– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. —
President Obama is in favor of moving towards “energy independence,” but his new 2010 Budget specifically seeks to raise taxes on domestic oil exploration by $31 billion over 10 years, a larger tax increase than on any other industry. In addition, oil and gas producers would bear a disproportionately heavy share of other tax increases on business, more than $320 billion.
Surely a president who desires energy independence would leave oil companies alone so that America could develop greater domestic reserves. But this is not the case.
The ostensible rationale for the tax increases is that the current tax system “distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent expensing encourages overproduction of oil and gas, it is detrimental to long-term energy security…” This wording, with reference to credits, lower tax rates, special treatment, and accelerated depreciation, is repeated eight times in the Treasury Department’s Green Book, a description of proposed spending and revenue changes in the budget.
President Obama believes that subsidies for renewable energy are acceptable, even though renewable energy is only responsible for 4 percent of America’s supply. He does not consider expenditures of $60 billion on “clean energy investments” to be distortions. But oil, which accounts for almost 40 percent of America’s energy usage, is a different matter, apparently deserving of higher taxes to limit overproduction. With fuel prices close to $5 a gallon last summer, we could have used a little overproduction.
If America is to reduce use of imported fuels, it needs to raise domestic production to increase long-term energy security. Every additional barrel of oil produced in America is one barrel fewer that needs to be imported. The oil and gas industry already employs more than 1.5 million workers, and has the potential to employ many more.
Estimates of American oil and natural gas reserves keep growing, potentially generating more job opportunities. In 2007, 200 trillion cubic feet of natural gas, equivalent to 33 billion barrels of oil, or about 18 years of U.S. oil production, were found in the Haynesville Shale, a rock formation in northern Louisiana. Discoveries have also been made in Texas, Arkansas, and Pennsylvania. New optimism about U.S. gas reserves and production capacity has been pushing natural gas prices down. Since the fuel is there, why propose new taxes to discourage production?
President Obama’s new tax proposals, rather than leading towards energy independence, would drive oil and gas production abroad. New taxes would place American producers at a disadvantage in the global market, punishing domestic American oil and gas companies and benefiting countries with large reserves such as Venezuela, Saudi Arabia, Iran and Russia. Does President Obama really want these countries, all under fire for their neglect of basic human rights, to get richer at our expense?
Moving towards energy independence is under attack from another quarter—extreme environmentalists. After Tuesday’s failure of California ballot initiatives to cut spending, Californians might take seriously Governor Arnold Schwarzenegger proposal to allow additional offshore drilling from Platform Irene, off the coast of Santa Barbara, which would raise $1.8 billion. But drilling on the Outer Continental Shelf remains unpopular. It’s telling that residents find it preferable to release 40,000 prisoners from jail or fire thousands of teachers—rather than drill offshore, which could bring in a steady stream of revenue to the state capital of Sacramento.
Until the United States has the technology to operate its 250 million motor vehicles without gasoline and natural gas, we need more domestic exploration, not less. At some point, maybe later this year, maybe in 2010, our economy is going to shift to post-recession recovery, and oil and gas consumption are going to rise. We don’t want a repeat of $5 gasoline and sky-high home heating bills.
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Zane Safrit: thanks for the post on Roth’s bio. She appeared suspiciously over-concerned about corporate America for an impartial commentator. Reuters should have more visible and greater disclosure of their commentators’ past experience.
Smart judgment, Mr. President. Draw down other nations’ oil reserves while they’re still willing to take dollars in exchange. Consistent with maintaining a robust national Strategic Petroleum Reserve, conserve this nation’s untapped oil resources to the greatest extent possible until the widely-forecast global crude oil supply/demand crunch occurs, heralding the terminal decline of liquid fuel production capacity everywhere.
