FOR IMMEDIATE RELEASE
August 26, 2009
Contact:
Patrick Creighton, 202.870.0850
Laura Henderson, 202.380.5758

IER: 150th Anniversary of Drake’s Well Should Renew America’s Leadership to Access, Deliver Energy

After world-leading efforts a century and a half ago, U.S. energy priorities must be refocused on increasing supply, stabilizing costs

Washington, DC – One hundred and fifty years ago, “Colonel” Edwin Drake struck oil in Titusville, Pennsylvania, helping to set the nation – and the world – on a path toward economic growth, expansion and prosperity. Thomas J. Pyle, president of the Institute for Energy Research (IER), a free-market energy think-tank, issued the following statement:

“The year was 1859. The town was Titusville. In Pennsylvania’s rural northwestern Crawford County, the economics of the world as we knew it were completely realigned. Oil was found, paving the way for unprecedented economic growth, and helping to improve the quality of life for hundreds of millions across the globe. Without oil – arguably the most critical resource available to us – technological advancements in agricultural, medicine, manufacturing and transportation would not have been realized. From the time of the Roman Empire through the early 1800s, a human could expect to live not longer than 30 years. Thanks to advancements in technology and the affordable energy that helped make them possible, today – just 150 years later – we now live well into our 70s.

“Unfortunately, President Obama and members of Congress in both parties are now working to ration, tax, and slash our most affordable and reliable energy supplies at a time when they are needed most. This milestone in the world’s energy history should serve as a reminder to us all: energy has been, and will continue to be, the driver, protector and linchpin of America’s economic and strategic success. And if we desire to remain competitive in the global economy, and maintain our high quality of life, we must work to remove the government halting energy production – oil and gas offshore, along Alaska’s North Slope, in ANWR, shale in the intermountain-West, coal and Appalachia.

“In today’s interconnected global economy, the demand for oil has never been more competitive. Developing nations are understanding, and accessing, the benefits of affordable energy. And as a result of increased demand, supplies have tightened, and prices have risen accordingly. So as we mark this momentous anniversary, and pay thanks to the ingenuity of Col. Drake, we must also work to continue to safely expand our domestic energy resources, of every form.”

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Energy is the lifeblood of our economy.  As our competitors around the globe have shown us in recent years, job creation and economic growth begin with access to abundant, affordable energy supplies. 

Unfortunately, the Obama administration’s stimulus proposals are founded on the fundamentally flawed notion that we will achieve prosperity if we make coal, oil, and natural gas, which make up 85 percent [1] of the energy that fuels our economy, more expensive and less available.  Meanwhile, President Obama wishes to spend billions of taxpayer dollars on the most expensive and least efficient energy sources and force American consumers to pay more to purchase them.

Energy is, literally, “the capacity to do work.”  More energy means more work, more jobs, and more economic growth.  Less affordable energy means less work performed here at home.  Affordable energy creates jobs and stimulates investment in America.

IER supports government policies that encourage private investment, foster job creation, and provide American consumers access to the vast, proven, affordable energy supplies they own beneath the 2.3 billion acres of government lands not leased for responsible energy production.  These enormous taxpayer-owned resources, and the American jobs they would create, have been held hostage by a decades-long government policy of saying, “No, we can’t”.

Today, IER is offering a bold economic stimulus plan that will create jobs, strengthen our economy, enhance our national energy security, and make the U.S. more competitive in the world.  Best of all, it won’t cost taxpayers a dime.  In fact, it could generate hundreds of billions of dollars, along with jobs and new energy supplies for the future.

IER’s plan represents the most significant change in government energy policy in more than three decades.  We urge the Obama Administration to say, “Yes, we can” to our two-part plan, which begins by embracing the fundamental medical precept: First, Do No Harm:

• Vow to defend jobs and investments against expensive, job-killing climate regulations.  German Chancellor Angela Merkel recently stated that she would not allow EU climate regulations that “take decisions that would endanger jobs or investments in Germany.”  President Obama should follow suit and vow to defend American jobs against costly climate regulations.
• Halt EPA’s attempt to regulate carbon dioxide using the Clean Air Act. The Clean Air Act was designed to regulate regional air pollutants, not global concentrations of carbon dioxide.  President Obama needs to apply a cost-benefit analysis to EPA’s proposal to make 85 percent of the energy that fuels our economy more expensive and less available, cost Americans $7 trillion over the next 20 years, and accomplish little, if any, real reductions in global temperature.
• Renounce plans to bankrupt coal companies. As a presidential candidate, Obama said he would bankrupt coal-fired power plants with climate regulations. America currently gets 48 percent of our electricity from coal. Unlike wind and solar, coal is reliable, affordable, and proven. Wind and solar cannot power modern society’s always-on electricity needs.
• Join other policymakers in denouncing billions for “project[s] that depend on significant taxpayer subsidies while potentially doubling power costs” for American consumers and abandon all efforts to implement Federal Renewable Fuels Standards, Federal Renewable Portfolio Standards and Low Carbon Fuel Standards.

And second, say “Yes, we can” and pursue the following landmark changes in federal energy policy:

• End subsidies for all forms of energy and return the money to American taxpayers. The government should not be in the business of picking winners and losers in energy production.  Furthermore, according to the Congressional Budget Office (CBO), direct payments to individuals and cutting taxes have the fastest and most significant impacts on the economy.
• Continue our progress on the most significant change in energy policy in decades: Streamline regulations to produce energy from American resources on American lands and coastal waters.  ICF International recently released a study that shows developing America’s abundant but currently off-limits domestic energy supply would create 160,000 new jobs alone and generate $1.7 trillion for local, state, and federal tax revenue.
• Provide coastal states with 50 percent of revenue from offshore and onshore energy leasing.  Last year alone, the U.S. raised over $23 billion from energy leasing on federal lands.
• Support exploration and energy production in ANWR. According to the Energy Information Administration, ANWR “is the largest unexplored, potentially productive geological onshore basin in the United States.”  It contains a mean expected value of 10.4 billion barrels of oil. Opening ANWR would create hundreds of thousands of American jobs, generate billions of dollars in state and federal revenue, and enhance our energy security.
• Expedite job creation by waiving all regulations on federal lands for the expedited construction of the Alaska natural gas pipeline.  Congress did this in 1973 for the 800 mile-long Trans-Alaska Oil Pipeline, which was built in just three years and has since delivered 16 billion barrels of oil to American consumers. Russia, Iran, and Qatar control 60 percent of the world’s natural gas supplies. We should use our abundant supplies of natural gas, and not allow another OPEC-style cartel to limit our energy sources.
• Allow the exploration and experimentation necessary to produce affordable energy from America’s oil shale resources. The western United States is home to an estimated 800 billion barrels of recoverable oil equivalent in oil shale. This is about three times the amount of proven oil reserves in Saudi Arabia. This resource is untapped and needs research to develop economically.
• Permit the exploration and experimentation necessary to produce affordable energy from methane hydrates.  A 2007 study found that the U.S. has about 5,700 trillion cubic feet of methane hydrates—about 900 times the current annual gas consumption in the U.S. Like oil shale, this resource is untapped, and companies need to research ways to bring it to market.
• Limit frivolous lawsuits designed to thwart responsible development of American energy and the American jobs it creates. The following quote sums up this problem best.  In an interview with Dow Jones Newswires in January 2003, The Wilderness Society’s Peter Morton threatened:  “If you bid on a lease on public land, you can expect (environmental litigation).“
• Remove regulatory impediments and repeal punitive laws that make it increasingly difficult to build or expand refineries.  While existing refineries have gone to great lengths to expand their capacity to meet growing domestic demand, refinery expansions are becoming more and more difficult due in part to regulatory impediments, bureaucratic red tape and a barrage of punitive federal legislation in recent years.
• Resolve issues involving the Yucca Mountain Repository for spent nuclear fuel.  The Federal government has been studying Yucca Mountain as a fuel repository for the last 30 years.  Ratepayers have paid billions to the Nuclear Waste Fund—it’s time for the Federal government to move forward and provide a return on that investment.
• Remove regulatory barriers to building the next generation of nuclear power plants. The Federal government should not stand in the way of developing nuclear fuel reprocessing, pebble-bed reactors, or whatever forms of nuclear energy are economical.

