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PRI's Environmental News Magazine

Oil Prices, Oil Profits

Air Date: Week of November 11, 2005

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Consumers are looking for some relief from soaring home heating oil and gasoline prices, as they watch oil companies garner stratospheric profits. Senator Byron Dorgan, Democrat from North Dakota, is co-sponsoring a bill that would impose a tax on big oil’s profits. He speaks with host Steve Curwood about how the plan would work.

Transcript

CURWOOD: From the Jennifer and Ted Stanley studios in Somerville, Massachusetts, this is Living on Earth. I'm Steve Curwood.

While motorists were reaching for the bottom of their pockets to fill up this fall, profits for the oil companies headed straight to the top. And some oil companies saw profits nearly double in the recent quarter, from already multi-billion dollar levels. With winter coming and homes to heat, the big profits are expected to keep on coming, too.

So some are calling for a tax on these windfall oil profits. Among them: North Dakota Democratic Senator Byron Dorgan, who’s in our Washington bureau. Thanks for joining me, Senator.

DORGAN: Thank you very much.

CURWOOD: So can you just briefly explain your bill?

DORGAN: My proposal would be that for profits on oil prices above $40 a barrel – which was the average price last year, and at which price the oil companies had the highest profits in their history – at profits above that level, if the money is not being used to invest back into additional exploration, then I think it should be captured with an excise tax and sent back to the consumers in the form of a rebate.

CURWOOD: You think the oil companies have made way too much money on this?

DORGAN: Well, I sure do. I mean, last year the oil companies had gross income of a trillion dollars, and net earnings of a hundred billion dollars. These are profits that we’ve never seen before in the history of corporate America, or the world for that matter, and all that gain for these major integrated oil companies is expressed on the other side as pain for consumers filling their cars and trying to heat their homes. And I think it’s unfair.

CURWOOD: Now, there’s some ways that oil companies could get exemptions from the tax under your proposal, and I want to talk to you about these.

DORGAN: Yes.

CURWOOD: What would they get if they invested their profits in alternative energy?

DORGAN: Well, if they’re investing their profits to expand the supply of energy, regardless of the type of energy, they would not be taxed under my proposal. But, as you know, a substantial portion of the profits these days are going into buying back their stock, in some cases, hoarding cash in other cases. As Business Week said last year, “Drilling for Oil on Wall Street.” Well, you know, there is no oil on Wall Street, but that means using cash to go find mergers and acquisitions.

That’s not the same, as you know, for this country’s purposes, as sinking money into the ground to try to find new oil and natural gas. Sixty percent of our oil now comes from overseas, outside of our country. That is very dangerous. And we’re hopelessly addicted to foreign oil. So we need to begin developing renewable sources in order to relieve some of that addiction.

CURWOOD: Let’s say I’m an oil company and I want to increase refining capacity under your measure. Can I –

DORGAN: Same thing.

CURWOOD: I’d be exempt from the tax if I did that?

DORGAN: That’s right. This would be the single biggest incentive that would ever exist to say to those companies, that money you’re earning? You really ought to use it to expand America’s energy supply.

CURWOOD: In the most recent energy bill oil companies were given at least, what, five billion dollars, I would think, in tax breaks and subsidies for exploration, right?

DORGAN: Yeah. I mean, I don’t think anybody needs tax breaks at the moment to explore for oil. But I’ve created the exemption in this proposal. Frankly, this proposal is hard to get passed with a president and vice president that come from the oil industry, and their party controlling the House and the Senate. I recognize that it’s hard to get this kind of proposal passed in this circumstance.

CURWOOD: Now, there’s a lot of popular support, though, for the notion of a windfall profits tax. I think I saw a poll the other day that said, what, some 80 – 90 percent of Americans think that the oil companies have made way too much money in this latest bubble and it ought to be taxed.

DORGAN: Well there’s popular support for a lot of things that aren’t supported here in the Congress by the majority party. We’ll see. I mean, I hope they either see the light or feel the heat, and I don’t care which it is. But I hope that enough of them would understand that their constituents are being hurt and that we need to do something.

CURWOOD: There’s an attorney general’s office that, at this point, would prefer not to be named, but one of the views that they have is that oil companies may well be manipulating the public by raising prices to the point where we start to change our behavior – to use less energy or buy smaller cars, for example – and then quickly lower them again so we continue with our old consumption patterns. Is there anything to this observation?

DORGAN: Well, I don’t know. Manipulation, of course, is illegal. I mean, we have laws against that. We do have a federal trade commission that is supposed to be looking into these issues of manipulation and price control, etc. The federal trade commission, on these issues, regrettably, has been dead from the neck up for some long while, and doesn’t engender a great deal of confidence in me or many others in terms of taking a hard look at what’s happening with pricing.

CURWOOD: Now, your windfall profits tax could generate, what, $25 billion?

DORGAN: Well we don’t know the answer to that, and we’re trying to get some additional information about if we apply this, as I’ve suggested, what would the consequences be? And to some extent it would depend on how much additional is invested in expanding the supply of energy. But it would likely produce a fair amount of money, as you know. You’ve watched I’m sure, as I have, in the last couple of weeks, with the big oil companies announcing their most recent quarterly profits, they’re quite extraordinary.

CURWOOD: Now, what other competing bills to yours are there pending?

DORGAN: There are a number. There are some who’ve introduced windfall profits taxes to pay for low-income energy assistance. You know, we’re short on that as well. That normally has been appropriated by the Congress, but we’ve had three votes in the Senate and the Senate has so far refused to come up with the funding necessary as we head into this winter. So that’s troublesome. And, you know, those who heat their homes with natural gas can now expect somewhere around forty, fifty, sixty percent increase in the cost to heat their homes this winter. So, you know, some are saying let’s take the money to use it for that, and there are other proposals as well.

CURWOOD: And how do you feel about them? If the Congress were to pass such a proposal – hey, help people heat their homes – would that be good for you?

DORGAN: Well, my first choice would be for Congress to appropriate the funding as we’ve always done. It’s a program for which low-income people are in need, and we really ought to do what’s necessary there. But if the only way to fund it would be with a windfall profits tax, I would see the merits in that.

CURWOOD: Byron Dorgan is a Democrat senator from North Dakota. Thank you, sir.

DORGAN: Thanks, Steve.

 

 

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