Wednesday, March 25, 2009

Conflicting policies cloud the future
of domestic energy production

The Obama energy philosophy focuses on achieving two broad goals. First, the nation must move away from burning dirty fossil fuels like coal, oil and natural gas for our energy needs, and second, it must reduce our dependence on foreign oil.

Accomplishing the first of those two goals depends upon how long it takes to develop renewable and alternative energy sources to the point where burning fossil fuels will no longer be necessary, and the best estimates indicate that point is many years, or perhaps a few decades, down the road.

According to the U.S. Department of Energy (DOE), “the Solar America Initiative is [an] effort to accelerate the development of advanced solar energy technologies. The goal is to make solar electricity from photovoltaics cost-competitive with conventional forms of electricity from the utility grid by 2015,” but it doesn’t say how long before cost-competitive solar will actually provide a significant amount of electricity. The DOE also reports the possibility of “producing 20 [percent] wind energy or 300 GW of wind generating capacity by 2030.”

Developing alternative-powered vehicles is also going to take years, and the DOE says that “advances in fuel cell power systems for transportation could substantially improve our energy security and air quality. However, few fuel-cell-powered vehicles are in use today; even fewer are available commercially.”

Obviously, alternative sources will not be able to replace conventional sources any time soon, and while these new sources of energy are being developed we must rely on fossil fuels, and government policies must support that reality.

While achieving the first of the two goals is a long way off, achieving the second one could be a shorter term task: we can reduce the amount of foreign oil we purchase by developing the abundant reserves that lie offshore and/or within US borders, and that can have an impact in relatively short order if red tape and over-regulation are removed. The American Petroleum Institute (API) says that we have enough oil and natural gas resources to power 65 million cars for 60 years and heat 60 million households for 160 years. All that is required to reduce this dependence, which threatens not only the price of fuel, but also our national security, is to remove existing obstacles to increasing domestic production, and resist the temptation to put new obstacles in the way.

This is precisely opposite to the policy now in effect, and of future actions being proposed.

In addition to reducing our dependence on foreign oil and promoting “the responsible production of domestic oil and natural gas resources,” the Administration says it wants to create millions of new jobs in the energy sector.

That’s a wonderful set of goals. But other policies are at cross-purposes with the energy goals. reports that the administration is proposing up to $400 billion in new taxes for the oil and gas industry.

API president Jack Gerard believes that “raising taxes in a time of economic decline is a recipe for disaster. Hoover did it in the 1930s, Carter did it in the 1970s and President Obama wants to do it now. Higher industry taxes could result in less, not more, job security, and be felt throughout the entire economy, discouraging business expansion, investment and job creation. Historically, new taxes have hurt businesses, threatened jobs and resulted in higher prices – stealing money from every American household.” It will likely also reduce the value of retirement plans that hold stock in U.S. energy companies.

Does it make any sense at all to raise the cost of business for the companies upon whom we rely for current energy needs, and upon whom we rely to increase domestic oil production to reduce the dependence on foreign oil? Does raising taxes on oil and gas companies make sense at a time when the Administration’s preferred sources of energy are virtually non-existent?

Oh, and by the way, it is the oil and natural gas industry that is doing most of the development of new energy technologies.

Raising taxes on oil and natural gas companies at this point in time is not so different from letting all the air out of your tires just before you start on a long road trip. The reasoning for this seems to be: “We think the oil companies are making too much money, and people don’t like that. And, the government needs (wants) more money, so we’ll raise taxes on the oil companies. Bam! Two problems solved with one easy action.”

Raising taxes on oil and gas companies is an example of stage-one thinking, beyond which politicians rarely progress. They want solutions that can be put into effect quickly, and what results are politically expedient policies that please voters even as they produce disastrous results, because their consequences weren’t fully considered before being implemented.

It may satisfy some people that the “greedy” oil companies will be punished for making profits that they mistakenly think are excessive, but the reality is that the American people are the ones that will be punished when these taxes raise energy prices, lower production levels and cause a scarcity of goods that they want and need.

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