[1] According to EIA, in 2007 39 percent of our energy came from petroleum, 22 percent from coal, 23 percent from natural gas, 8 percent from nuclear, 2.4 percent from hydroelectric, 2.1 percent from wood derived fuels, 1.0 percent from biofuel, 0.3 percent from geothermal, 0.3 percent from wind, and 0.1 percent from solar. The latest data from EIA is available here: http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/table1.html

FOR IMMEDIATE RELEASE
December 17, 2008
CONTACT:
Brian Kennedy (202) 346-8826
Chris Tucker (202) 346-8825

IER: Obama Interior Pick Will Have “Plenty to Say” on When, Whether American Economy Can Make Its Way Back

IER president urges Sec.-designate Salazar to leverage power of affordable energy to deliver jobs, revenue and energy Americans need

WASHINGTON – Institute for Energy Research president Thomas J. Pyle issued the following statement today after the president-elect formally announced his intention to nominate U.S. Senator Ken Salazar (D-Colo.) to serve as our nation’s 50th secretary of the Interior:

“As a cabinet officer soon to be charged with managing one of every five acres of land in the United States, along with nearly two billion acres of submerged land offshore, Senator Salazar will have a crucial role to play in strengthening our country’s energy security. He’ll also have plenty to say on whether access to affordable, reliable energy continues to be available to all Americans. We congratulate Senator Salazar on this important nomination, and look forward to working with him to ensure his office diligently works toward these goals.

“Senator Salazar’s legislative record suggests these twin national priorities of energy security and affordability may end up playing second fiddle to the desire to lock these resources away. As a Senator, Salazar has been a persistent critic of granting basic energy access to the people of this country who own it, whether that energy resides under Alaska’s North Slope, Colorado’s Roan Plateau, or in massive deepwater reserves far offshore. That will have to change if our economy has any hope of making a full and swift recovery.

“Never before in our nation’s history has the role of Interior Secretary been as central to the long-term health and well being of our country. It’s our hope that Senator Salazar comes to understand the gravity of this new role, better appreciate the benefits of expanding access to reliable energy sources, and fully consider the consequences we can expect for choosing not to.”

The facts on Sen. Salazar:

• Voted against the responsible development of at least 10.4 billion barrels of American oil on Alaska’s north slope, preventing what would’ve resulted in a 50 percent increase in U.S. proven reserves.
  (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00288)

• Fought attempts by the federal government to expand production of clean-burning domestic natural gas on Colorado’s Roan Plateau, impeding the safe development of nine trillion cubic feet of natural gas – enough to heat and cool four million American homes for 20 years.
  (http://salazar.senate.gov/news/releases/080609roan.htm)

• Struck a backroom deal with Senate appropriators to prevent billions of barrels of oil shale energy from being produced, calling his effort a “victory for responsible oil shale development.”
  (http://salazar.senate.gov/news/releases/080313oilshale.htm)

• After failing to extend the shale ban into the new year, Salazar castigated the federal government for following the law and beginning the process of issuing leases.
  (http://salazar.senate.gov/news/releases/080904shale.htm)

• Proudly announced his support for a so-called energy bill that would’ve permanently locked away nearly 75 percent of America’s known offshore energy resources, increased utility rates for all Americans, and expanded the reach of the federal government in the day-to-day decisions of American energy consumers.
  (http://salazar.senate.gov/news/releases/080813enjnt.htm)

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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www.InstituteforEnergyResearch.org

FOR IMMEDIATE RELEASE:
Tuesday, December 16, 2008
CONTACT:
Trice Whitefield
(703) 516-2173
Interviews@FactsOnEnergy.org

U.S. Reliance on Fossil Fuels Forecast to Continue
According to the Energy Information Administration, fossil fuels will supply 79 percent of energy demand in 2030.

Washington, DC — The U.S. Energy Information Administration (EIA), an independent branch of the U.S. Department of Energy, today released its projections for America’s energy supply, demand, and prices in 2030. According to the agency’s projections, U.S. energy demand will be 11 percent higher in 2030 than in 2007, and fossil fuels will dominate supply, with petroleum contributing 34 percent, natural gas 22 percent, and coal 23 percent. Moreover, though growth is expected in the domestic production of the country’s oil and natural gas resources and in nuclear and renewable supplies, the United States will still need to import petroleum. Thus, unless lawmakers take action to encourage even greater exploration and development of our nation’s oil and natural gas resources, America will continue to rely on energy from unstable overseas regimes.

The EIA, assuming higher crude oil prices than it did in last year’s Annual Energy Outlook, now projects vehicle miles traveled by light-duty vehicles in 2030 to be 6 percent lower than it did in last year’s forecast and new light-duty vehicle efficiency improvements to be almost 4 percent higher, reaching an average of 37.9 miles per gallon. Assuming higher crude oil prices and additional off-shore access to oil resources results in predictions of domestic oil production in 2030 that are almost one-third higher than in last year’s forecast. While expectations for petroleum imports in 2030 are 28 percent lower than in last year’s forecast, and 25 percent lower than imports today, the United States will still need to rely on unstable suppliers abroad if current energy policies remain unchanged.

With U.S. energy security at stake, Congress should open access to our vast domestic petroleum supplies and encourage American industry to responsibly develop them. New research shows that increasing production from currently and previously restricted Federal lands would create 160,000 new jobs, generate an extra $1.7 trillion in tax revenue, and provide a major boost to a flagging national economy.

Assuming increased onshore natural gas reserves and additional off-shore access, the EIA now expects domestic natural gas production in 2030 to be 21 percent higher than it did in last year’s forecast. The higher production results in predictions of lower natural gas imports (44 percent lower) and higher natural gas demand (7 percent higher), providing additional supplies for electric generation, residential and commercial heating, and industrial uses. With the natural gas forecast up, coal demand in 2030 is now expected to be 12 percent lower than it was in last year’s forecast.

As the EIA’s report shows, fossil fuels meet 85 percent of America’s current energy demand and are expected to meet 79 percent of demand in 2030: heating homes, powering businesses, transporting people, and moving goods. Since these traditional fuels continue to be more efficient and cost-effective than any other energy source, our leaders on Capitol Hill should stop restricting access to abundant domestic energy supplies. Only then can we ensure an energy future that can fuel a growing economy and maintain the standard of living we expect for our children and grandchildren.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

Some lawmakers view earnings reports as an opportunity to beat up on oil companies for having the nerve to earn a profit.  This week was no different.  Senator John McCain, for example, made an oft-repeated claim today that the 2005 Energy Policy Act contained “billions in corporate giveaways to the oil companies.”  The truth is that taxes on oil companies increased under the Energy Policy Act, a fact that seems to have eluded many in the national media and on Capitol Hill.

Senator McCain’s rhetoric regarding the 2005 energy law is both misguided and misdirected.  According to a report by the Congressional Research Service, the Energy Policy Act of 2005 (EPACT05, P.L. 109-58) indeed included several oil and gas tax incentives, providing about $2.6 billion in tax cuts for the industry.  However, the measure also imposed $2.9 billion of tax increases on the oil and gas industry, for a net tax increase of nearly $300 million.  Meanwhile, the largess of the tax credits and subsidies in the 2005 measure actually went to other industries, most notably to those who call themselves “alternative” energy sources.

But perhaps the biggest flaw of the 2005 Energy Policy Act was its failure to meaningfully increase domestic supplies of oil and natural gas by continuing to prohibit access to the 1002 area of the Arctic National Wildlife Refuge (ANWR), oil shale, oil sands, and the majority of the Lower 48 Outer Continental Shelf.  Currently less than 4% of the government’s lands and waters are leased for energy production, even as American families and their employers struggle to pay their energy costs and remain competitive in this ongoing recession.

FOR IMMEDIATE RELEASE
October 29, 2008
CONTACT
Brian Kennedy (202) 346-8826

Governor Palin Drills Down on U.S. Energy Policy

Washington, DC – Thomas Pyle, president of the Institute for Energy Research (IER) issued the following statement regarding Governor Sarah Palin’s (R-AK) speech on U.S. energy policy in Ohio today:

“As IER has pointed out time and time again, energy production is critical to America’s economic and national security. Alaska’s chief executive echoed this sentiment in her policy address, pointing out that falling prices are not a sign that our energy problems are behind us; they’re the result of the demand destruction and economic turmoil that come as a result of exorbitant prices for energy. If the U.S. is to recover from the current economic crisis quickly, leaders in Washington must act to ensure greater domestic energy production.

“For thirty years our national energy policies have contributed to the problems facing American consumers today. The willful refusal to increase domestic production of oil, gas, coal, and nuclear power has slowly – but effectively – starved our economy of the fuel it needs to create jobs, stimulate growth, and improve the quality of life for U.S. citizens. The year 2009 must mark a new beginning for American energy policy, beginning with a domestic workforce and domestic, taxpayer-owned energy resources.

