Institute for Energy Research » Energy Independence

Are Tax Hikes Good for the Economy?

Robert Murphy — Mon, 18 Jul 2011 14:19:47 +0000

Last week, the American Energy Alliance (AEA) released a new paper [.pdf] by LSU economist Joseph Mason arguing that—contrary to their stated purpose—the Administration’s proposed tax changes involving the oil industry would not increase federal revenues once we consider the impact on total economic activity. In fact, Mason predicts just the opposite: increasing tax rates will lower revenues, lower economic activity, and create fewer jobs. Mason instead proposed that unshackling the development of American mineral resources would promote the Administration’s stated goal of economic growth while reducing the long-term budget deficit.

In response, the Center for American Progress (CAP) issued a scathing critique that is long on innuendo but short on arguments. How short? The CAP writers do not present a single objection to the actual method used in Mason’s analysis. In the present post, I’ll reiterate Mason’s argument and then analyze CAP’s response (such as it is).

Why Tax Rate Hikes Might Be the Worst of Both Worlds

The Administration and other proponents of “closing Big Oil’s tax loopholes” talk as if jacking up tax rates on the oil industry is the same thing as bringing down the budget deficit. Yet this isn’t necessarily true. If underlying economic activity remains the same, then yes, increasing the tax rate applied to particular firms will bring in more total tax revenue, meaning that for a given amount of federal spending, the budget deficit will fall.

However, raising tax rates—particularly in the midst of a severe recession—will depress economic activity. Because the tax base will be smaller, the higher tax rates applied to it will bring in less revenue than a naïve “static analysis” would have predicted. In a dynamic analysis, which takes into account the full response of the economy to the tax rate hikes, it is an empirical question whether the one factor is stronger than the other. In other words, total tax revenue might go up or it might go down, depending on the specifics. The important point though is that we can’t simply assume that a “tax hike” automatically brings in more revenue and thus eases the budget deficit. If it did, taxing individuals and businesses at the 100% rate would maximize total receipts.

In his latest paper, Mason claimed that the particular changes proposed for the tax treatment of the oil industry would in fact bring in less total revenue:

The proposed revisions to Section 199 and Dual Capacity for the oil and gas industry are expected by the Treasury to raise approximately $30 billion in Federal tax revenue over the next ten years. But this comes at the expense of industry cutbacks that can reasonably be expected to cost the economy some $341 billion in economic output, 155,000 jobs, $68 billion in wages, and $83.5 billion in reduced tax revenues. The net fiscal effect, a loss of $53.5 billion in tax revenues, suggests that the policy proposals exacerbate, rather than alleviate, the Federal deficit. (Mason p. 3)

Mason went on to argue that there are win-win policies available. For example, if the federal government would remove de jure and de facto obstacles to offshore drilling, then federal receipts would rise even with the tax code held in its current configuration. This would achieve the dual goals of boosting the economic recovery while reducing the long-term budget deficit at the same time.

CAP’s Response

Daniel J. Weiss and Seth Hanlon responded to Mason’s paper in a blog post carrying the calm title, “Big Oil’s Lying Statistics.” The disinterested scientists carefully picked apart the logic of Mason’s argument with observations such as these:

There are now three kinds of lies: lies, damned lies, and big oil statistics, to update the famous quip by noted 19th century British Prime Minister Benjamin Disraeli. Once again an analysis funded by the oil industry of proposals to eliminate some of their large tax breaks finds that this would be bad for the oil industry and the rest of us, too. And once again these results are sharply contradicted by the official analyses of nonpartisan government economists.

And:

But there is a more fundamental reason why Mason’s report reaches the opposite conclusion from four government entities. Much of his analysis relies on previous claims made by Big Oil-funded organizations. In his paper, there are more than two dozen references to the views of the American Petroleum Institute, officials from specific oil companies, the Institute for Energy Research, and AEA. All of them produce conflicted research due to the source of their funding.

In the entire post, the CAP writers do not offer a single argument to show that the estimates of Mason are less reliable than those of “four government entities.” The mere fact that Mason relies on research partially funded by energy companies is enough to show that he is producing “lies,” since “nonpartisan” government analysts came up with different numbers.

