The "Everything Else" Energy Policy
Winston Churchill once said, "You can always rely on Americans to do the right thing -- after they try everything else." The Obama Administration is at it again on energy, so again we must hope that at the end they will get to "the right thing." Just don't hold your breath.
The President has renewed his campaign to raise taxes on oil and gas companies, in order to fund more research and development for "green" energy. The original promise was to impose a windfall profits tax of $35 billion over 10 years. Now, several tax increases would raise $80 billion in 10 years.
How would they do that? Among other things, by eliminating "depletion allowances" and "intangible drilling costs." Those items are arcane, so most voters or Senators or Representatives may hope that it won't matter except for the extra revenue for "green" subsidies. Wrong! Every company would be impacted and would see higher costs; those hurt worst would be the independent drillers and small drilling companies, which drill most of the holes in the US and whose economics of survival depend upon these two long-time tax allowances. So we can look forward to an immediate reduction in US exploration and drilling activity. Less drilling means thousands fewer US jobs and less oil and gas discovered. Supply of domestic oil and gas will be hit hardest, immediately -- not a good way to reduce the US jobless rate, nor US oil imports and "foreign dependence."
Another proposal would impose a 13% "severance" tax on oil or gas produced offshore along the US coasts (most of the US coastline is already off limits to oil and gas drilling and development); this would raise the cost of any drilling in the Western Gulf of Mexico and the few other places where production continues -- but not overseas, of course. Any tax on a company is paid by consumers (American citizens), so this step would mean a higher tax on Americans who use domestic oil or natural gas or any product made from them.
Another change would undo tax and regulatory provisions set dozen years ago by the Clinton Administration to spur industry activity in very deep waters. At the time, existing technology made it impossible to drill in waters deeper than 3,000-5,000 feet. The promised tax breaks and royalty waivers made companies work feverishly to improve their technology, and within the past two years, US companies have made discoveries in water deeper than 20,000 feet in the Western Gulf of Mexico. Such exploration costs $500 million to $1 billion per well, but companies took the technological and economic risks because of the huge potential resources in very deep water. But now their success will be punished if the Clinton promise is reversed. While the discoveries already made would go to production within another year or so, there would be no more such effort by US companies in US waters -- but more, perhaps, off China's coast.
The elimination (for 6 US companies only) of the "manufacturing tax deduction" that is enjoyed by every other company would cost jobs and future investment; but the Obama Administration says the result would be $80 billion in "green" subsidies, with any shortfall in energy supply to be made up energy conservation, greater efficiency, renewable sources such as wind and solar. (The International Energy Agency, the US Department of Energy, and virtually every expert says hydrocarbons will account for 79% -- the same share as today -- of energy supply in 30 years, with total energy demand growing by 40% by then.)
So what can we believe? History shows that the "windfall profits tax" of the 1970s cost jobs, oil exploration, oil production, domestic investment in drilling; it raised prices and increased imports. This will do the same thing, all in the hope that wind, solar, algae and other exotics can make up the difference. They won't; they can't; and every bad result will worsen over time.
It's time to do the right thing; this set of proposals is "everything else." Read more!
The President has renewed his campaign to raise taxes on oil and gas companies, in order to fund more research and development for "green" energy. The original promise was to impose a windfall profits tax of $35 billion over 10 years. Now, several tax increases would raise $80 billion in 10 years.
How would they do that? Among other things, by eliminating "depletion allowances" and "intangible drilling costs." Those items are arcane, so most voters or Senators or Representatives may hope that it won't matter except for the extra revenue for "green" subsidies. Wrong! Every company would be impacted and would see higher costs; those hurt worst would be the independent drillers and small drilling companies, which drill most of the holes in the US and whose economics of survival depend upon these two long-time tax allowances. So we can look forward to an immediate reduction in US exploration and drilling activity. Less drilling means thousands fewer US jobs and less oil and gas discovered. Supply of domestic oil and gas will be hit hardest, immediately -- not a good way to reduce the US jobless rate, nor US oil imports and "foreign dependence."
Another proposal would impose a 13% "severance" tax on oil or gas produced offshore along the US coasts (most of the US coastline is already off limits to oil and gas drilling and development); this would raise the cost of any drilling in the Western Gulf of Mexico and the few other places where production continues -- but not overseas, of course. Any tax on a company is paid by consumers (American citizens), so this step would mean a higher tax on Americans who use domestic oil or natural gas or any product made from them.
Another change would undo tax and regulatory provisions set dozen years ago by the Clinton Administration to spur industry activity in very deep waters. At the time, existing technology made it impossible to drill in waters deeper than 3,000-5,000 feet. The promised tax breaks and royalty waivers made companies work feverishly to improve their technology, and within the past two years, US companies have made discoveries in water deeper than 20,000 feet in the Western Gulf of Mexico. Such exploration costs $500 million to $1 billion per well, but companies took the technological and economic risks because of the huge potential resources in very deep water. But now their success will be punished if the Clinton promise is reversed. While the discoveries already made would go to production within another year or so, there would be no more such effort by US companies in US waters -- but more, perhaps, off China's coast.
The elimination (for 6 US companies only) of the "manufacturing tax deduction" that is enjoyed by every other company would cost jobs and future investment; but the Obama Administration says the result would be $80 billion in "green" subsidies, with any shortfall in energy supply to be made up energy conservation, greater efficiency, renewable sources such as wind and solar. (The International Energy Agency, the US Department of Energy, and virtually every expert says hydrocarbons will account for 79% -- the same share as today -- of energy supply in 30 years, with total energy demand growing by 40% by then.)
So what can we believe? History shows that the "windfall profits tax" of the 1970s cost jobs, oil exploration, oil production, domestic investment in drilling; it raised prices and increased imports. This will do the same thing, all in the hope that wind, solar, algae and other exotics can make up the difference. They won't; they can't; and every bad result will worsen over time.
It's time to do the right thing; this set of proposals is "everything else." Read more!