“While the expiration of the ban on Outer Continental Shelf (OCS) energy production is a good start, it’s not good enough. We must take the next step and join the rest of the developed world with a firm commitment to and timeline for production on taxpayer-owned federal lands. Whether it’s the OCS, ANWR, or other federal lands in the fifty states, America is rich with energy resources. Unfortunately, during the last three decades, we’ve been poor in the political will necessary to put them to work for the American people – a fact facing the next occupant of the White House, whomever that may be.”

The Institute for Energy Research (IER) is a not-for-profit public foundation that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. Founded in 1989, IER is funded entirely by tax deductible contributions from individuals, foundations and corporations. No financial support is sought or accepted from government (taxpayers).

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www.InstituteforEnergyResearch.org

Synopsis (104KB)

Complete Analysis (60KB)

The following comparison of Barack Obama’s and John McCain’s energy and environmental plans comes from the statements of their plans on their official web sites. The text first indicates what the respective plans say on each topic, and then provides IER’s analysis of each topic within the program.

Table of Contents

CAFE
Advanced Vehicle R&D
Electricity Grid
Energy Efficiency
Biofuels
Energy Tech
Energy Independence
Global Warming
• Synopsis
• Nuclear Power
• Windfall Profits Tax
• Renewable Electricity
• Clean Coal Technology
• Domestic Oil Production
• Alaskan Gas Pipeline
• SPR/Tax Holiday
• Energy Speculation

Nuclear Power

Obama: Acknowledges that nuclear power is needed to meet greenhouse gas emissions reduction goals. Says it is necessary to address the security of nuclear fuel and waste, waste storage, and proliferation before expansion of nuclear power can be considered. Does not believe that Yucca Mountain is a suitable site for waste storage. Will lead Federal efforts to look for safe, long-term disposal solutions based on objective, scientific analysis. Will develop requirements to ensure that the waste stored at current reactor sites is contained using the most advanced dry cask storage technology available [1].

McCain: Wants to construct 45 new nuclear power plants by 2030 with an ultimate goal of constructing 100 new plants. Does not want to be dependent on foreign suppliers for nuclear reactors or plant components, supporting their construction in the U.S. [2] Supports Yucca Mountain and research into nuclear-waste reprocessing [3].

Analysis: Analyses of climate change proposals by EIA, EPA, NAM/ACCF and others have shown that nuclear power is needed to meet greenhouse gas emission reduction goals [4]. Nuclear power currently generates about 20% of the electricity in the U.S. [5] but over 75% of the electricity in France [6]. DOE has been working on Yucca Mountain as the waste disposal facility since 1987 but the process has been slowed because of opposition, and recently it was disclosed that it will not be opened before 2025. The Carter Administration banned reprocessing of waste, a “recycling” process. To require, as Senator Obama proposes, that waste storage and other issues be resolved before expansion of nuclear power can occur, would essentially remove the nuclear option from the generation mix in the near and mid-term period when technology options for mitigating greenhouse gas emissions are limited.
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Windfall Profits Tax

Obama: Will require oil companies to take a reasonable share of their windfall profits and use it to provide a rebate to help pay for higher energy costs to U.S. consumers. The rebate would be $500 per individual and $1000 per married couple and would be paid for through 5 years of the “tax” on oil companies [7].

McCain: Does not support a windfall profits tax, which “will hinder investment in exploration and new production.”[8]

Analysis: President Carter enacted a windfall profits tax in 1980. The Congressional Research Service indicated that the tax, which was repealed by President Reagan in 1988, lowered domestic energy production by 1.2% to 4.8%, resulting in increased foreign oil imports [9]. According to the Energy Information Administration, the major oil companies already pay a substantial amount of taxes, which in 2006, totaled $90 billion [10].
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Renewable Electricity

Obama: Ensure that 10% of our electricity comes from renewable sources by 2012, and 25% by 2025. Extend the Federal production tax credit for 5 years to encourage the production of renewable energy [11].

McCain: Encourages the market for alternative, low carbon fuels such as wind, hydro, and solar. He believes in an even-handed system of tax credits that will remain in place until the market transforms sufficiently so that renewable energy no longer merits taxpayers’ dollars [12]. Does not believe in a Federal Renewable Portfolio Standard; believes targets for renewables are best adopted at the state level [13].

Analysis: The production tax credit for wind and other renewables has been extended 6 times, and most recently by the “bailout” bill [14]. Twenty-five states and the District of Columbia currently have renewable portfolio standards, but they differ widely on what they consider a renewable to be and the dates for the targets to be met [15]. Only Texas has met its targets for renewable generation [16]. There are areas, particularly in the south, which do not have good wind resources and would have a harder time meeting Federal targets [17]. Their utilities would have to purchase credits to make up for the shortfall in renewable capacity [18]. The “Renewable Portfolio Standard” is a semantic device, as it is not a standard so much as it is a mandate. By compelling utilities to produce or purchase a certain percentage of their electricity from renewable sources, laws and/or regulations may be requiring consumers ultimately to purchase more expensive energy than they would otherwise choose to do in a free market. Making energy more expensive deliberately is a matter that deserves more public debate. Moreover, making energy more expensive in the U.S. affects American competitiveness in trade and other matters.
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Clean Coal Technology

Obama: Will provide incentives to accelerate private sector investment in commercial scale zero-carbon coal facilities, by instructing DOE to enter into public private partnerships to develop 5 “first-of-a-kind” commercial scale coal-fired plants with carbon capture and sequestration [19].

McCain: Will commit $2 billion annually to advancing clean coal technologies. When commercialized will also export them to developing world economies to promote an international green economy [20].

Analysis: Coal produces almost 50 percent of U.S. electricity [21]. Climate change studies by Government and private agencies have shown that since carbon capture and sequestration (CCS) technology is not currently commercially available, most of today’s coal generating plants would need to be replaced by non-carbon or lower-carbon emitting technologies to meet greenhouse gas targets. This will come at a major expense to the U.S. economy [22]. DOE had been funding a Future Gen clean coal project, but has withdrawn support due to the huge increases in cost. Instead, DOE plans to support only the CCS portion of future projects [23]. The U.S. has the largest supplies of coal in the world. Any comprehensive energy policy must include coal given its predominant role in our electrical supply system.
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Domestic Oil Production

Obama: Wants oil companies to drill in the 68 million acres that they have leased but from which they are not producing energy. Promotes energy production in Bakken Shale in Montana and North Dakota, and in the National Petroleum Reserve-Alaska [24]. Contends companies could produce 4.8 million barrels more per day domestic oil if oil companies were currently producing on all currently-leased areas [25]. Supported limited Outer Continental Shelf (OCS) energy production in formerly-banned areas as part of a broader energy package including concessions for renewable technologies [26]. Opposes energy production in the Alaska National Wildlife Refuge (ANWR) [27].

McCain: Wants to expand domestic oil exploration and production to the previously banned areas of the OCS to lessen U.S. imports of foreign oil, increase U.S. domestic supplies, and reduce the U.S. Federal Trade deficit [28]. Does not support drilling in ANWR at this time [29].

Analysis: Until the U.S. Congress allowed the OCS moratoria to expire at the end of September, American oil leasing had been prohibited on most of the OCS in the lower 48 states since 1982. The moratoria had limited energy exploration and production to a mere 3% of America’s offshore OCS lands. This made the U.S. the only developed nation in the World to restrict access to its offshore energy resources. The Minerals Management Service (MMS) estimates that the outer continental shelf contains 86 billion barrels of oil and 420 trillion cubic feet of natural gas, both conservative estimates since bans on offshore leasing have made it illegal to explore [30]. It is now necessary to ensure that Congress does not reinstate the moratoria as they are threatening to do and that the leases are not tied up in legal disputes.

While neither candidate currently advocates exploration in ANWR, U.S. Geological Survey (USGS) estimates that the “1002 Area” contains a mean expected value of 10.4 billion barrels of technically recoverable oil [31]. The 1002 Area is not designated as wilderness; there are no trees, deepwater lakes, or mountain peaks. The 1002 area could produce about one million barrels of oil per day, which is about 20 percent of our daily domestic production and would make ANWR the single largest producing field in North America [32]. It would also extend the life of the Trans Alaskan Pipeline, which is currently operating at 1/3 of its original capacity. ANWR would generate large amounts of revenue for the federal government from royalties, as well as corporate income taxes. For example, a recent Congressional Research Service Report found that developing ANWR would produce $191 billion in new federal revenues from corporate income taxes and royalties [33].

Additionally, the United States has significant quantities of energy potential in its onshore federal lands that are not leased, as well as in its oil shale deposits, the world’s largest. Unlike other energy sources which require subsidies and/or mandates, the use of government resources to meet our energy needs not only creates jobs, but also enormous quantities of revenue.

