Proposed Changes to Oil and Gas Taxation


Taxes meant to raise revenues for the government or to change human behavior? Plentiful and inexpensive energy is a current requirement for an advanced economy. This is as true of centrally planned, manufacturing economies (such as China), as it is for democratic, service based economies (such as the United States). However, formulating and adhering to a consistent energy policy is much more difficult for a democracy than an authoritarian regime, as the United States experience shows.

The policy of the United States has been, in general, to encourage through federal income tax treatment, the rapid development and draining of oil and gas reserves within the United States. Certainly, during times of high oil prices, such as 1974 through 1981, the United States has imposed additional taxes on oil and gas companies. However, the trend in the United States over the last 90 years has been to give tax incentives for domestic oil and gas exploration and production.

The United States has also unintentionally given tax incentives to foreign oil and gas exploration and production. This tax incentive is a product of globalization and the ownership of oil and gas reserves by the same foreign national governments that set income taxes on income derived from those reserves.

In recent years, global warming attributable to human activities has become a political issue within the United States. Proponents of reducing carbon emissions in the interest of slowing global warming generally favor government policies that discourage the use of oil and gas. Increasing the tax burden on oil and gas is a logical method for reducing carbon emissions. This article, therefore, discusses some of the key oil and gas tax initiatives of the Obama Administration to achieve such a purpose.

Excerpted from The Houston Lawyer, Houston Bar Association, January/February 2011. To read the full article, click here.

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