Oil has been getting a lot of buzz as of late and I'm curious about your take on some things. I don't mind if you take your time in responding.
1. Your thoughts on oil subsidies/tax breaks. Do you see a substantive difference between a subsidy and a tax break? From what I've skimmed, it seems like most of the tax breaks the oil industry has are similar to those of other industries, though they do get to write off royalties to foreign governments as taxes paid as well as amortizing expansion costs in one year rather than the over the life of the investment.
2. As your quote demonstrates, many are claiming an increase in U.S. oil production won't bring down oil prices. Obviously increasing supply does lower price, but can the US produce enough to make a substantial difference? How does the difference between domestic product vs. foreign product weigh into the price equation?
Tough questions. Here are my preliminary answers, which I reserve the right to revise.
1. I'm not aware of any difference between a tax break and a subsidy, provided they are the same dollar amount.
I plead ignorance on special tax treatment. The tax code is very complicated, and I don't know foreign taxation at all. But I'm not actually aware of too many ways that oil companies are given special tax treatment.
I think that eviromentalists like to point out special tax treatment of oil companies as an argument for moral equivalency: we all use subsidies so don't just point the finger at wind/solar! but of course, fossil fuels are entirely viable without special treatment, whereas wind and solar are not.
2. Second question first. I don't think the difference between domestic and foreign production matters much to price because commodities are traded on an international market. That is, unless there are some trade quotas or tariffs that I'm unaware of.
Honestly, i don't know the answer to this. But it seems possible to me that even a small increase in U.S. oil production probably could decrees oil prices. I understand that Demand for oil is fairly inelastic; increase in price do not significantly decrease the amount of oil that is consumed. So I think that means small changes in the supply can have a significant impact on price.
This answer probably also depends on what sources of oil are developed. Some commentary suggests that the U.S. does not have that much oil (less than 2% of world production), but other sources say the U.S. has more oil that Saudi Arabia. Maybe the difference is in how you count oil and whether you include shale oil? So it may be that this is something we don't know until we start to allow for exploration.
This guy seems to think there's lots of oil out there.
2 comments:
Oil has been getting a lot of buzz as of late and I'm curious about your take on some things. I don't mind if you take your time in responding.
1. Your thoughts on oil subsidies/tax breaks. Do you see a substantive difference between a subsidy and a tax break? From what I've skimmed, it seems like most of the tax breaks the oil industry has are similar to those of other industries, though they do get to write off royalties to foreign governments as taxes paid as well as amortizing expansion costs in one year rather than the over the life of the investment.
2. As your quote demonstrates, many are claiming an increase in U.S. oil production won't bring down oil prices. Obviously increasing supply does lower price, but can the US produce enough to make a substantial difference? How does the difference between domestic product vs. foreign product weigh into the price equation?
Danke.
Tough questions. Here are my preliminary answers, which I reserve the right to revise.
1. I'm not aware of any difference between a tax break and a subsidy, provided they are the same dollar amount.
I plead ignorance on special tax treatment. The tax code is very complicated, and I don't know foreign taxation at all. But I'm not actually aware of too many ways that oil companies are given special tax treatment.
I think that eviromentalists like to point out special tax treatment of oil companies as an argument for moral equivalency: we all use subsidies so don't just point the finger at wind/solar! but of course, fossil fuels are entirely viable without special treatment, whereas wind and solar are not.
2. Second question first. I don't think the difference between domestic and foreign production matters much to price because commodities are traded on an international market. That is, unless there are some trade quotas or tariffs that I'm unaware of.
Honestly, i don't know the answer to this. But it seems possible to me that even a small increase in U.S. oil production probably could decrees oil prices. I understand that Demand for oil is fairly inelastic; increase in price do not significantly decrease the amount of oil that is consumed. So I think that means small changes in the supply can have a significant impact on price.
This answer probably also depends on what sources of oil are developed. Some commentary suggests that the U.S. does not have that much oil (less than 2% of world production), but other sources say the U.S. has more oil that Saudi Arabia. Maybe the difference is in how you count oil and whether you include shale oil? So it may be that this is something we don't know until we start to allow for exploration.
This guy seems to think there's lots of oil out there.
http://www.nationalreview.com/articles/262219/drill-baby-drill-again-jim-lacey?pg=1
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