The claim that oil companies are deliberately withholding production on 68 million acres has been debunked and is no longer taken seriously by energy analysts [34]. Oil companies do not know exactly where profitable deposits of oil and natural gas will be found until they actually drill, and so naturally at any given time, a portion of leased land will not be in production. If the oil companies were truly withholding 4.8 million barrels per day, that would imply they were ignoring $140 billion in gross revenues per year (assuming a price of $80 per barrel). It would also be curious that oil companies were lobbying for the ability to pay for additional leases on previously banned lands, if they had already paid for access to more oil and gas than they wanted to sell.
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Alaskan Gas Pipeline

Obama: Wants to work with stakeholders to facilitate construction of this natural gas pipeline [35].

McCain: Believes in promoting and expanding the use of our domestic supplies of natural gas, including building the infrastructure needed to transport it [36].

Analysis: Natural gas currently supplies 23 percent of our energy needs [37]. Besides heating many U.S. homes, it is used for electricity production and in industrial processes. It is the least carbon-intensive of the fossil fuels. The Energy Information Administration predicts that natural gas use will grow [38], and many studies have shown that natural gas is needed as a transitional fuel under scenarios to reduce greenhouse gases [39]. Alaska has 35 trillion cubic feet of known quantities of natural gas and experts expect the potential is much greater. These supplies of natural gas could be used in the lower 48 states if construction of the pipeline were undertaken.
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SPR or tax holiday

Obama: Supports releasing 70 million barrels of oil from the government’s Strategic Petroleum Reserve (SPR) to increase oil supplies and reduce gasoline prices [40]. The light oil released from the SPR would be replaced later with heavier oil [41].

McCain: Opposes the use of the SPR to reduce gasoline prices, believing it should be used in the event of an emergency cutoff of imports. Instead, he suggested reducing gasoline prices by temporarily suspending the 18-cents-per-gallon Federal gasoline tax [42].

Analysis: The SPR was developed in 1975 as a response to the 1973 oil embargo against the West. The U.S., in conjunction with other OECD nations, keeps spare stocks of oil in case oil is used as an economic weapon. The President has the authority to release crude from the SPR in time of a national emergency. President Bush has done so in the aftermath of Hurricanes Katrina and Ike, when offshore production facilities and refineries were temporarily closed for repair, replacing the crude once the facilities were operational. Both the SPR withdrawal and temporary Federal tax holiday would have, at best, short-run benefits, and they would come at the cost of reduced security against another oil embargo (for the SPR drawdown) and an increased Federal budget deficit (for the tax holiday). We believe that a better solution than either of these proposals is adding new domestic supplies from the more than 96% of government owned lands and waters currently not leased for energy. This achieves the goal of price relief for consumers, because increased supplies lead to lower oil prices, and it turns the two negatives of the Obama and McCain plans into positives: That is, increasing domestic production reduces U.S. vulnerability to foreign embargoes, and it also would provide extra revenue for the Treasury.
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Energy Speculation

Obama: Plans to enact legislation to close loopholes in Commodity Futures Trading Commission regulations and increase market transparency [43].

McCain: Wants to reform the laws and regulations governing the oil futures market and provide oversight [44].

Analysis: Studies by the Commodity Futures Trading Commission showed that there was no evidence that speculators were responsible for high oil prices [45]. Also, if the price of oil were above the levels that fundamentals of supply and demand could support, there would be growing inventories, which there were not. Successful speculators actually make oil prices less volatile, by buying when prices are low and selling when prices are high (or ”shorting” when prices are high and then covering when prices are low). Major producers and consumers of oil use futures markets to “hedge” themselves against future volatility by locking in a fixed “futures price” of oil. Large investment funds provide liquidity to the commodities futures markets, and allow producers and physical consumers (such as airlines and refiners) to concentrate on their core businesses.

Government restrictions on investment in the oil futures market would only hurt consumers by making the oil market less efficient. New regulations will do nothing to ease oil prices in the long term [46]. Additional supplies help temper any speculation, also. Since President Bush announced the lifting of the presidential moratorium on July 14, 2008, oil prices have fallen by almost 50%. Congress’ decision to allow the OCS energy moratorium to expire October 1, 2008 has further sent a message to markets about American willingness to produce its own energy.
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CAFE

Obama: Will increase fuel economy standards 4 percent per year, going beyond the 35 mpg requirement in 2020 mandated by the Energy Independence and Security Act of 2007 [47].

McCain: Will enforce existing CAFE standards by increasing the penalties for not complying with the standards, which many auto manufacturers currently pay and add to the price of their cars [48].

Analysis: Like all markets, automakers will supply the market with vehicles that consumers demand. In the past, consumers preferred increased horsepower and larger vehicles rather than more fuel efficient and smaller vehicles. In the past, consumers have preferred more sport utility vehicles and light trucks, than smaller vehicles. Higher oil and gasoline prices have moved the car purchasing market to more fuel efficient vehicles, though some consumers still prefer the safety features in the heavier vehicles. The issue related to increasing the CAFE standard beyond the current legislated level is whether technologies exist to meet a higher standard. Also of note, by restricting consumer choice CAFE standards have lead to more deaths and injuries than otherwise because CAFE forces carmakers to build smaller cars than consumers would prefer. CAFE may save gasoline, but it costs lives [49].
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R&D and Tax Credits for Advanced Transportation Vehicles

Obama: Wants to mandate that all new vehicles are flex-fuel vehicles. Spend U.S. tax dollars on advanced vehicle technology; put 1 million plug-in electric vehicles on the road by 2015. Provide a $7,000 tax credit for the purchase of advanced technology vehicles and conversion tax credits. Convert the White House fleet to plug-ins within one year of becoming President. Make half of all cars purchased by the Federal Government be plug-in hybrids or all-electric by 2012. Provide $4 billion in retooling tax credits and loan guarantees for domestic auto plants and plant manufacturers so that new fuel-efficient cars are built in the U.S. rather than overseas [50].

McCain: Supports flex-fuel vehicles and wants automakers to make a more rapid switch to flex-fuel vehicles than their current commitment. Proposes a $300 million prize to improve battery technology for full commercial development. Provides a $5,000 tax credit for purchase of a zero emission car and a graduated tax credit for other vehicles based on their carbon emission levels [51].

Analysis: Studies regarding tax credits show that they have limited ability to spur change compared to their cost to the U.S. Treasury and the American taxpayer. The Energy Information Administration, for example, evaluated the impact of tax credits on the energy system on both a cost and carbon emission basis finding their cost per unit high and their benefit to lowering carbon emissions and energy consumption low [52]. IER believes that prizes for technology development should be privately funded, not taxpayer funded. Prizes should be awarded by private foundations and they would receive the patent rights for their nonprofit.
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Electricity Grid

Obama: Will spend U.S. tax dollars on smart metering, distributed storage and other advanced technologies. Will establish a Grid Modernization Commission to facilitate adoption of Smart Grid practices. Will instruct the Secretary of Energy to: 1.) establish a Smart Grid Matching Grant Program to provide a subsidy of one-fourth of qualifying investments; 2.) conduct programs to deploy advanced technologies for managing peak load reductions and energy efficiency savings; and 3.) establish demonstration projects [53].

McCain: Wants to upgrade the national grid to meet the electricity demands of the 21st century, including a capacity to charge electric vehicles. Promotes deployment of SmartMeter technologies that provide consumers with real-time energy consumption usage to encourage cost-efficient use of power [54].

Analysis: The candidates appear to be silent on the issue of grid instability related to delays, lawsuits and red tape associated with upgrading the grid and building sufficient power capacity to ensure grid stability. In a technology driven modern economy, this is a foundation of economic strength. A recent USDA study of rural community electric demands pointed out a need to double capacity in rural areas by 2020 [55]. The North American Electricity Reliability Council reports that the capacity margins (the amount of electricity necessary to maintain the reliability of the electrical grid) are low and could drop below target capacity margins as soon as 2009 in many areas of the country [56]. The Independent Service Operators throughout the nation predict looming shortfalls in production and transmission capability in urban areas, and new demands from non-dispatchable sources (intermittent sources like new wind and solar projects) only complicate that. Moreover, there is little discussion by the candidates about the inherent conflicts of siting new alternative energy sources.
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Energy Efficiency

Obama: Reduce electricity demand 15 percent from DOE’s projected levels by 2020 by setting demand reduction targets for utilities and more stringent building and appliance standards.