If they oil industry will grow abroad because of more domestic taxes, so be it. Pres. Obama wants to invest in future energy sources, and he is right. Oil companies are so rich they can afford to pay more. Such increase in tax revenues can be used to help new renewable energy programs, as it is the intention. We need to think 10 years from now, not just for this coming summer.
After all the economic and environmental evidence that has been presented for analysis the only description one can give to this is ‘LUNACY’.
The goal is reduced dependence on oil overall, not just reduced dependence on foreign oil. As such Obama’s plan is right on the money, and this article misses most of the point. Additionally, I agree with previous posters that with record profits, the extra taxes will not break the domestic oil companies.
Diana, the fallacy of your argument is clear yet muddy. Because you are marred in age old thinking of yesterday big oil, yesterday world order. Yet you cannot bear to accept a new reality because it is ideologically painful.
For decades, big oil has delivered oil aplenty. But delivered absolutely zero energy sustainability, less independence. The free domestic market has worked for big oil, big consumption. But has delayed a giant reckoning. Left alone, the existing way of doing things will continue until the USA is flushed thru the toilet.
US has steadfastly avoided government-directed industrial policy. But industrial policy is now needed. Because while market is ’supposedly’ the most efficient, it can also be the most stupid for national interests.
There is no free international market for oil. OPEC is a cartel you know. They have the oil, the best and the cheapest, and they therefore control prices. Big oil plays their game because it is the most efficient for their profits. But it will bring total devastation to the US. The people of the US must decide - continue with cheap oil, and pay the ever higher price of reckoning later. If they decide to switch strategy, then government must be given powers to stop the domestic free market and implement a national industrial strategy with long-term sustainability and independence goals.
I think it’s unfortunate your brief bio here omits your role with previous Republican administrations and the oil and gas industry. You formerly worked at the American Enterprise Institute where former VP Dick Cheney gave his speech recently. You were on Council of Economic Advisors with Reagan and Economist for the Department of Labor during the Bush Administration. According to your bio page at the Manhattan Institure you were Deputy Executive Director of the Domestic Policy Council and Associate Director of the Office of Policy Planning in the White House under President George H.W. Bush. From 1987 to 1991 she was an economist at the American Petroleum Institute, where she authored papers on energy and taxation. Ms. Furchtgott-Roth was an economist on the staff of President Reagan’s Council of Economic Advisers from 1986 to 1987.
I’m not sure which one stands out the most. But being an economist for the oil and gas industry’s lobbying group, American Petroleum Institute, brings doubt to the integrity of your data and discussion here.
Manhattan Institute Page URL: http://www.manhattan-institute.org/html/ furchtgott-roth.htm
The simple fact is: cheap oil is running out. We’ve consumed it all. And whether more reserves are found here or overseas or at the bottom of the ocean, it will cost substantially more to located, acquire, distill, and distribute. And what does higher energy cost bring? More depressed economic activity.
The REAL QUESTION is when will energy costs become high enough to overcome entrenched interested, like Diana Furchtgott-Roth’s politically charged argument supports?
And of course, another questions will be, by that time, will the economic impact be so great that it endangers the social order and the republic, itself? Furchtgott-Roth may be making money by selling this article and singing for the oil-companies but it will be too late then for her to sing another song at $7.00 or more a gallon…
The US uses more than 20% of the world’s oil. It has about 3% of the world’s oil reserves. No matter how much you drill in the US, it won’t make the slightlest difference in reducing America’s dependance on other oil producing countries. Oil produced in Alaska’s North Slope would cost in excess of $80 a barrel to get to market. The Saudis produce a barrel of oil for $1.50. If you want to reduce America’s dependance on the rest of the world, only alternatives like solar can do that.
