Perry’s Plan to Halt Energy Breaks Favors Oil, Gas Producers

Texas Governor Rick Perry is calling on the U.S. government to stop “picking winners and losers” among energy companies and has pledged to end federal subsidies to the industry. Under his plan, alternative energy businesses would likely lose a lot more than would fossil-fuel producers.

If Perry, 61, a Republican presidential contender with ties to oil and gas companies, reached the White House, he could allow tax breaks and other subsidies for wind and solar power and other alternative energy technologies simply to expire. Ending about $4 billion in annual subsidies written into the tax code for oil and gas producers would require congressional action, a move that even some Democrats would oppose.

Many of the breaks for oil and gas production were enacted years ago when there was less concern about the federal budget deficit and changes to the tax code often were permanent, said Michael Graetz, a tax law professor at Columbia University in New York. Removing such breaks would be difficult because of the number of states with oil, gas or coal production, and the lobbying effort to retain such subsidies, Graetz said.

“The politics of fossil fuel are much more entrenched and much stronger than the politics of alternative energy,” he said.

Photographer: Jeff Swensen/Getty Images

Texas Governor and Republican presidential candidate Rick Perry tours the U.S. Steel Mon Valley Works Irvin plant on Oct. 14 in West Mifflin, Pennsylvania. Close

Texas Governor and Republican presidential candidate Rick Perry tours the U.S. Steel... Read More

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Photographer: Jeff Swensen/Getty Images

Texas Governor and Republican presidential candidate Rick Perry tours the U.S. Steel Mon Valley Works Irvin plant on Oct. 14 in West Mifflin, Pennsylvania.

Among the oil companies whose executives have defended the tax breaks before Congress are Irving, Texas-based Exxon Mobil Corp. (XOM) and San Ramon, California-based Chevron Corp. (CVX)

$37 Billion

All told, the federal government provided about $37 billion in grants, loan guarantees, tax breaks and other support to energy markets in fiscal 2010, according to an Aug. 1 report by the Energy Department’s Energy Information Administration.

The report is a snapshot of federal subsidies for energy production that include some $14.7 billion in spending from the 2009 economic-stimulus law and $5.7 billion in tax breaks for ethanol, which are scheduled to expire at the end of 2011.

Wind and solar power generators received about $6.1 billion in federal subsidies in 2010, according to the report. Almost all that support came from temporary programs set to expire over the next several years.

Losing such aid would “make it much more difficult to bring a new technology to scale,” said Daniel Weiss, director of climate strategy at the Center for American Progress, a policy group in Washington that promotes alternative energy.

Long-Term Support

Alternative energy deserves the same kind of long-term government support given to fossil-fuel producers, said Kathleen Weiss, vice president of federal government affairs for First Solar Inc. (FSLR), a solar module manufacturer based in Tempe, Arizona.

A comprehensive energy plan aimed at providing “energy security in the U.S. needs a strong renewable component,” Weiss said in a statement.

A Perry campaign spokeswoman, Catherine Frazier, said in an e-mailed statement that the candidate isn’t favoring oil and gas over other producers in his energy plan.

“Governor Perry’s priority is to work with Congress to end all subsidies across all industries to level the playing field - - he believes it is not the job of the federal government to prop up any one industry over another,” she said.

In a telephone interview, Frazier said Perry’s call for ending energy tax breaks tracks with his broader economic plan, which advocates eliminating business tax breaks and offers a flat tax of 20 percent for individuals and corporations.

Phase Out ‘Over Time’

She said eliminating subsidies would play out “over the next 20 years. The governor wants to work with Congress to phase these out over time.”

Others say that given the alternative breaks’ temporary status, Perry’s proposal favors the oil and gas industry.

Perry’s plan “is a mandate to cement in place our current energy mix, while our competitors like Germany and China are investing in technologies of the future,” Weiss said.

Even if Perry managed to end federal subsidies to oil and gas producers, they would have market advantages over alternative fuels because they “have benefited from 100 years of U.S. government support,” Weiss said. “There’s an infrastructure that’s been built around the production and transportation of these fuels.”