Establish a goal to make all new buildings carbon neutral by 2030. Establish a goal to improve new building efficiency by 50 percent and existing building efficiency by 25 percent. Overhaul the process for setting appliance efficiency standards to eliminate the missed deadlines by the Department of Energy for setting updated appliance efficiency standards. Achieve a 40 percent increase in efficiency in all new federal buildings within 5 years and ensure all new federal buildings are zero-emissions by 2025. Invest in cost-effective retrofits to achieve a 25 percent increase in efficiency of existing federal buildings within 5 years. Provide resources to achieve a 15 percent reduction in federal energy consumption by 2015. Work with states to flip the profit model for the utility sector so that shareholder profit is based on reliability and performance as opposed to total production. Commit to weatherize one million low-income homes each year for the next decade [57].

McCain: Will make greening of the Federal Government a priority by applying a higher efficiency standard to new buildings leased or purchased or retrofitting existing buildings [58].

Analysis: Both candidates support compelling the federal government to use less energy in its operations, strategies that may pay dividends for the largest consumer of energy in the nation. But these strategies will come at a cost. Already, some Federal buildings are kept uncomfortably hot in the summer, and uncomfortably cool in the winter to save energy. The imposition of demand reduction targets for the nation may result in significant additional economic burdens on consumers of energy which would affect consumer prices as well as the prices of the goods and service produced in the U.S. which must compete with other nations’ goods.
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Biofuels, Mandates, & Subsidies

Obama: Will require at least 60 billion gallons of advanced biofuels by 2030. Will spend federal tax dollars, provide tax incentives and government contracts into developing the most promising technologies and their infrastructure. Will mandate all new vehicles are flex-fuel [59].

McCain: Believes alcohol-based fuels hold great promise as both an alternative to gasoline and as a means of expanding consumers’ choices. But, believes a level playing field is needed and will eliminate mandates, subsidies, tariffs, and price supports that focus exclusively on corn-based ethanol and prevent the development of market-based solutions that would provide better solutions [60].

Analysis: The Energy Independence and Security Act of 2007 (EISA) requires 36 billion gallons of biofuels by 2022–15 billion gallons of corn-based ethanol and 21 billion gallons of advanced biofuels [61]. Currently there are no commercially-available advanced biofuels on the market. Based on the lower mandates in the Energy Policy Act of 2005, EIA’s Annual Energy Outlook 2007 [62] showed that economic levels of biofuels were projected to be 7.6 percent (or 14.6 billion gallons) of the 192 billion gallon gasoline market in 2030. Their Annual Energy Outlook 2008 [63], which incorporated the EISA mandate by requiring that the provisions of EISA be met, reached 32.5 billion gallons in 2022, slightly below the target due to the application of waivers and modification of credit volumes resulting from inadequate quantities of biofuels to meet the initial targets.

That forecast was also dependent on the commercial availability of cellulosic ethanol, which is not commercially viable today. Currently there are multiple mandates and subsidies that encourage the sale of ethanol. For example, in many areas of the country retailers are required to sell gasoline that is 10 percent ethanol to meet clean air regulations.

Also there is a 51 cents per gallon of ethanol subsidy for ethanol [64]. Without these subsidies and mandates, the ethanol industry would not have developed as much. This is especially true because there is less energy is a gallon of ethanol than in a gallon of gasoline, it is more expensive to produce ethanol than gasoline, and there are other negative factors such as its impact on water and land usage and food prices. Mandating 60 billion gallons by 2030, 67 percent higher than the current mandate in just 8 additional years is making an already difficult task harder, and could have even more dramatic impacts on food prices and water and land usage issue.

Government mandates of any kind distort markets, and ethanol is no exception. The ethanol mandate is already leading to higher food prices [65]. Higher food prices have led to food riots around the world [66]. Increasing food prices are making life more difficult for the world’s poor, leading UN Special Rapporteur for the Right to Food, Jean Ziegler, to call using food crops to produce ethanol “a crime against humanity.”[67]

Not only are there serious human costs to the current ethanol mandates, but there are large environmental costs as well. Recent studies published in Nature argue that biofuel production releases 17 to 420 times more carbon dioxide than the fossil fuels they replace.”[68] Increased carbon dioxide emissions are not the only environmental harm biofuel production promotes. Biofuel production has also led to converting millions of acres of rainforest into biofuel plantations [69].

Besides the human and environmental products ethanol mandates produce, it is difficult to comprehend how it is possible to mandate the use of a product in the future that cannot presently be produced commercially, such as cellulosic ethanol. The U.S. has the world’s largest oil shale deposits, from which DOE estimates 800 billion barrels are recoverable. Currently it is not produced commercially, and no candidate has supported a mandate for its production by a date certain. The purpose of this comparison is to demonstrate that mandates are by definition, the government picking winners and losers as opposed to freely motivated individuals operating in a free market.
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Energy Technology Development

Obama: Wants to spend $150 billion over 10 years to accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, encourage energy efficiency, invest in low emission coal plants, advance the next generation of biofuels and infrastructure, and begin transition to a new digital electricity grid [70].

McCain: Will spend $2 billion annually to advancing clean coal technology. Will establish a permanent tax credit equal to 10 percent of wages spent on R&D, which will simplify the tax code, provide an incentive to innovation, make the U.S. more competitive with other countries, and remove the uncertainty facing businesses in their R&D decisions. Faces a level playing field for mandates, subsidies, tariffs, and price supports that promote the development of market-based solutions [71].

Analysis: Markets work better than government-directed programs to finding solutions to problems. This is because government programs are driven by political considerations not economic effectiveness like markets. Since 1978, the DOE has spent over $75 billion on research and development into various energy sources, and our energy problems are more acute than ever [72]. Far larger amounts have been dedicated to energy programs through the tax system, to the same end. During the same period of time, the amount of acreage made available for leasing for energy production to the private sector has plunged dramatically, with the ultimate result of less domestic production of oil and gas.

Meanwhile, permitting of electrical transmission lines, energy pipelines and energy facilities has grown more difficult and time consuming, and in capital intensive industries such as energy, time equals money, which the consumer of energy eventually pays. Even today, large subsidies for alternative energy generation exist on the one hand, while on the other hand, government laws and regulations have led to delays in the deployment of new wind farms or solar energy production facilities. Neither candidate has addressed the schizophrenic nature of the government’s policies upon energy production, transmission and use in the U.S.
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Energy Independence

Obama: Wants to save more oil than we currently import from the Middle East and Venezuela combined within ten years [73].

McCain: Wants to achieve strategic energy independence by 2025. Will continue to import oil from our North American neighbors, Canada and Mexico [74].

Analysis: Imports of oil from the Middle East and Venezuela were 3.53 million barrels per day in 2007 or 26 percent of our total oil imports of 13.47 million barrels per day [75]. The U.S. has sufficient domestic energy resources to replace these imported sources, as about 97% of offshore government lands and 94% of onshore government lands have not been leased for energy production [76]. Furthermore, our oil shale resources have not been touched, with over 800 billion barrels of recoverable shale oil that can be made commercially available with the properly structured Government leasing program. To meet the goals, the candidates will need to remove the red tape from Government restricting and/or delaying the use of these resources [77]. Government actions have for several decades led to severe reductions in the quantity and quality of government lands leased for energy production [78]. By letting energy exploration occur on much less lands, the government has been effectively stockpiling energy at a time when energy prices have hurt the American economy. Allowing more energy production is proven to make a significant difference in energy supplies, as the Energy Information Administration recently reported [79]. When more wells are drilled, more supplies are found. The candidates have not directly addressed this simple fact in a fashion that the American people can understand.
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Global Warming

Obama: Implement a cap and trade program to reduce greenhouse gas emissions 80 percent below 1990 levels by 2050. Require all emission credits to be auctioned. Use $15 billion per year of the auctioned receipts to subsidize the development of clean energy and energy efficiency improvements. Use remaining receipts as rebates and other transition relief for families and communities. Engage with the U.N. Framework Convention on Climate Change and make the U.S. a leader on climate change. Establish a Low Carbon Fuel Standard that requires fuel suppliers in 2010 to begin to reduce the carbon content in their fuel by 5 percent within 5 years and 10 percent within 10 years [80].

McCain: Implement a cap and trade system to reduce greenhouse gas emissions 66 percent below 1990 levels by 2050. Emission permits will eventually be auctioned to support the development of advanced technologies and reduce impacts on low-income American families. Will reform federal government research funding and infrastructure to emphasize the commercialization of low-carbon technologies. Will provide leadership for effective international efforts through actively engaging to lead United Nations Negotiations [81].

