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Politics : Politics of Energy -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (2008)	8/25/2008 11:53:14 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 86356

Anyway, yes, we can agree to disagree. I think you'd find that most economists would agree with my point of view though. It is straight out of econ 101. That's fine if you're just a Freshman.. Lots of people take Econ 101, but never master Economics. Because what we're really talking about here are Political Economy, and most 101 students never learn that.. Government subsidies of oil companies provide no return on investment, since they have all the incentive they need to drill more. That's ridiculous. There is no return on investment if the resource is not exploited and brought into production. The driller earns no money, the refiners earn nothing from it, and the government collects NO tax revenue. The government, being the "owner" and/or administrator of these lands, hopes to become a partner in the eventual production of the resources and its "dividend" comes in the form of taxes and royalties from the oil company(ies) holding the drilling lease. Subsidies don't mean tax nullification. Just a reduced cut by the government in collecting their share when the resource is brought into production. But since they aren't collecting anything from it sitting in the ground (minus mineral rights), economic basics would suggest that both sides have a vested economic interest in bringing that resource into production. Bottom line.. resources sitting in the ground add no economic value, nor do they add tax revenue. Thus, anything that provides incentive to make them productive is a non-zero sum game.. all sides win to some variable extent through cooperation: en.wikipedia.org That's Political Economy 101: politicalhumor.about.com Hawk

To: RetiredNow who wrote (2008)	8/25/2008 12:43:53 PM
From: Brumar89	Respond to of 86356

I'm sure the biggest "subsidy" is immediate expensing of 70% of intangible drilling costs (not unique to oil & gas, mining has a similar provision for intangible costs - also btw this is for domestic drilling only, not foreign). Does it encourage drilling? Well yes to some extent, for marginal prospects it can make a difference in the economics. There are always gonna be some projects on the cusp, the margin of being acceptable. I have no idea how significant this is though. If IDC expensing were eliminated and IDC were all capitalized and recovered as depreciation over time, it wouldn't make a difference in the vast majority of cases. The number of wells drilled and the amount of domestic production would be slightly smaller, though I suspect not a whole lot. I can't estimate how much smaller - probably a pretty small percent. Effective policy towards alternatives is to invest heavily in subsidies, because that will incubate the industry until it can stand on its own. Wouldn't the best policy be to subsidize research that might lead to potential breakthroughs that would make the industy able to stand on its own? Simply subsidizing projects that wouldn't make sense w/o the subsidy - how does that encourage the industry to get more efficient?

To: RetiredNow who wrote (2008)	9/5/2008 2:06:25 PM
From: TimF	Respond to of 86356

Government subsidies of oil companies provide no return on investment, since they have all the incentive they need to drill more. Incentives for investment are not binary, you don't either have an incentive or not. Its a shifting at the margin thing, where every serious bit of additional incentive is likely to over time produce more investment. It seems to me that subsidies for drilling to create a gross return on investment. The problem is, that gross returns are not what is important. Net returns are. To give subsides you have to take the money from elsewhere, they aren't a free lunch. And even if you have a positive gross return, you can have a zero or negative net return. Of course this idea applies to alternatives as well. Perhaps the gross return is more clearly positive than with oil drilling incentives, but in neither case is the net return clearly positive. It is straight out of econ 101. No really. The idea of incubating industries is not really part of the generally accepted basic economics 101 type of principles. Its a higher level issue, and one where there is a lot of disagreement. Its another idea where you clearly have negative gross returns, but there is a lot of disagreement about whether there are positive net returns.