Lots of smoke and mirrors here. It takes a great deal of money to develop the new resources. I agree that the oil companies have made excess profits and they pay their fair share Much of the run up and down in the oil commodity is based on speculation, and we need to remove that factor and put oil on a stable platform where businesses and companies can plan. I think the government has some sort of overall plan, but I think that special interest groups try to skew the plan to meet their own agenda. No, we cannot save our way out of the energy problem, and solar panels and wind power are only a small part of the solution. People generally will go along with a plan if they can see the whole picture and be allowed to have input into the plan. From what I see we have many plans, and many special interest groups unwilling to listen of give an inch. We are caught in a roller coaster economy and it will take some braver congressmen and a braver president than we have now to put this country back on a stable platform.
If America is smart, it will leave the oil where it lies. It will be safe, and won’t go anywhere.
Within a few decades, we will have picked all the easy fruit. Assuming that Russia plays nice with Arctica, we might have fifty years at the most.
Then things will get dicey. There will still be oil, but it will be more expensive to get to.
Forget about petrol, cars or electricity. Oil has much more valuble applications, things we really can’t go without. Plastics, Lubricants, industrial chemicals. These are the real things that the world economy is based on.
America’s goal is as follows:
1. Focus on using renewable resources. Not for climate reasons, but for efficiency. Oil is valuble, and shouldn’t be burnt away.
2. Ensure that America has access to international oil reserves, and that it can secure interests over these reserves.
3. Save as much domestic oil as possible, for a time when America needs it.
Do this, and when the peak sets in in the future, the American economy will survive when others fall.
The US and Canada both have massive underused or untapped reserves that simply aren’t economical to produce. I’ve done some research on line. There is still so much more easily and more cheaply tapped oil from OPEC, that controls about 40% of daily production, and all other non OPEC sources, that they are not competitive. This was repeated on every responsible site I could find dealing with the subject.
There was an attempt during the spike of oil prices to bring some of that more difficult to refine oil- much of it oil sands to market.
OPEC is an expert at pricing and even complained during the spec fever that the price was far too high. Now that the price has dropped those reserves are probably no longer profitable. The way bailout money is being used by the recipients more to strengthen and consolidate their positions relative to each other than to increase business and consumer lending, seems to argue that even with large tax subsides as the author proposes, the oil companies will not make cheaper oil. They will just make higher profits.
We seem to be becoming a country that doesn’t tax those actually making an income or who control profitable resources, but instead puts the burden on people with incomes derived from working for a living. The country is beginning to resemble the economy and tax structure of the old regime of late 18th century France. And we all know what that got them. Bankruptcy and violent revolution.
This country seems to be more fond of misrepresentation of facts, self serving business calculations and even scams - last weeks New Yorker had a full page Ad by Exxon Mobil trying to claim that gas can be frozen to remove CO2. What do they do with the products of combustion? Are they trying to take all the carbon out of a hydrocarbon to leave only the hydrogen? Why not just produce hydrogen?
Although I am not in the military nor am I a veteran, it isn’t hard to see how a country that was claiming it was seriously threatened by terrorism, and expected us to surrender our privacy, papers, and computers to the attentions of state spys,- and that will probably try to maintain that claim long after the threat passes - a new cold war in short - blindly excepts some of it’s people to voluntarily put themselves in harm’s way while those who control resources, wealth,and political control, are only expected to get wealthier.
It is obvious that throwing more money at the wealthy isn’t making for a burgeoning economy. It is only handing more control to those already in control. And the price of oil seems to have no effect on the economy now.
It’s difficult to take you seriously when you characterize the Obama Administration’s proposals as tax increases. Most of the proposals are the elimination of tax breaks for the oil industry that have artificially depressed oil prices. Over the short-term, this policy was good for consumers, but as we can now see, over the long-term have been detrimental because they caused accelerated depletion of our domestic oil reserves so that we now have to import 70% of our oil. One of the tax breaks — percentage depletion — has nothing to do with encouraging domestic production but is simply a gift to the oil industry. If you believe that increased domestic production will bring energy independence or significantly lower prices, you simply are not aware of the facts. The US consumes 21 million barrels of oil per day and produces domestically 8 million barrels per day, and production has been declining for years. Finally, there is no need for tax breaks when a high oil price creates by itself sufficient economic incentive for additional exploration and production. We should let the market work and stop creating giveaways to the oil industry.
