The Boston Globe
September 26, 2005
Sharing the oil price windfall
Joseph P. Kennedy II
The huge run-ups in energy prices have created record profits for oil and gas companies, refiners, shippers, and other players in the energy industry.
What may surprise many people is that one of the principal beneficiaries of the price spikes is the US government. When energy costs soar, the federal treasury sees massive infusions of royalties from energy companies for oil and gas extracted from federal lands and waters.
While the government collects a windfall, the poor just reap the cold. The federal treasury should not be making money off of elderly Americans and working families shivering in their homes during the winter.
It’s time that every cent of unearned windfall goes toward fuel assistance for the poor. Using $25 a barrel as a baseline -- the mid-range of OPEC’s preferred price band for crude oil -- the federal government ought to channel royalties collected on higher prices into energy aid for low-income households.
With crude oil prices now above $60 a barrel, the federal government earns over 200 percent more a barrel in royalties than it did during the 2002-03 heating season, when prices hovered around $25 a barrel, and 62 percent more than it did last year. In 2004, oil producers pumping crude from federal lands paid $1.5 billion in royalties to the federal government. The $12 a barrel premium above the baseline brought in a %500 million windfall -- all of which should go toward fuel assistance. Similar calculations ought to be made for coal and natural gas.
While royalties rise with fuel prices, energy companies also pay huge bonuses, as much as $1 billion in a single year, to the federal government in the competitive-bid process to extract the resources. Annual lease payments for development rights add hundreds of millions of dollars more. Both sources ought to contribute to fuel assistance as well.
Federal energy revenues, which have topped as much as $10 billion annually, derive from resources belonging to every American. Under current law, the federal government doles out half of the royalties to the states from which the onshore oil and gas are extracted -- except for Alaska, which gets 90 percent. For off-shore production, Washington keeps 63 percent of the royalties from oil and gas pumped from waters within three miles of state shorelines and 100 percent for fossil fuels taken beyond the boundary.
A small portion of the federal revenue goes into conservation and water projects while the vast majority disappears into the treasury’s general fund. It’s wrong that multi-billion dollar transfers of energy wealth take place with no provisions for helping those struggling with rising energy costs. A provision in the recently passed energy bill authorizes the secretary of the interior to earmark some portion of royalties for fuel assistance. That doesn’t go far enough. The full windfall should go to help the poor.
Just putting one-third of last year’s $6 billion in federal offshore rents, royalties, and bonuses into heating assistance would double the Low Income Home Energy Assistance Program’s $2 billion budget and restore the benefit’s eroding value, which purchases just half as much heat as it did three years ago.
To middle-class households, higher energy prices mean less disposable income. But for the poor, higher prices and eroding benefits mean cutting back on necessities, huddling around the kitchen stove, using dangerous space heaters, closing off rooms to cut fuel bills, and wearing coats indoors. Child nutrition in poor neighborhoods dramatically declines during periods of cold weather and rising fuel bills.
Federal fuel assistance has never been adequately funded and only reaches one-fourth of those eligible. The basic appropriation ought to be increased. At a time of fiscal constraints, we must also be more creative in meeting the heating needs of our most vulnerable citizens.
The federal government has made a significant commitment to helping rebuild the lives of those devastated by Hurricane Katrina. But there’s another storm brewing, one whipped up not by warm water and ocean breezes but by winter winds, bitter cold, and skyrocketing heating costs. We can better prepare for the tempest by channeling 100 percent of the windfall revenues from publicly owned energy resources to protect the poor from rising fuel prices.