Wednesday, September 17, 2008

Congressional Action on Energy: One Step Forward;
Two Steps Back

Even before hurricane Ike struck the Gulf Coast we began seeing price spikes, shortages of gasoline, lines at filling stations and mild panic on the part of the driving public locally. Damage to drilling, refining and distribution facilities appears to be light, according to early reports, however, the storm has created new obstacles to the already difficult effort to increase domestic oil supplies at a time when we desperately need to increase them.

A large majority of Americans have said repeatedly they want more domestic drilling for both oil and natural gas to ease dependence on foreign sources, but Democrat leaders of Congress chose to ignore the will of the people in favor of breaking for its usual five-week summer vacation last month, and have seemed deaf to calls to take action.

Breaking with the leadership, a bi-partisan Senate group consisting of five Democrats and five Republicans, known as the “Group of 10,” came up with an energy proposal that was an honest effort to break the current congressional deadlock on the energy issue. The Group grew from 10 to 16, and now has become the “Gang of 20,” ten from each party, as support for the proposal has grown. Critics of the plan, like the American Petroleum Institute (API), however, say that the plan takes one step forward in getting the Congress to at long last address the issue, but it takes two steps backward by failing to encourage new production and by imposing crippling new taxes on the industry at a time we should be encouraging it to do its work, not punishing it through increased costs.

The 400-member API is the only national trade association that represents all aspects of America’s oil and natural gas industry, including producers, refiners, suppliers, pipeline operators and marine transporters, as well as service and supply companies. It recently released a fact sheet on the “Group of 10” proposal that points out the shortcomings of the plan, which says in part: “It is estimated that approximately 23 billion barrels of oil and approximately 45 trillion cubic feet (TCF) of natural gas would remain off limits,” because the authors of the plan bent to environmental pressure and will not allow drilling within 50 miles of the coastline, even though oil industry experts believe substantial reserves of natural gas and oil lie within that 50 mile limit. “Twenty-three billion barrels of oil is the equivalent of 29 years worth of today’s imports from the Persian Gulf; 45 TCF of natural gas is the equivalent of 12 years of today’s net imports of natural gas,” API said.

The organization also points out that the industry has proven it can safely develop resources in all areas, even those just off shore, due to improved technology, so fears of environmental damage are baseless.

The proposal also includes a state opt-in option that ultimately could prevent any new drilling, which would defeat the purpose of the proposal, and a tax measure that would likely be found to be a breach of the existing lease contracts.

The group proposes $30 billion in additional taxes on the industry that would be used to fund the transition of 85 percent of new U.S. motor vehicles from petroleum-based fuels to non-petroleum-based fuels and alternative energy technologies within 20 years. However, this plan would make government the focal point of development of new energy technologies by taking money that is already being spent on development by the oil and natural gas industry, which currently funds 70 percent of the existing investment in these technologies.

Raising taxes on business results in higher costs, making goods and services more expensive and less desirable, and tends to discourage the production of those goods and services. As an example, in the 1980s a windfall profits tax was imposed on the oil and natural gas industry. The result was a decrease in the amount of domestic energy that was produced, and a corresponding increase in imported oil. This is precisely what the country does not need if we are serious about energy independence.

It is a positive development that some members of Congress finally understand that the recent do-nothing position of the leadership is the wrong approach, but we must question the wisdom of breaking a deadlock on domestic energy policy with a measure that attacks the ability of oil companies, the leaders in both conventional energy and alternative energy development, to pursue those goals.

The current policy and the “Gang of 20” proposal draw a bead on the goose that laid the golden egg, targeting the industry with punitive measures instead of encouragement. What Congress must do is stop playing politics and “gotcha” with energy policy and open up those areas for drilling that are most likely to hold natural gas and oil, and free oil companies to explore there. And then do whatever needs to be done to support the industry in repairing the damage from Ike, and encourage the building of new refining capacity.

If we are truly serious about becoming energy independent, we can do nothing less.

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