Note the double standard. One organization (the Obama Administration) is proposing to take billions of dollars from other organizations (companies in the private sector). The research funded by the first group says this won’t hurt the economy, while the research funded by the second group says it will. And CAP’s sole argument is, “Because the second group would benefit from not having billions more of its money taken from it, we don’t trust their numbers. We think the first group is more honest.” Never mind that the first group – the government – was organized by CAP’s president, John Podesta, when he was asked by President Obama to head his presidential transition team. They must be right!

Nor do Messrs. Weiss or Hanlon acknowledge that the Administration’s justification for this change in law in their FY 2011 budget proposal (p 83) never explicitly mentioned increased revenue to reduce the deficit, but instead, expressed concern that the existing tax provision needed to be changed because:

1. President Obama agreed at a G-20 Summit in Pittsburgh,

2. it could lead to overproduction of oil and gas in the United States,

3. increased domestic production was inconsistent with the Administration’s climate change policy,

4. it undermined the Administration’s policies in favor of renewable energy, and

5. it was ultimately financed by taxes on other industries

To the extent the lower tax rate encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources. (General Explanations of the Administrations FY 2011 Revenue Proposals, p. 83)

Most Americans would probably find it troubling to know that the primary justification the Administration has given for this provision until now has been President Obama’s concerns that the US may produce too much oil and gas, and that the production of all of this oil and gas could undermine his policies to increase renewable energy. The latter may be particularly confusing since the Administration justifies its huge subsidies to renewable energy on the basis of their potential contribution to reducing the demand for foreign oil. If the Obama Administration truly wants to reduce foreign oil imports, why would they take steps to stop the US from “overproduction of oil and gas” by taxing domestic production?

Conclusion

LSU economist Joseph Mason has used standard economic modeling to estimate that the proposed changes in the tax treatment of the oil industry—considering the full reaction of the economy—will lead to lower total revenues to the federal government. Mason instead offers different policy proposals that will simultaneously increase receipts and promote economic growth.

Rather than detailing which of his particular modeling assumptions is dubious, the CAP writers point out that government agencies do not think transferring billions of dollars to the government will have any bad consequences. Consequently, CAP concludes that Mason’s study is based on lies.

If CAP wants to explain why we should trust government estimates over private-sector ones, or why the government’s particular estimates of the revenue effects for the oil industry tax treatment are better than Mason’s, then we can have that discussion. But while they are doing that, they might also want to explain why their own 2008 report, predicting that an expenditure of $100 billion of stimulus funding for green energy would yield two million “green jobs” over two years, has not worked. Instead, the official unemployment rate is at 9.2%, with the real rate much higher.

Economic modeling is notoriously susceptible to the assumptions made, and the CAP writers can make a case against Mason’s techniques if they want. Yet screaming, “Big Oil! Big Oil!” is hardly an argument, especially when they rely upon “Big Government! Big Government!” for their proof.

The True Energy Threat to the United States National Security?

H. Sterling Burnett — Fri, 11 Feb 2011 14:28:48 +0000

H. Sterling Burnett, is a Senior Fellow with the National Center for Policy Analysis, a non-partisan, non-profit research institute with offices in Dallas, Texas and Washington, D.C.

President Obama continues to tout his support for moving to a “clean” energy economy, confidently asserting in his State of the Union Address and subsequent speeches around the country, that his administration’s program of subsidies, government grants and tax breaks for green energy technologies will, reduce our dependence on foreign oil and thus improve the United States’ national security.

Unfortunately, the President is wrong. The U.S.’s thoughtless embrace of green energy technologies is likely to make the country worse off geopolitically.

The United States imports all rare earth elements, principally from China

As a paper released by the National Center for Policy Analysis notes, key components of every green energy technology, wind turbines, solar cells, energy efficient lighting, batteries, you name it, have components that require a small class of minerals known as the rare earth elements, and other rare minerals. Despite their name, these elements are rather abundant in the Earth’s crust, but they are rarely found in economically exploitable concentrations. The exception to this generality is found in the People’s Republic of China.

Indeed, with 96 percent of the global market, China has a de facto monopoly on these rare elements.

By contrast, the world’s oil market is diverse, with dozens of countries producing oil for export. In 2009, the United States imported oil or oil products from 90 different countries.

Recently, China has proven willing to their near monopoly on the rare earths to extract favorable political outcomes from foreign nations.