Analysis: Under a cap-and-trade system, there is a limit set on total greenhouse gas emissions. Each regulated entity is required to hold an allowance (essentially an entitlement) for the total amount of greenhouse gases they are allowed to emit. Allowances are distributed to emitters by some criterion (e.g. historic emissions), auctioned, or by some combination of the two. Entities are allowed to buy and sell allowances, creating a market price for them. Several cap-and-trade bills have been proposed in Congress, but none has passed to date. Many studies have been done on the various proposals. The studies show that mandates limiting GHG emissions will impose very large costs on the economy in terms of lost GDP, and higher costs to consumers, particularly in the cost of electricity [82].

Because the major growth in greenhouse gases are in developing countries like China, India, and the Middle East, U.S. emission reductions are likely to have little impact on global emissions. For example, if the U.S. were to eliminate all carbon dioxide emissions by 2030, world-wide CO2 emissions would still increase by about 30 percent [83]. In addition, many economists argue that an appropriately calibrated, explicit tax on carbon could achieve the same long-run emissions reductions as a cap-and-trade program, but with less scope for corruption and with lower total compliance costs [84]. (IER does not endorse a carbon tax, [85] but it would be more straightforward than the “stealth tax” of the cap-and-trade approach endorsed by both presidential candidates).
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Citations

1. http://my.barackobama.com/page/content/newenergy
2. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
3. http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
4. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and American Council for Capital Formation/National Association of Manufacturers Study of the Economic Impact of the Lieberman-Warner Climate Security Act, http://www.accf.org/nam.html
5. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
6. Energy Information Administration, International Energy Annual, http://www.eia.doe.gov/iea/.
7. http://my.barackobama.com/page/content/newenergy
8. http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
9. Congressional Research Service, Energy Tax Policy: History and Current Issues, http://assets.opencrs.com/rpts/RL33578_20080917.pdf
10. EIA, Financial Reporting System, http://www.eia.doe.gov/emeu/perfpro/btab02.html
11. http://my.barackobama.com/page/content/newenergy
12. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
13. http://news.cnet.com/8301-11128_3-10031450-54.html
14. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html.
15. Energy Information Administration, Annual Energy Outlook 2008, page 27, http://www.eia.doe.gov/oiaf/aeo/index.html
16. “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.
17. For example, see this map showing the potential for wind generation http://www.windpoweringamerica.gov/wind_maps.asp and this map showing the potential for solar generation: http://www.nrel.gov/gis/images/us_csp_annual_may2004.jpg.
18. Democrats Challenge Each Other In Battle Over Energy Bill, Ian Talley, Dow Jones Newswires, September 11, 2007.
19. http://my.barackobama.com/page/content/newenergy
20. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
21. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
22. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and American Council for Capital Formation/National Association of Manufacturers Study of the Economic Impact of the Lieberman-Warner Climate Security Act, http://www.accf.org/nam.html.
23. http://www.energy.gov/news/5912.htm, http://www.fossil.energy.gov/news/techlines/2008/08030-CO2_Capture_Projects_Selected.html
24. http://my.barackobama.com/page/content/newenergy
25. http://thepage.time.com/obama-response-to-mccain-ad/
26. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
27. Institute for 21st Century Energy, U.S. Chamber of Commerce, Washington D.C., http://www.energyxxi.org/NR/rdonlyres/eam4biljadknpedoyypgej2y2lf2df2y5mob4f5hyhzfs7ah577l26gskcrcphj5fy2dq4jaflz4ofushfcv2fwgwgb/PresidentialEnergyPositions20080618.pdf
28. http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
29. Institute for 21st Century Energy, U.S. Chamber of Commerce, Washington D.C., http://www.energyxxi.org/NR/rdonlyres/eam4biljadknpedoyypgej2y2lf2df2y5mob4f5hyhzfs7ah577l26gskcrcphj5fy2dq4jaflz4ofushfcv2fwgwgb/PresidentialEnergyPositions20080618.pdf
30. Offshore Energy & Minerals Management (OEMM), The Minerals Management Service, http://www.mms.gov/offshore/, July 7, 2008.
31. U.S. Geological Survey, http://pubs.usgs.gov/fs/fs-0028-01/
32. http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_m.htm
33. http://www.usembassy.at/en/download/pdf/anwr_revenue.pdf
34. http://www.instituteforenergyresearch.org/2008/08/15/bogus-lease-claims-in-use-it-or-lose-it-proposal-stymie-real-energy-security/
35. http://my.barackobama.com/page/content/newenergy
36. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
37. Energy Information Administration, Annual Energy Review 2007, http://www.eia.doe.gov/emeu/aer/contents.html.
38. Energy Information Administration, Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/index.html
39. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and American Council for Capital Formation/National Association of Manufacturers Study of the Economic Impact of the Lieberman-Warner Climate Security Act, http://www.accf.org/nam.html.
40. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
41. http://my.barackobama.com/page/content/newenergy
42. Comparing McCain, Obama energy plans, International Herald Tribune, http://www.iht.com/articles/ap/2008/08/09/america/Energy-Next-President-Highlights.php
43. http://my.barackobama.com/page/content/newenergy
44. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
45. Interim Report on Crude Oil, Interagency Task Force on Commodity Markets, July 2008, http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf, and http://www.marketwatch.com/news/story/cftc-report-undercuts-claim-investors/story.aspx?guid={06B5DBFD-CC90-41A2-A3C0-6F18A3DBC03A}&dist=hppr
46. http://www.instituteforenergyresearch.org/wp-content/uploads/2008/06/oil_speculators.pdf
47. http://my.barackobama.com/page/content/newenergy
48. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
49. See e.g., Sam Kazman, CAFE is Bad for Your Helath, Wall Street Journal (Nov. 13, 2005) http://cei.org/gencon/019,04970.cfm .
50. http://my.barackobama.com/page/content/newenergy
51. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
52. Energy Information Administration, Analysis of the Climate Change Technology Initiative, April 1999, and Analysis of the Climate Change Technology Initiative: Fiscal Year 2001, April 2000.
53. http://my.barackobama.com/page/content/newenergy
54. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
55. http://www.nreca.org/PublicPolicy/issuespotlight/20081013.htm
56. North American Electricity Reliability Council, 2007 Long-Term Reliability Assessment (Nov. 16, 2007) http://www.nerc.com/files/LTRA2007.pdf.
57. http://my.barackobama.com/page/content/newenergy
58. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
59. http://my.barackobama.com/page/content/newenergy
60. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
61. Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html
62. Energy Information Administration, Annual Energy Outlook 2007, http://www.eia.doe.gov/oiaf/archive/aeo07/index.html
63. Energy information Administration, Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/index.html
64. Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html
65. http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:21845834~pagePK:98400~piPK:98424~theSitePK:95474,00.html
66. CNN, Riots, instability spread as food prices skyrocket, Apr. 14, 2008, http://www.cnn.com/2008/WORLD/americas/04/14/world.food.crisis/index.html?eref=rss_topstories.
67. CNN, Riots, instability spread as food prices skyrocket, Apr. 14, 2008, http://www.cnn.com/2008/WORLD/americas/04/14/world.food.crisis/index.html?eref=rss_topstories.
68. The Nature Conservancy, Climate Change and Energy: The True Cost of Biofuel, http://www.nature.org/initiatives/climatechange/features/art23819.html.
69. Mongabay.com, Why is oil palm replacing tropical rainforests?, http://news.mongabay.com/2006/0425-oil_palm.html.
70. http://my.barackobama.com/page/content/newenergy
71. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
72. Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap3.pdf
73. http://my.barackobama.com/page/content/newenergy
74. http://www.johnmccain.com//Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm
75. http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm
76. http://www.instituteforenergyresearch.org/2008/07/16/who-benefits-from-federal-lease-hoarding/
77. See, for example, http://www.eenews.net/eenewspm/2008/10/17/2
78. http://www.instituteforenergyresearch.org/wp-content/uploads/2008/10/OCSacresleased.jpg, and http://www.instituteforenergyresearch.org/wp-content/uploads/2008/10/FederalLeaseOfferingsAcreageaLeased60-2006.pdf
79. http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/advanced_summary/current/adsum.pdf
80. http://my.barackobama.com/page/content/newenergy
81. http://www.johnmccain.com/Informing/Issues/da151a1c-733a-4dc1-9cd3-f9ca5caba1de.htm
82. Energy Information Administration, Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Climate Security Act of 2007, http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html, Environmental Protection Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf, and American Council for Capital Formation/National Association of Manufacturers Study of the Economic Impact of the Lieberman-Warner Climate Security Act, http://www.accf.org/nam.html.
83. Energy Information Administration, International Energy Outlook 2007, http://www.eia.doe.gov/oiaf/archive/ieo07/index.html
84. See for example Chapter 8, “The Many Advantages of Carbon Taxes,” in the prepublication proofs of Yale economist William Nordhaus’ book, A Question of Balance: Weighing the Options on Global Warming Policies (New Haven: Yale University Press, 2008), available at: http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf.
85. See IER’s critique of Nordhaus’ case at: http://www.instituteforenergyresearch.org/2008/06/05/ier-economist-murphy-takes-on-nordhaus-case-for-a-carbon-tax/.