Robert Gardiner, president of Independence Wind LLC of Brunswick, Maine, said federal financial support is needed to make wind power competitive with low-priced natural gas.

Wind Project

Without federal subsidies, “wind would be dead,” said Gardiner, whose company is developing a wind project in western Maine with Wagner Forest Management Ltd. of Lyme, New Hampshire.

Perry deserves credit for trying to end tax preferences, “because within Washington right now, eliminating tax preferences is viewed as a tax increase,” said Stephen Brown, an energy economist and director at the Center for Business and Economic Research at the University of Nevada, Las Vegas.

Brown said markets, not government policy, ought to decide what kind of fuels are used, though “that also requires that we understand the true environmental costs of different fuels that we’re using, and that those are part of the market price.”

Greenhouse gases are underpriced in the market, he said. Proposals to attach a price to the environmental impact of such emissions have included a tax on carbon or the cap-and-trade system backed by the White House that failed in Congress.

State Incentives

As governor, Perry has supported wind-power generation, and he says he would allow states to continue to provide incentives. In 2005 he signed a measure that increased the amount of wind- generated power Texas utilities were required to produce, said Terry Hadley, a spokesperson for the state Public Utility Commission.

Still, Perry governs in the heart of the oil and gas industry, and its investors and executives have been financial supporters, according to data compiled by Texans for Public Justice, an Austin-based watchdog group.

Backers of Perry’s gubernatorial campaigns have included J. Ralph Ellis Jr., president of Belmont Oil and Gas Corp. in Irving, Texas; and Joy Ellis, who gave $420,000 to Perry’s gubernatorial campaigns.

Other Perry supporters include Paul Foster, chairman of El Paso, Texas-based Western Refining Inc., who gave $408,758, and T. Boone Pickens, chairman of Dallas-based BP Capital LLC, who donated $377,500.

Source of Funds

Oil and gas interests are the third-largest source of funds for Perry’s presidential campaign, according to the Washington- based Center for Responsive Politics.

Brian Johnson, senior tax adviser at the American Petroleum Institute, a trade group in Washington, declined to comment directly on Perry’s plan, saying he hadn’t read it. Johnson said oil and natural gas companies don’t receive targeted tax credits. A deduction for manufacturing applies to all industries and the ability to expense intangible drilling costs has existed since the U.S. tax code was created, he said.

Increasing fossil fuel energy production by expanding areas available for exploration and loosening environmental regulations is a cornerstone of Perry’s economic pitch to Republican primary voters. “The quickest way to give our economy a shot in the arm is to deploy American ingenuity to tap American energy,” Perry said on Oct. 14 in Pittsburgh.

Perry’s approach contrasts with that of President Barack Obama, whose administration boasts that it “has invested more than $90 billion in clean energy.”

Smart Grid

Obama’s proposed 2012 budget would more than double investments in energy-efficient technology, increase spending on renewable technology by more than 70 percent, and continue funding research into smart grid, nuclear energy and clean coal technologies.

In addition to curtailing existing tax breaks, Perry’s energy plan rules out creation of fresh ones and would eliminate subsidies and mandates favoring specific forms of energy, according to a campaign policy paper. He would allow tax incentives for research and development, though.

Lewis Hay III, chief executive officer of NextEra Energy Inc. (NEE) of Juno Beach, Florida, said on a Nov. 4 investor call that the cost for renewable energy continues to drop, proof that tax incentives “have worked in terms of making renewables much more cost effective,” according to a transcript.

Perry’s proposal also was greeted skeptically by Monte Shaw, executive director of the Iowa Renewable Fuels Association.

The ethanol trade group isn’t fighting the Dec. 31 expiration of federal ethanol subsidies, Shaw said, though it wants to see oil and gas tax credits eliminated.

“What we are asking for is a more level playing field,” he said. “None of the dozens of tax breaks specific to the oil industry have an expiration date.”

To contact the reporters on this story: Andrew Zajac in Washington at azajac@bloomberg.net Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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