In September 2010 a Chinese trawler collided with a Japanese coast guard vessel in a disputed portion of the East China Sea. The captain of the fishing boat was arrested by the Japanese. When Japan refused to release the Captain, China retaliated by first limiting and eventually halting exports of rare earth elements to Japan. Japan eventually relented and sent the captain home.

Closer to home, production of photovoltaic cells for energy relies on the rare element tellurium. However, the only tellurium mine that exists on Earth is in China, which is increasingly dominating the market for solar manufacturing. Whereas, in 2003, China produced only one percent of the world’s solar panels by 2009 its share had grown to 38 percent – and in 2010 its share rose to 43 percent. Over the same time period, the U.S.’s share of world solar panel production fell from accounted for 14 percent in 2003, to just four percent today.

Similarly, rare earths are essential to the newest generation of batteries — critical for fuel efficient hybrid and electric vehicles, and the magnets used in wind turbine production. This means that U.S. auto companies and wind turbine manufacturers like GE are, in part, placing their hopes improving their companies’ fortunes on China’s good will.

Sadly, this dependence on China is driven purely by politics not consumer demand. Absent huge government subsidies, grants and mandates, green energy, being more expensive and less reliable than traditional energy production, would not be so much in demand, and thus China would not be in the catbird seat.

The push to replace fossil fuels with renewable energy technologies brings to mind the old saying, “out of the frying pan into the fire.”

Secure Oil Resources: Where Can We Get Them?

IER — Wed, 09 Feb 2011 06:25:23 +0000

The turmoil in Egypt has made many worry about our oil supply, seeing prices rise due to the conflict. The issue raises the question of where we should be getting oil to ensure the security of its supply. Obviously the first place is at home. But with the Obama Administration placing a moratorium on offshore drilling in the Gulf followed by a de facto ban, withholding the final stages of a permit from Shell to drill offshore in Arctic waters of the Beaufort Sea in Alaska[i], and withdrawing leases on Federal lands that contain vast resources of shale oil[ii], the only choice for the United States is to turn to oil imports for its supply.

Our neighbor to the north, Canada, provides the largest amount of our oil imports, followed by our southern neighbor, Mexico. But, here again, the Obama administration is holding the country hostage by withholding a permit for a pipeline to carry oil from Canada to the United States. The Keystone XL pipeline is in the hands of the U.S. State Department, who still has not determined its fate. A recent study commissioned by the U.S. Department of Energy (DOE) indicates that the pipeline coupled with a demand reduction could eventually eliminate oil imports from the Middle East. The study was released for Canadian Prime Minister Stephen Harper’s recent visit to the White House. But even the voice and encouragement of the Canadian Prime Minister could not get President Obama to endorse the pipeline.[iii]

Why? Because most of the oil carried from the pipeline would be produced from oil sands that environmentalists say emit more greenhouse gases than conventional crude in its production. They also see the pipeline increasing the chances of an oil spill.[iv] Along with that, the Environmental Protection Agency is worried that these secure supplies would put a damper on increasing automobile efficiency and producing electric vehicles.[v] The agency believes that these secure oil supplies would lead to lower gasoline prices for consumers and reduce the incentive to buy more fuel efficient vehicles or electric cars. Instead, the Obama Administration is spending its energy trying to permit offshore wind power and issuing grants for solar power for electricity generation that are expensive technologies and do not directly substitute for oil.[vi]

The Keystone XL Pipeline

The pipeline, if built, would carry oil from Alberta, Canada through Montana, South Dakota, Nebraska, Kansas and Oklahoma to Texas. The first phases of the 1,900-mile pipeline would double the capacity of an existing pipeline from Canada, carrying more than 500,000 barrels a day of crude oil. The following phases would add another 700,000 barrels per day for a total capacity of 1.29 million barrels a day. Increasing pump capability would increase capacity to 1.5 million barrels per day.[vii]

The project is estimated to cost $7 billion, employ 20,000 Americans, and add $20 billion to the U.S. economy.[viii] TransCanada, a Canadian firm, must obtain a permit from the U.S. State Department allowing the pipeline to cross the U.S.-Canadian border before construction can proceed. At one point last year, Secretary of State Hillary Rodham Clinton indicated that she was “inclined” to approve the project, but her department is now obtaining input on the project from government agencies and the public.[ix]

