Written by Miranda Marquit
Photo:pingnews, Creative Commons, Flickr
Congress is considering moving funding from Big Oil to alternative energy.
Right now, one of the ways Big Oil builds on its record profits is to enjoy billions of dollars in tax breaks and subsidies from the U.S. government. However, with gas prices rising, and the summer rally finally underway with crude oil prices, some on Capitol Hill feel that the free ride for Big Oil has gone on long enough. June 19 marks the introduction of a bill that would take $14 billion from Big Oil over 10 years and give it to alternative energy. Not only that, but some Senate Democrats are prepared to start charging royalties from oil and gas drilled in federal waters. Right now, Big Oil gets to drill in government-owned waters without having to pay a dime in royalties, further contributing to profits.
Companies like Exxon (XOM) and lobbying groups like the American Petroleum Institute are protesting, as one would expect. They say that taking money away from oil exploration and drilling in the U.S. increases our energy dependence. Those that support the bill, of course, say that, in the long run, investing in alternative and renewable energy will prove to break us free from foreign oil needs.
Another issue the bill could address is price gouging. However, President Bush is threatening to veto an energy bill that regulates prices in any way, concerned that it would lead to lower profits and less investing in Big Oil. So, are the tables turning? The New York Times reports on who will be getting tax credits now, if the current energy bill passes:
The Senate bill would offer $5.6 billion in tax credits over the next three years for companies that produce electricity from renewable fuels like wind and geothermal power. It would offer tax-free bonds for new power plants with renewable or clean energy. It would offer tax credits totaling about a dollar a gallon to producers of cellulosic ethanol, and even bigger tax credits for “biodiesel” fuel. It would extend and expand tax breaks for plug-in electric cars and other vehicles that use alternative energy sources, and it would provide tax breaks for gas stations that offer renewable fuels. For those interested in investing in alternative energy and in biofuels, the outcome of this bill could prove to be a tipping point. This would mark the first time that substantial tax benefits have been granted to alternative and renewable energy by the U.S. government. Such a move would let investors know that now may be the time to get in on renewable energy stocks. After all, government subsidies and tax breaks have contributed to Big Oil's record profits. What happens when some of that money gets rerouted to alternative energy?
Because alternative energy related to such sources as solar energy and biofuels like ethanol are a ways from actually being profitable, it is unlikely that Big Oil will face a substantial fall in value right now. Indeed, for this summer, Big Oil is likely to gain. But what about in the future? Investing in companies that diversify their energy holdings may be the best way to ensure that your portfolio remains somewhat protected in the case of increased interest -- and funding -- toward alternative energy.
Disclosure: I do not own Exxon stock. I am investing in BP (BP).