Obviously domestic production is important to national security. However, if you take the time to do some math using the 2009 U.S. Energy Infromation Administration data you can easily see that the U.S. only has around 1.5% of the world’s proved oil reserves. Compare this with Africa which has around 8.7% and you might understand at least part of why the U.S. is becoming more involved in working with other countries to ensure that regions remain stable.
You’re just another shill for large corporations and the wealthy elite.
We’ve seen and heard enough of your Orwellian speak.
Dismissed
US oil production is down because US oil production ‘peaked’ in 1971. The faster we drill and extract, and the more technology is applied, the faster the depletion rate.
Google ‘Peak Oil’, and follow the links. America can become energy independant but will need to learn to make do with about 30% of the energy we now use. Read http://www.energybulletin.net daily to learn about energy issues.
…and as to her “technology to operate its 250 million motor vehicles without gasoline and natural gas” statement, ‘technology’ does not have anything to do with energy. This article is another example of an energy illiterate opinion.
Ma’am, let me start with this statement you made: “Moving towards energy independence is under attack from another quarter—extreme environmentalists.”
That’s grotesquely unfair. Not only are many of those who are less-than-thrilled at yet more drilling, not only do some of us readily acknowledge that fossil fuels are going to in the picture in a huge (if, I hope, rapidly decreasing) way — but to say *any* environmentalists (beyond a few nut cases) are *attacking” energy indpendence is a downright insult. No, sources such as solar and wind aren’t going to wrought miracles by, say, Christmas.
But guess what. Though I myself am not in the fossil fuel industry, I have good friends who are, I mean the folks involved in production, not in the corporate offices. Those working the oilfields, both onshore and offshore, reluctantly admit that we could start punching oils hither, thither, and yon tomorrow morning, and even if we struck paydirt right away, it would be several *years* before any of that would ever hit the market. In the case of offshore, they have said that realistically, we’re looking at anywhere from six to ten years, i.e., from a best-case to worst-case scenario.
Some object to the subsidies the oil companies receive, and use that as a reason to tax oil companies more heavily. I feel sometimes those critics are wrong; on another thread elsewhere, one commentator said “Who pays to put out a refinery fire?” Well, we all do. But in fairness to Big Oil, who pays to put out *my house fire*? — why, we all do.
On the other hand, if I want to get into a 14′ skiff to go fishing in, say, the Port of Houston, I don’t need the federal government to dredge the bay and so on — things we do indeed do on the public tab. That’s one subsidy. And when local governments are vying for an oil company to build a refinery project, for instance, as far as I know, long-term tax breaks are invariably involved — shorting that government, meaning we, the rest of us, have to make up the shortfall. That’s another subsidy.
And there’s another point: no matter how great a backlog of supply there is, when oil prices start rising on the markets, the rise at the pumps is virtually instantaneous — whereas no matter if the supply depot is dry just as the bottom falls out from under those market oil prices, we darned sure don’t see the price at the pump drop with corresponding speed. Yes, it drops, as we’ve seen since last summer — but considerably more slowly. Come to think of it, I guess that’s an indirect subsidy, of sorts.
I’m constantly asking friends who demonize Big Oil to get off it. I’m asking you to stop demonizing the green crowd. Neither characterization is correct, and even if they were, to focus on the “Demon Factor” isn’t going to get us anywhere.
Final point. The great majority of pieces I’ve read about the effect on “energy independence” if we revive “Drill, Baby, Drill!” option, no matter from where on the political spectrum that a particular piece came, says that ain’t gonna happen. Well, not all the pieces; some have axes to grind, so twist and distort.
I hope I’ve given you a moment’s or two’s thought. . . .