The DOE Commissioned Study

The U.S. Department of Energy commissioned a study conducted by EnSys that evaluated several scenarios using the WORLD model, World Oil Refining & Logistics Demand, to determine the impact of the pipeline. [x] Two demand scenarios were represented: one from the Energy Information Administration’s Annual Energy Outlook 2010 reference case and the other from the Environmental Protection Agency representing a lower oil demand outlook where the demand for petroleum products is 4 million barrels per day lower by 2030. The study used the Canadian Association of Petroleum Producers’ 2010 Growth Outlook to determine oil supply for market from the Western Canadian Sedimentary Basin. Between 2009 and 2030, the supply of oil from this area almost doubles from 2.49 million barrels per day to 4.85 million barrels per day. Over that time period, the fraction of crude that comes from oil sands increases from 65 percent to 91 percent.

The report indicates:

There had been insufficient capacity in the past to bring oil supplies from the Western Canadian Sedimentary Basin to the United States. Capacity is now over 100,000 barrels per day, but capacity to U.S. Gulf Coast refineries is below that level.
U.S. imports of oil from the Western Canadian Sedimentary Basin rise in all scenarios, even those that are constrained by pipeline capacity, in order to fill a future decline in imports of heavy crude from mainly Mexico and Venezuela. If Canadian oil does not fill this gap, imports would be needed from the Middle East.
If the United States does not capture the market, Asia will, particularly China, who has already bought into Canadian oil sands projects. The cost of transporting this crude to major markets in northeast Asia are actually less than the costs to pipe the crude to the U.S. Gulf Coast. Exports to Asia could easily exceed one million barrels per day, over 20 times today’s amount, and could even be substantially more.
Because California refineries can process heavy crudes such as oil sands and can receive shipments by tanker off its coast, it is a potential market for Western Canadian Sedimentary Basin crude. Because of California Law AB 32, however, this market was excluded from the analysis. Due to declining oil production from California oil fields and Alaska, California has been importing increasing volumes of Middle Eastern crude oil.
More crude oil imports from Canada will be balanced by less crude oil from other foreign sources. For the lower demand scenario, increased oil imports from Canada substantially reduce oil imports from non-Canadian foreign sources and could eventually eliminate oil imports from the Middle East.

Given that Asia, and particularly China, is a growing market for Canadian crude, the greenhouse gas emissions from oil sands production in Canada will still be emitted regardless if the U.S. buys the oil sands from Canada or not. Plus, additional emissions will be released through transporting it to Asian markets.

Greenhouse Gases from Canadian Oil Sands

According to a study by the Cambridge Energy Research Associates, on a well-to-wheel basis, total greenhouse gas emissions from oil sands are only 5 to 15 percent higher than the average crude oil consumed in the United States. The calculation is based on the total life cycle that includes oil extraction, processing, distribution, and combustion of the gasoline through the tailpipe (hence, well to wheel).[xi] According to the Environmental Protection Agency, the amount of carbon dioxide emitted from the tailpipe per mile traveled is constant—19.4 pounds of carbon dioxide per mile regardless of the origin of the oil. The Canadian arm of Statoil has pledged to decrease the carbon dioxide emissions from their production of Canadian oil sands by 20 percent by 2020, and 40 percent by 2025, with the help of technologies that should be on line by 2015 or 2016.[xii]

Conclusion

Our federal government is restricting oil drilling in this country by withholding permits on offshore U.S. areas under their control or withdrawing leases on federal lands. Now, they want to restrict the crude we get from a friendly neighbor, Canada, by withholding a permit on a pipeline that can bring secure supplies of oil to U.S. refineries. Instead, they want to push offshore wind and solar technologies by providing grants and subsidies to hopefully make them competitive some day. Europe has tried that and not succeeded. Decades of promises have been made by those industries that they can become cost competitive with fossil fuels, with costs still 50 to 400 percent higher.[xiii] When will our government learn from history and the experiences of others?