Large Earnings a Welcome Sign of Economic Health

High profits are the market’s signal that a company is efficient, that it is taking resources and transforming them into products that consumers value.  In contrast, a company suffering losses is wasting scarce resources, and needs to get its act together or else go out of business.  If the major oil companies report large earnings as expected, this will demonstrate that their shareholders and management made wise decisions in the preceding years, as they built and maintained the infrastructure needed to bring vital product to market.

The wise decisions of the oil industry stand in sharp contrast to the investments made by the banking and real estate sectors during the last few years.  Academics and pundits will no doubt argue about the exact causes for decades to come, but the fact remains that too many mortgages were given to unqualified applicants, and too many financial institutions bought the derivative assets tied to these risky loans.  Because of these errors, the American financial sector has suffered billions in losses, and the S&P 500 is down more than 30% year-to-date.

Profitable companies are always a sign of economic strength, but they are especially welcome during a general downturn.  Oil industry earnings show that not every corporation was asleep at the switch during the last few years.

Who Owns Big Oil? You Do!

Populist pledges to stick it to “Big Oil” conjure up images of Texas tycoons in back rooms, puffing on cigars while stuffing piles of money into their pockets. In reality, more than 70% of the shares of large oil companies are owned by mutual funds, IRAs, pensions, and other such institutional investors. Solid earnings reports by the oil industry translate into more money for retirement.

Higher Taxes Hurt Consumers

As noted earlier, some lawmakers have proposed a windfall profits tax as a way to being relief to motorists.  They see large profits and high oil prices, and assume that the greedy oil companies are successful only because they gouge their customers.  But this mentality gets things exactly backwards.  Large industry profits aren’t causing high oil prices; rather, it is the high price of oil—set in the world market by supply and demand—that is partly responsible for the large earnings in the oil industry.

Slapping producers with a windfall profits tax won’t bring relief at the pump.  On the contrary, new taxes will increase oil and gasoline prices, by reducing the incentives for producers to supply oil.  This is Economics 101:  When the government wants less of an activity, it taxes it.  (For example, to discourage people from smoking, the government slaps a hefty tax on cigarettes.)  So if the government wants oil companies to bring fewer barrels to market, reducing supply and raising the price of oil, then by all means, it should follow politicians’ plans to raise taxes on oil production.

We have been down this road before.  As part of a compromise to phase-out price controls, President Carter enacted a windfall profits tax on oil companies in 1980.  From 1981-1983, the count of rotary rigs (used to drill the vast majority of wells) in the U.S. fell in half. A Congressional Research Service report found that the 1980s windfall profits tax reduced domestic output between 1.2 and 4.8 percent, and increased American reliance on foreign oil imports. This time around, the effects could be even worse, because the new windfall tax would not be coupled with a lifting of price controls.

As the following chart illustrates, the oil industry is already paying many billions of dollars into the Treasury.  Even without tinkering with the tax code, higher earnings lead to larger payments.  It is bad policy for the IRS to target the most successful companies and slap them with punitive taxes, simply because they have deep pockets.

Total Worldwide Income Tax Expense

For FRS Oil and Gas Companies

(millions $US, source: EIA)

More Supply Is a Realistic Solution

Although more taxes and regulations aren’t the answer, there are steps the federal government can take to help.  Specifically, the government can give its permission for American energy companies to develop American resources.  The federal government recently let expire the decades-long moratorium on offshore drilling and oil shale development, but there still remain significant regulatory and legal hurdles to actual production, and naturally the politicians are looking to renew the ban after the elections.  Policymakers must realize that encouraging new domestic energy production will help on several fronts.

A recent Congressional Research Service (CRS) report [pdf] estimates that by lifting the embargo on Outer Continental Shelf (OCS) production, the federal government would generate almost $615 billion in royalties and corporate income taxes.  However, the results would actually mean even more, since the Department of Interior admits readily that its estimates of embargoed oil and gas resources are conservative, and the CRS report assumes the coastal states adjacent to the OCS areas would receive an additional $260 billion in royalties (is California listening?).

In addition to offshore resources, ANWR, oil shale and other domestic energy resources have been systematically put off limits through outright statutory ban and through crippling legal action by environmental groups.  Legalizing and then streamlining the development process on these sources of domestic energy would yield still more in royalties, direct and indirect jobs, and corporate taxes receipts.  Note that the extra revenues flowing to the government from these sources would not constitute a new drain on the American economy, as would the tax hikes proposed by some politicians.  If it is illegal to produce a valuable product for consumers, and then the government changes the rules and says it is now legal but the producer must give a cut to the Treasury, on net that is a boon to production.

Besides creating thousands of new jobs and easing the government’s budget deficit, opening up American resources to development would bring immediate price relief, even though the new production might take several years to reach full capacity.  This is because the promise of more barrels of oil in the future will cause current producers to ramp up their output in the present, while the new competing American sources are still in their infancy.  The chart below illustrates just how much policy changes can influence prices today.

Conclusion

American citizens should welcome reports of profitable companies. The news signifies the efficient use of resources, but it also helps to offset the tremendous losses being incurred in other sectors. Rather than punishing success with higher taxes, the government should instead pursue policies that speed the development of American energy resources. Such development will create jobs, strengthen the US dollar (through reduced oil imports), help defray the costs of the Wall Street bailout, and reduce oil prices even further.

See Robert Bradley’s Oil, Gas, and Government: The U.S. Experience.

Lazzari, Salvatore, “The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy,” Congressional Research Service Report# RL33305, March, 9, 2006.

Income tax expenses obtained from EIA’s Performance Profiles Tables, Table B12, at: http://www.eia.doe.gov/emeu/perfpro/btab12.html. Accessed August 4, 2008.

On Monday, the financial markets responded to the financial bailout plans and as a result, the dollar took its biggest hit in seven years, crude oil recorded its largest one-day price increase in history, and other commodities rose as well. The problem with the financial bailout is that it is generally seen as directly leading to inflation. It’s easy to see why. All told the up-front tab for the bailout could reach $1.8 trillion. There is no way for the Federal government to pay for such a staggeringly expensive plan.

If only Congress could multitask, they could easily find a source of billions of dollars for additional funding—royalties from energy production. While these royalties can’t match the scope of the bailout this year, they will produce hundreds of billions over time. [Disclaimer: the Institute for Energy Research does not endorse the financial bailout, only describing one way to finance part of it.]

The taxpayer’s total return from royalty payments was $11.4 billion in fiscal year 2007and is projected to increase this year. According to the Congressional Research Service, if Congress were to allow production in ANWR, and ANWR produces 10.3 billion barrels of oil at current oil prices of $125 a barrel, then the Federal government would collect $191 billion.

Opening more of the Outer Continental Shelf and ANWR to energy production will also create more jobs. Energy exploration and production is expensive and labor intensive. Allowing companies to spend money on American energy production will lead to more jobs for Americans.

But that’s not all. Energy companies are heavily taxed and are paying record taxes. In 2006 (the most recent and complete data available) the major energy company earned $64.7 billion from U.S. production activities and paid $23.5 billion in federal, state and local income taxes. That’s an effective tax rate of 36.3 percent. Increasing domestic production will lead to the major energy companies paying even more than $64.7 billion in taxes.

This bill, like the recent “Gang of Ten” proposal, does almost nothing to increase domestic energy production. Instead, it offers more of the same government imposed mandates that promote inefficient or untested types of energy.

The following is an analysis of the most recently available proposal:

Title 1—Federal Oil and Gas Leasing

While the authors may seek to open up additional areas on the outer continental shelf (OCS) to new exploration and development, the bill permanently locks up the most oil and gas-rich areas of the OCS. For example, this would permanently ban about 97 percent of the undersea oil lying off the coast of California.

Subtitle A—Outer Continental Shelf Oil and Gas Leasing

• Permanently institutes a ban on new offshore development out to 50 miles. [Sec. 102]
  • The vast majority of undiscovered oil and gas reserves are projected to be between the coast and 50 miles offshore. Instead of allowing the production of great quantities of oil and gas, this section locks up billions of barrels of oil and trillions of cubic feet of natural gas.