Yeah, I know, 2 posts back to back? I just had a really good idea and have to express. Put a solar panel and a small wind powered generator on every house in America. This would create jobs in manufacturing as well as installation. The homeowner would immediately see a decrease in their power bill, which in turn would lower the amount of fuel used in power plants since need would drop, as well as lowering pollutants in the air. A smart grid connecting so many homes would lessen the amount of energy lost in transit, again reducing the amount of fossil fuel needed while less pollutants make it to the air.
In the case of a natural disaster, or simply a power outage, undamaged homes would still be able to generate enough power to live on, keep the fridge running and hot water available. If every home had a way to generate some of their own power, just think of the advantage to national security. The only people who will fight this are energy conglomerates like “Duke” who’s profit margin wold suffer.
I look at it like this, who’s needs are greater in this country, a small group of overly large energy corporations who inflate prices, who argued for deregulation using the “Free Market” argument for “Competition”. I don’t every remember energy prices falling because of competition. In fact, I think there is a lack of competition in this area of Industry because in most areas of the country you can only get your power from just one company. Wheres the “Free Market”? Wheres the competition?
There are an awful lot of big words thrown together in this article, but basically it says that taxing Big Oil more is bad for America and Americans. Really? With record profits for several quarters in a row from Exxon, like 40 billion in profits, on top of billions in tax breaks, who else in this country can afford to pay higher taxes? It’s not like the Big Oil companies are well known for their kindness towards the consumer. Last time oil was around 60$ a barrel, prices were well under $2.00. I find it amazing that my local T.V. news programe claimed, like it was expected and not against the law, that gas prices have gone up because it is driving season. Last time I checked those practices are called price gouging, ILLEGAL!! It is Illegal to raise prices on anything simply because. I also love how you never see gas price wars anymore. With all the Gas companies and oil companies around, you would think in a “Free Market” that is supposed to encourage “Competition”, the consumer would actually have competitive prices. Instead the 7 (now 6) sisters seem to be a cartel, no different than a drug gang or OPEC who squeeze every last bit of money from the public without regard to Anti-trust laws and anti-competition laws.
Every Oil company is a multinational, meaning they have so many ways in so many different countries to hid profits from being taxed, as well as HUGE tax breaks here in the United States. Republicans scream that government need to be smaller, i agree completely;however, the government is the only entity large enough to protect the consumer from the obviously blatant abuse of laws by these “Multinationals”. You want Government smaller, make businesses become smaller, the smaller Big Business becomes, the smaller government can become. By making Big Business smaller, i mean breaking up these HUGE Multinationals who have no loyalty to any nation since they make money off of every Country and use the discrepancies in laws between every nation to exploit. Everything a Multinational does is to make money for itself, without any care for the average person, who Multinationals see as nothing more that statistics, commoners who they need to convince to buy whatever it is they are selling. Separate Big Business and state, we need to, just like we did religions and state. For the exact same reasons.
I am pretty sure they know where the domestic oil is. They do not need to do any exploration. What they need to do is pump it out of the ground. For the last 10 years as our government has preached we need to get off foreign oil domestic production of oil has decreased. Pumps all over this nation are sitting stagnant. I think the reason there is a tax on exploration is because what the US needs is not to waste more money on trying to find new resources but to take advantage of those we already have. There are enough known reserves in the US to last us for the next 100 years. We just need to pump it out of the ground. The Bakken reserve is estimated at 200 Billion barrels of economically accessible oil and Alaska has just as much if they would be allowed to tap it. Given our foreign suppliers are all reducing their export to us, I find it hard to blame just certain suppliers like OPEC. Right now the US is only producing 5+ million bbls per day. We consume 20+ million bbls. We need to pump more. Saudi pumps 10m bbls per day. The US just needs to pump oil.
Country Feb-09 Jan-09
________________________________________
CANADA 1,913 1,946
MEXICO 1,219 1,299
SAUDI ARABIA 1,099 1,337
VENEZUELA 960 1,172