[i] Yahoo News, Shell: No Beaufort Sea drilling in Arctic for 2011, February 3, 2011 http://finance.yahoo.com/news/Shell-No-Beaufort-Sea-apf-844337881.html?x=0&sec=topStories&pos=main&asset=&ccode=

[ii] The Wall Street Journal, Interior Secretary Scraps Oil-Shale Leasing, February 25, 2009, http://online.wsj.com/article/SB123560039534376131.html

[iii] Associated Press, Canada PM urges US to approve oil pipeline, February 4, 2011, http://hosted.ap.org/dynamic/stories/U/US_OIL_PIPELINE?SITE=CAACS&SECTION=HOME&TEMPLATE=DEFAULT

[iv] The Hill, Harper touts Canadian oil imports as best for America’s security interest, February 4, 2011, http://thehill.com/blogs/e2-wire/677-e2-wire/142245-harper-touts-canadian-oil-imports-as-in-us-security-interest

[v] Reuters, Canada-US pipe would cut Mideast oil imports-study, February 1, 2011, http://af.reuters.com/article/cameroonNews/idAFN0111655720110201

[vi] New York Times, Washington Invests in Making Wind Pay, February 7, 2011, http://green.blogs.nytimes.com/2011/02/07/washington-invests-in-making-wind-pay/

[vii] EnSys Energy, Keystone XL Assessment, December 23, 2010, http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf/AssmtDrftAccpt.pdf?OpenFileResource

[viii] Associated Press, Canada PM urges US to approve oil pipeline, February 4, 2011, http://hosted.ap.org/dynamic/stories/U/US_OIL_PIPELINE?SITE=CAACS&SECTION=HOME&TEMPLATE=DEFAULT

[ix] Ibid.

[x] EnSys Energy, Keystone XL Assessment, December 23, 2010, http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf/AssmtDrftAccpt.pdf?OpenFileResource

[xi] Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance, http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=228

[xii] Reuters, Statoil sees big cut in oil sands CO2, March 22, 2010, http://www.reuters.com/article/idUSTRE62L4Y420100322

[xiii] Institute for Energy Research, http://www.instituteforenergyresearch.org/2009/05/12/levelized-cost-of-new-generating-technologies/

Annual U.S. Production and Import of Crude Oil

Jeffrey Hubbard — Sat, 05 Feb 2011 16:39:13 +0000

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State of the Union’s Energy History

IER — Tue, 25 Jan 2011 22:24:42 +0000

For years our Presidents have called for energy independence during their State of the Union Addresses. Yet our political leaders have been working hard to slow energy production here at home: locking up federal lands for energy development, increasing regulations, proposing renewable energy mandates, and promoting cap-and-trade schemes.

Ironically, all of these public policy adventures have increased our dependence on foreign oil and increased the cost of energy.

Let’s try something new, Mr. President — let’s get the government out of the energy industry.

Mother Nature Provides a Lesson on Scarcity

Jeffrey Hubbard — Tue, 18 Jan 2011 19:40:57 +0000

Today, Mason Inman penned an article in the National Geographic that discusses a paper which argues it is both possible and affordable to displace all fossil fuels by 2030 with renewable sources. According to the paper, the main bottleneck would be political will and the production of rare earth elements. But even if those two factors were not an issue, the logistics alone of building the necessary green energy systems is staggering.

In order to produce 100 percent renewable energy, Inman argues that we would need:

4 million wind turbines with each one producing 5 mega-watts. This means that we would need to build over 500 5 MW turbines a day every day until 2030.
90,000 solar plants that can each produce 300 mega-watts. Right now, there are currently three-dozen solar plants in the world that produce that much energy.
But we still would need more; in fact, 1.7 billion 3-kilowatt PV panels would have to be installed worldwide. That number translates to one rooftop system for every four people in the world!

In spite of these numbers, the two researches out of UC Davis and Stanford who authored the study believe the world can have 100 percent renewable energy by 2030. The only thing missing, in their view, is political will. What’s even more delusional is that these two researchers believe there would be no “significant” economic impact with this transition.

I agree that the only thing missing is the political will, and thank goodness for the good of humanity that the political will is missing.

Here’s just one example of the incredible cost of 100% renewables. To help achieve Europe’s goal of 20% renewable electricity by 2020, Europe is considering building a new $1.3 trillion electricity grid. Just consider those costs for a minute–$1.3 trillion for just the electricity grid. That does not include new renewables, but only the grid. By spending $1.3 trillion Europe would get less than 1/5th of the way to the goal of 100% renewables. And this is just Europe. The cost of 100 percent renewables is truly staggering and yet the researchers believe it is “affordable.”

But maybe they are considering “affordable ” by looking at the cost of uncontrolled climate change. According to economist William Nordhaus, uncontrolled global warming would cost $23 trillion. Obviously the costs of switching to 100 percent renewables would be far in excess of $23 trillion if updating Europe’s electricity grid alone would cost $1.3 trillion.

The cost of new electricity grids, steel, concrete, labor and rare metals aside, we must ask ourselves the important question, what else could we do with tens of trillions of dollars? In economic terms, what is the opportunity cost of developing 100 percent renewable energy? In other words, if politicians divert more public funds into green energy development, that means less money for schools, hospitals and parks in addition to higher energy prices for consumers.

In the end, Mother Nature provided the greatest economic lesson for green energy enthusiasts — the concept of scarcity. Even if everyone wants renewable energy, there aren’t enough rare earth metals to go around at current production levels. In fact, the extraction rate of rare earth metals would have to quadruple! The National Geographic goes into more depth on the growing metal dependence for renewable energy production and it’s worth the read. For instance, did you know that the 17 rare earth metals used to produce hybrids, solar panels, wind turbines and LED lights are almost solely produced in China? And, it should be noted that China isn’t eager to sell them either.

Lastly, let’s compare 100 percent renewables scenario to the Energy Information Administration. The EIA predicts that in 2035 renewables will only produce 10 percent of U.S. energy. The real reason is cost. It is indeed possible to switch to 100 percent renewables, but what will we have to give up? How many lives could we save if we spent that money on health care innovations? How many lives could we save if we used that money to eradicate malaria or reduce worldwide hunger?

Top 5 Energy Issues the New Congress Should Tackle

Daniel Simmons — Thu, 06 Jan 2011 17:42:49 +0000

1. No subsidies. Energy subsidies do one thing—they increase the price of energy of all Americans and line the pockets of the special interests that promote these discriminatory policies. To build a stronger economy and create more jobs, we should reduce all federal energy subsidies and set-asides—the means no subsidies for oil, coal, natural gas, wind, solar, or any other type of energy.

2. End the permitorium on offshore energy exploration and production. The Deepwater Horizon accident was a terrible tragedy, but the Obama administration’s response has been catastrophic. The administration has brought new energy and development to an almost complete standstill by refusing to issues the necessary bureaucratic permits.

3. Increase our energy and economic security by offering more federal lands for energy production. Past administrations have only offered less than 5 percent of the federal lands for energy exploration and production. The anti-energy Obama administration is offering even less land, is cancelling plans to allow more exploration, while refusing to issue permits explore the lands that are open. On top of that, they are abusing the judicial system by settling lawsuits with anti-energy groups designed to slow down or stop domestic energy production. Part of energy security and economic security is being able to produce energy…and jobs…right here in America.

4. Amend Clean Air Act to clarify that Congress never intended to regulate greenhouse gases under the act. Congress never intended to regulate greenhouse gases like carbon dioxide when it passed the Clean Air Act in 1963 and amended it in 1970, 1977, and 1990. Even the Environmental Protection Agency, which implement the Clean Air Act, has said that the straightforward application of the Act leads to “absurd results.” The Clean Air Act was not intended to regulate greenhouse gases.

5. Examine, repeal and replace the federal “green tape” that is slowing down, stopping or making impossible private investment in new energy infrastructure in the United States. Federal laws bred in the 60’s and passed in the 70’s usurping state and local authority over matters not enumerated in the Constitution should be returned to those authorities. The nationalization of energy decision-making has changed the American “can-do spirit” into a “can’t-do” attitude that has created a bloodletting of the lifeblood of our economy. The economic terrorism currently threatening every energy project in the nation must stop. The laws which provide a platform for these actions must be reviewed, repealed or replaced with commonsense measures that recognize constitutional boundaries and the limits of central government.

15,000 or 575 Miles?

admin — Wed, 24 Feb 2010 21:30:10 +0000

As energy secretary Steven Chu continues his trip through the Middle East to “discuss a range of energy issues, including energy security,” we ask: What else could have been accomplished by a quick trip to Canada, the U.S.’s largest energy importer and exporter?

Washington, DC – As U.S. secretary of energy Steven Chu continues his tour through the Middle East “to strengthen and expand U.S. relationships across the region” and “discuss a range of energy issues, including energy security and the importance of investing in a broad portfolio of energy technologies as part of the global economic recovery,” the Institute for Energy Research (IER) wonders about the comparative value of this trip weighed against one to Canada.

