News Release

February 1, 2001

"Big Oil" at the public trough? Hardly.
Oil companies are hurt more than helped by intervention in energy markets, study says

WASHINGTON—President George W. Bush and Interior Secretary nominee Gale Norton are pushing to open public lands-notably the Arctic National Wildlife Refuge-to oil drilling, angering critics who think the government already showers the oil industry with large and unwarranted benefits. But a new Cato Institute study says the oil industry enjoys fewer benefits than people suspect and would actually be better off with less government intervention in energy markets.

In "'Big Oil' at the Public Trough? An Examination of Petroleum Subsidies," Washington, D.C.-based energy economist Ronald J. Sutherland argues that contrary to the claims of oil industry critics, "the evidence indicates that, on balance, the oil industry is not a net beneficiary of government subsidies. The facts point in the opposite direction. The oil industry is more harmed than helped by government intervention in energy markets."

According to data from the Energy Information Administration, total energy subsidies were $6.2 billion, or about 1 percent of total energy expenditures, in 1999. Of that, only $567 million went to oil companies, "a small share of oil revenues and far less generous than the preferences and subsidies provided for rival businesses and technologies such as mass transit and alternative fuels," says Sutherland. On a per-unit basis, he says, "the oil industry receives less real subsidy than any other fuel industry," undercutting ethanol producers and others who cite oil subsidies to claim more government handouts for themselves.

Critics of "big oil" often argue that the industry and consumers do not pay enough of the costs incurred by oil use, such as pollution and the deployment of the military to safeguard sources of oil in the Persian Gulf and other regions. Their solution is to raise energy taxes to "get the prices right."

But Sutherland argues that environmental regulations imposed by the Environmental Protection Agency, as well as federal, state and local taxes, "should more than pay the marginal environmental cost of using oil products." He also points out that imposing a tax to pay for national security costs to ensure secure oil supplies would result in a decline of oil consumption but would not significantly reduce military costs.

""Big Oil" at the Public Trough? An Examination of Petroleum Subsidies"