Gulf Oil Spill: Some Producers Agree to Higher Taxes, but Not Out of Altruism

Last Updated May 10, 2010 10:02 AM EDT

Fallout from the Gulf of Mexico oil spill has seemingly wrought its first miracle: The Independent Petroleum Association of America said oil companies may back an 18- to 25-cent per-barrel tax increase that would bolster the Oil Spill Liability Trust Fund. But don't start thinking the oil industry has gone all altruistic on us.

Companies currently pay an 8-cent-per-barrel tax on all oil produced or imported in the U.S., money that would help compensate losses caused by an oil spill. That fund currently holds about $1.6 billion, of which about $1 billion can be used to compensate for losses.

To independent oil producers, this is about survival. Under federal law, oil companies are liable for up to $75 million in damages. But congressional Democrats reacting to the Gulf of Mexico oil spill have want to raise the liability cap to $10 billion. Independent oil companies are worried that raising the liability cap to $10 billion will effectively put them out of business, because the higher cap will also make it more expensive to buy insurance to cover their Gulf drilling operations.

This is the second time in recent months oil companies have proposed higher taxes -- which, needless to say, they're usually not fond of. Almost a month ago, Shell (RDS), BP and ConocoPhillips (COP) reportedly helped craft a new gas tax that would add a significant cost to fuel for consumers and businesses. Then, of course, the oil majors saw a gas tax as a less-bad alternative to greenhouse-gas emission permits expected to be part of climate-change legislation.

Either way, though, Big Oil was always likely to pass along qny extra costs to consumers at the pump. The same is likely in the case of the spill-liability cap -- not to mention any tax increases that feed the liability fund.

Whatever happens on the tax front, raising the liability cap will force oil companies -- big and small - to reweigh the cost and benefits of offshore drilling projects in the U.S. Ultimately, it will raise the cost of oil for all of us -- or at least bring its market price closer to its true cost.

Photo from Flickr user alancleaver, CC 2.0 See additional BNET coverage of the Gulf of Mexico oil spill: