WASHINGTON, D.C. – Americans are paying more for gasoline than they would if they had access to competitive markets, and oil companies are using the windfall profits to buy back their stocks rather than make investments in sustainable energy, according to a report released today by Public Citizen. The industry is taking advantage of its huge market control and lax energy trading oversight to gouge Americans, squandering the opportunity to invest in cleaner, sustainable sources and curb the nation's dangerous addiction to oil.
The report, 'Hot Profits and Global Warming: How Oil Companies Hurt Consumers and the Environment,' shows that soaring prices are not dampening demand because most families have little leeway to alter their driving habits. Federal government statistics show this summer's gasoline demand up between 1.6 and 1.9 percent from 2005.
High energy prices are translating directly into record oil company profits. In the first six months of 2006, the five largest U.S. oil companies posted $59.4 billion in profits. These companies have spent $112 billion since 2005 to buy back their own stock and pay dividends rather than invest in infrastructure or alternative energy sources, according to analysis done by Public Citizen.
Congress has summoned BP for a hearing on Thursday before the House Committee on Energy and Commerce to answer why it allowed its Alaska pipelines to deteriorate despite such large profit margins, causing a partial shutdown of oil production in America's largest oilfield and temporarily driving up global oil prices. And although BP claims it is the renewable energy leader, it plans to invest just $800 million a year in solar, wind, natural gas and hydrogen energy – less than 2 percent of the total amount the company posted in profits, stock buybacks, dividend payments and cash reserves in 2005.
'Under the current market framework, oil companies aren't making investments in ways to break our addiction to oil and apparently have no intention of doing so,' said Tyson Slocum, director of Public Citizen's energy program and the report's author. 'With $1 trillion in assets tied up in extracting, refining and marketing oil, their business model will squeeze the last cent of profit out of that spent capital for as long as possible.'
While some of the profits stem from the global increase in the price of petroleum, the report makes clear that large oil company mergers have squelched competition and hurt American consumers. Recent mergers between giant oil companies such as Exxon and Mobil, Chevron and Texaco, and Conoco and Phillips have resulted in just a few companies controlling a significant amount of America's gasoline. Since 2005, the largest five control 55 percent of the refining market, and the largest 10 dominate 81.4 percent.
Recent federal investigations have also revealed that U.S. energy markets are susceptible to market manipulation by these oil behemoths. BP, already under investigation for allegedly manipulating the U.S. propane market in 2004, is facing new scrutiny in a federal probe about manipulation of crude oil and gasoline markets. Energy trading markets where prices for energy are set were recently deregulated, raising additional concerns that oil companies, hedge funds and investment banks are gouging consumers in the futures exchanges.
Oil company practices are hurting both the economy and the environment. Imported oil represents one-third of America's trade deficit, and increased prices may be slowing economic growth, adding to inflationary pressures and creating financial hardship for tens of millions of American families as well as the airlines and other industries. Petroleum products are also highly polluting and account for 44 percent of America's world-leading greenhouse gas emissions, a major contributor to global warming.
In the report, Public Citizen presents a plan to reform America's energy markets, combat global warming and promote sustainable alternatives to our reliance on fossil fuels. It calls for implementing a windfall profits tax, repealing all existing oil company tax breaks and loopholes, and dedicating the revenues to financing sustainable energy solutions. It also recommends re-regulating energy trading exchanges to restore transparency and strengthening anti-trust laws to crack down on oil companies' anti-competitive actions.
Public Citizen calls for improving vehicle fuel economy standards and funneling the money saved from repealed oil industry subsidies to fund clean alternative energy sources, energy efficiency and mass transit. The report recommends against an expansion of nuclear power, which produces radioactive waste and pollution, requires billions of dollars in annual direct and indirect subsidies, and would do nothing to end America's addiction to oil.
'It is clear that in the next decade we need to transition to cleaner, sustainable energy as a solution to environmental degradation and global warming,' said Public Citizen President Joan Claybrook. 'But as long as the oil industry is able to manipulate markets to garner record profits and is not required to invest responsibly in our energy future, it will be a key part of the problem.'
To view the report, click here.