• Permits leasing only between 50 and 100 miles offshore only if the adjacent state legislature ‘opts-in’ to allow leasing off its coastline. [Sec. 102]
  • Section 102 fails to provide royalty revenue sharing for the states near new offshore development. States will not have any incentive to allow oil development if there is not revenue sharing from the actual production.

• Fails to open new, energy rich areas for exploration and development in the eastern Gulf of Mexico. These areas in the Gulf could start producing oil and gas very quickly because they are close to existing infrastructure.

• Creates a new duty for the Secretary of the Interior, notwithstanding all current environmental laws, to make sure any activity “provides for the protection of the coastal environment.” [Sec. 104]
  • Offshore exploration and development is already subject to a large number of environmental laws such as the Marine Mammal Protection Act, the Coastal Zone Management Act, the Endangered Species Act, and the Magnuson-Stevens Fishery Conservation and Management Act.
  • Because this new language is not defined in the bill nor the U.S. Code, it is an invitation for environmental groups to sue so courts will determine what it means for the Secretary to “provide for the protection of the environment.” [Sec. 104] This will only slow new offshore development.

Subtitle B—Diligent Development of Federal Oil and Gas Leases

• Requires oil and natural gas leaseholders to “diligently develop” the leases they hold. [Sec. 121]
  • The bill does not explain how this would change existing law and existing requirements because existing law already requires leaseholders to develop leases or give them back to the United States.
  • This subtitle is a reference to the myth that there is 68 million acres with economical deposits that are leased by oil and gas production that oil companies are not using. More information on that myth is available here.

Subtitle F—National Petroleum Reserve in Alaska

• Accelerates leases sales on National Petroleum Reserve—Alaska (NPR-A). [Sec. 162].
  • NPR-A is estimated to contain 10.6 billion barrels of oil but those reserves are spread out over NPR-A’s 23 million acres. This bill does not open up nearby ANWR. ANWR also holds more than 10 billion barrels of oil, but ANWR’s resources can be accessed from a very small area. More information about the NPR-A and ANWR is available here.
  • The bill states that the Secretary must offer leasing in an “environmentally responsible” manner. This section does not define “environmentally responsible” potentially allowing environmental groups to sue to define what this means.

• Requires the President to facilitate construction of a natural gas pipeline from Alaska with unionized labor [Sec. 165-166]
• Bans the export of Alaskan oil. [Sec. 166]

Subtitle G—Oil Shale

There are more hydrocarbon resources in oil shale in the western United States than there are oil reserves in Saudi Arabia. The United States Geological Survey (USGS) has estimated the U.S. has 2 trillion barrels of resource of which 556 billion barrels is recoverable. A better approach would be to remove all impediments to oil shale research and development.

• Allows oil shale leasing for research, development, or production of oil shale only if states specifically pass a law permitting oil shale leasing within their borders. [Sec. 171]
  • This is only a half-measure to developing oil shale. Developing oil shale is expensive and requires experimentation to improve oil shale extraction technology. It is currently not necessary to get state approval for experimental projects, but this bill creates additional hurdles for experimental projects—the type of projects necessary to one day utilize this vast resource.

Title II—Consumer Energy Supply

• Sells 70 million barrels of light grade crude oil from the Strategic Petroleum Reserve and buys heavy grade crude. [Sec. 201]
• It is unlikely this scheme will have any effect on gasoline prices, as evidenced by this information here.

Title III—Public Transportation

From 1993 to 2003 capital expenditures for public transit grew by 100 percent, but transit ridership only grew by 13 percent. By that measure, federal subsidies for public transportation has been a bad investment, but it seems measure throws good money after bad.

• Spends $100 million in new federal spending for public transportation. [Sec. 303]
• Establishes a new pilot program for contracting vanpools. [Sec. 306]
• Authorizes $1 million in spending for public transportation advertising. [Sec. 307]

Title IV—Greater Energy Efficiency in Building Codes

This title usurps the authority to set building codes from state and local governments and institutes new national building codes standards in the name of energy efficiency. The likely outcome of this title will be an increase in the cost of new construction and renovation of buildings in the United States.

• Requires states to revise their building codes to comply with certain energy efficiency standards. [Sec. 401]
• Increases energy efficiency standards for building renovations.

Title V—Federal Renewable Portfolio Standard

This title requires electricity providers (except for state or local governments) to provide 15 percent of their electricity from renewable sources, excluding hydropower, by 2020. Currently, less than 5 percent of our electricity is generated by renewable sources according to the definition in this title. Renewable electricity mandates increase the price of electricity to consumers by forcing them to use more expensive and less efficient sources of electricity.

Title VI—Green Resources for Energy Efficient Neighborhoods

This title contains and myriad of subsidies and directives that interferes with housing markets in the name of “energy efficiency.”

• Creates new subsidies for people who participate in HUD programs to implement energy efficiency programs. [Sec. 603]
• Authorizes $50 million in pilot programs for more energy efficient multi-family dwellings. [Sec. 605]
• Encourages Fannie Mae and Freddie Mac to favor energy efficient mortgages. [Sec. 606]
• Establishes a “duty to serve underserved markets” regarding energy- and location-efficient mortgages for “very low-, low-, and moderate-income families.” [Sec. 607].
• Authorizes $5 million for advertisements about energy efficient mortgages. [Sec. 609]
• Authorizes $10 million for “increasing sustainable low-income community development capacity.” [Sec. 617]
• Creates new requirements for state certified appraisers to consider the value of energy-efficiency features. [Sec. 620]
• Authorizes a $5 million fund for loans to states and tribes to carry out renewable energy sources activities. [Sec. 623]

Title VII—Miscellaneous Provisions

• Mandates each automotive fueling station owned by a major integrated oil company to have at least 1 alternative fuel pump. This section assesses a $100,000 fine for each gas station not in compliance. [Sec. 701]
• While section 701 appears to greatly increase the amount of alternative fuel pumps, this is not true. Only 3 percent of gas stations are owned by major oil companies.
• Authorizes $25 million in funding per year for a “National Energy Center for Excellence” at two universities. [Sec. 702]

Title VIII—Energy Tax Incentives

This final title is a hodge-podge of additional subsidies for politically-preferred and economically expensive energy projects, partially paid for by a major tax increase on oil companies. A recent IER analysis found that this could cost America over half a million jobs and tens of billions in lost household income and almost $200 billion in total economic output.

• Extends renewable energy tax credits. [Sec. 801]
• Creates new tax credits for “marine renewables.” [Sec. 802]
• Adds credits for pet energy projects. [Sec. 803]
• Extends credits for residential renewable energy projects. [Sec. 804]
• Authorizes $2.25 billion in tax credits integrated gas and combined cycle projects and advanced coal-based generation. [Sec. 811]
• Increases tax credits for coal gasification projects by $150 million. [Sec. 812]
• Increases the coal excise tax. [Sec. 813]
• Commissions the National Academy of Science to devise a taxation scheme to tax greenhouse gases [Sec. 815]
• Increasing subsidies for biodiesel and renewable diesel [Sec. 822]
• Creates new subsidies for plug-in automobiles [Sec. 824]
• Implements tax breaks for heavy duty trucks with idling reduction devices and thick insulation [Sec. 825]
• Implements special payroll tax breaks for governments around New York City [Sec. 826]
• Institutes special benefits for bicycle commuters [Sec. 827]
• Increases tax credits for alternative fuel vehicles [Sec. 828]
• Subsidizes loans for natural gas refueling at gasoline stations [Sec. 829]
• Subsidizes bonds for local governments to implement pet “green” projects [Sec. 841]
• Extends credits for biomass heating [Sec. 842]
• Extends credits for energy efficient commercial buildings [Sec. 843]
• Subsidizes for energy efficient appliances [Sec. 844]
• Institutes tax breaks for smart meters and smart grid systems [Sec. 845]
• Extends tax breaks for green buildings [Sec. 846]
• Retains the Gang of Ten’s tax increases on oil companies by ending section 199 credits for oil companies [Sec. 851]

National Association of Convenience and Petroleum Retailing, Who Sells Gasoline in the United States?, http://64.233.169.104/search?q=cache:3SO5I9pKI18J:cstorecentral.com/NR/rdonlyres/e4byydgy5rac32l3xw2ajs53o2jolqw73vsi6roq5dag2vh2hzrx4flprwtlvzgwcjukq434wwsesxqwzspln4ynzxh/Who%2BSells%2BGasoline%2Bin%2Bthe%2BUnited%2BStates.pdf+what+percentage+of+gas+stations+are+owned+by+major+integreated+oil+companies%3F&hl=en&ct=clnk&cd=2&gl=us&client=firefox-a