Tuesday, December 09, 2008

Tuesday Column:
Satisfying future energy needs could also help improve the economy

In 2006 the Energy Information Administration predicted that by 2030 energy needs in the United States will increase by 19 percent, and global needs will increase by 50 percent.

The EIA’s American Energy Outlook says further that even with enormous increases in ethanol (328%) and other biomass fuels (147%) the U.S. still will require more coal, more oil and more natural gas for energy needs over the next 22 years, with more than half of all energy being provided by oil and natural gas. This increased demand will require roughly two million additional barrels of oil per day and an additional one trillion cubic feet of natural gas per year.

Even the most optimistic estimates say it will take years before alternative energy sources can be developed sufficiently to make an appreciable difference in the overall energy picture, so the message being shouted loud and clear by the AEO is that despite all the talk of hope and change during the presidential campaign, the sources we use to produce energy aren’t going to change much anytime soon, so the United States has to find new domestic sources of oil and natural gas to bridge the gap.

According to the EIA, more than 90 percent of the oil and natural gas resources in the Pacific are within 50 miles of the shore, and that area contains enough resources to produce an extra two million barrels per day of oil for 24 years and an extra one trillion cubic feet of natural gas for 76 years, just what the doctor ordered.

Given that information, how does President-Elect Barack Obama’s stated positions on carbon fuel use and the points in his energy policy favoring so-called “green” energy sources square up?

Among those points are the following:

* Cut US oil consumption within 10 years equal to the amount currently imported from the Middle East and Venezuela;

* Require 10 percent of the nation’s electricity to come from renewable energy sources like wind, solar, geothermal, and biomass by 2012, and 25 percent by 2025;

* Establish an economy-wide cap-and-trade program that cuts U.S. greenhouse gas emissions by charging for every ton of carbon dioxide that goes into the sky from coal- and natural gas-fired US power plants.

* Give American taxpayers a $500 rebate check that will be funded by a windfall profits tax on big oil companies.

Even in better financial times, those goals are quite aggressive. Today, they are impractical.

Mr. Obama proposes raising taxes on those making more than $250,000—many of whom are small business owners who provide jobs for many thousands of Americans—so that he can “spread the wealth around” and give others a tax break, shifting more of the tax burden away from middle class earners to the highest income earners.

However, in raising taxes to that group and imposing a windfall profits tax on oil companies, Mr. Obama is targeting the goose that laid the golden egg. Raising taxes on small businesses that earn more than $250,000 provides a disincentive to them, and a windfall profits tax on oil and natural gas companies, at a time when oil and natural gas production must be increased, and also when the U.S. will have to rely on those resources to provide more than half of its energy needs, seems foolish.

Perhaps Mr. Obama knew during the campaign that the far left rhetoric he used on the campaign trail could not be transformed into policy once in office. Or if he didn’t know that, perhaps now that he’s getting the same briefings that President Bush gets he has awakened to the reality that the real world is vastly more complicated and a far more dangerous place than the world of “hope” and “change” he lived in as a candidate.

Taking the EIA’s prediction seriously, it would be a terrible mistake to re-impose the drilling ban or interfere in the development of these resources. While the ban has been lifted in some areas, the Eastern Gulf of Mexico still remains under a ban, preventing an estimated 3.7 billion barrels of oil and 21.5 trillion cubic feet of natural gas from being collected. A sensible energy policy demands that when additional oil and natural gas are needed to meet demand, don’t block drilling in areas of known supplies.

Yet, some lawmakers are considering re-imposing the ban or placing arbitrary limits on offshore leasing close to the nation’s coastline.

However, Mr. Obama can kill two birds with one stone if he doesn’t let partisanship and ideology get in the way. The oil and natural gas industry directly employs 1.8 million Americans, with another four million jobs indirectly tied to the industry. And, exploration and production wages in 2006 were more than double the national average, so by opening up additional areas of the Outer Continental Shelf within the 50-mile limit to federal leasing, which will bring in billions of new dollars to the federal treasury, he can create high-paying jobs at a time when unemployment is rising.

New jobs paying good wages. Additional oil and natural gas supplies. That sounds like a winning proposition for the new president.

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