Tuesday, April 26, 2011

Please, No More Oil Subsidies At All

Washington is slowly drifting toward fiscal sanity, more by accident than by design.  There is now semi-serious talk of curtailing or eliminating subsidies to the oil exploration industry.  The gentle defense of tax credits for small explorers is disingenuous.  Small explorers who hit a big find would immediately achieve a size that makes them ineligible for such an oil depletion allowance, so such a distinction could easily disincentivize smaller explorers. 

The simple economic fact is that only one incentive matters to oil explorers:  the market price of oil.  America would be better off getting rid of the oil depletion allowance in its entirety.  This would effectively "bunker" America's remaining high-cost oil resources until the market needs them.  It would also immediately make renewable energy more cost-competitive.  Sanity awaits.  It's ours for the taking.