanced biofuels (through the 36-billion gallon Renewable Fuel Standard) and higher vehicle efficiency (through higher CAFE standards in the 2007 energy bill).  What he may not know is that GAO recently found 94 ‘green building’ programs and nearly 700 renewable energy initiatives scattered throughout the federal government. Republicans are not stridently opposed to renewable energy, but we have asked that policies be paid for and that American oil and gas production be included as part of the solution.