It has been nearly a year since Secretary Chu was confirmed by the U.S. Senate, but according to his Department of Energy website, it appears he still has yet to visit Canada—our most strategic trading partner and strongest hemispheric ally—from which we import more natural gas, refined gasoline and oil than any other country.

Despite this strong and critical energy trading partnership, some out-of-the-mainstream special-interest organizations who oppose our most affordable energy resources, as well as several governors, members of Congress and top administration officials, are actively working to antagonize Canada with a Low Carbon Fuel Standard (LCFS). Many of these LCFS backers wax poetic about the dire need for the U.S. to use less Middle Eastern oil. Yet, the core objective of a LCFS is to effectively ban the nearly 17 percent of our oil we import from Canada. The result? A deeper reliance on oil derived in the Middle Eastern and in other unfriendly, unstable regions of the world. Oh, and higher prices at the pump, too.

While Secretary Chu pairs his world travels with such important missions as encouraging Americans to paint their roofs white, Canada—obviously not willing to depend on an increasingly anti-energy Washington, D.C.—recently inked a lucrative oil sands trade deal with China. Perhaps our strongest competitor in the global economy, China realizes the importance of securing affordable and stable energy resources to continue to drive economic growth.

According to the U.S. Department of Energy, nearly 2.1 trillion barrels of U.S. oil shale are currently kept off-limits by the federal government. These abundant, homegrown resources—coupled with Canada’s secure oil sands supplies—represent the largest oil reserves in the world. Still, Washington, and other elected officials throughout the country, considers policies such as an LCFS, which would effectively ban secure, job-creating Canadian energy imports to the U.S.

Perhaps, instead of provoking our partners in the world’s largest trade relationship , Secretary Chu’s time could be more wisely used to strengthen economic ties and “discuss a range of energy issues, including energy security” with top Canadian officials. If he waits much longer, we may have plenty of houses with white roofs and no energy to keep them warm. Even worse, we might not have enough oil-derived jet fuel necessary to make the secretary’s world gallivanting possible.

NOTE: According to an Energy Dept. press release, secretary Chu will travel to the energy rich nations of Saudi Arabia, Qatar, and the Emeritus Abu Dhabi. The estimated distance of this trip is roughly 15,363 miles. However, the distance from Washington, D.C. to Ottawa is roughly only 575 miles.

More from the Institute for Energy Research on Secretary Chu, Canada and U.S. energy policy:

Press Release: 15,000 Miles or 15 City Blocks?
Blog Posting: Low Carbon Fuel Standards: Recipes for Higher Gasoline Prices and Greater Reliance on Middle Eastern Oil
Fact Sheet: Embrace Canadian Energy
Analysis: China Secures Oil and Gas Resources; U.S. Prefers to Wait for Green Energy

For additional information, please contact Patrick Creighton, 202-621-2947, or Laura Henderson, 202-621-2951.

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15,000 Miles or 15 City Blocks?

admin — Tue, 23 Feb 2010 18:48:17 +0000

Energy secretary jet-sets to the Middle East to “discuss a range of energy issues, including energy security.”

We ask: Could as much, if not more, have been accomplished by walking 15 blocks to the Interior Dept.?

Washington, DC – Today marks day two of Energy Secretary Steven Chu’s four-day, three-country tour through the Middle East “to strengthen and expand U.S. relationships across the region” and to “discuss a range of energy issues, including energy security and the importance of investing in a broad portfolio of energy technologies as part of the global economic recovery.”

This trip comes nearly one year after Secretary Chu was confirmed by the U.S. Senate and in the wake of countless statements from the Obama Administration on the urgent need to reduce our dependence on foreign energy sources. It should also be noted that while the energy secretary is in the Middle East, the Obama Administration is busy here at home locking up job-creating domestic oil, oil shale and natural gas resources on taxpayer-owned land.

Most economists, independent experts and, in particular, our chief economic competitor, China, recognize that energy markets are global in nature. However, reducing our foreign energy dependence has become a rallying cry for some who favor top-down federal mandates to promote expensive and unreliable energy sources. These heavily taxpayer-subsidized forms of energy – such as wind and solar – are not transportation fuels, and simply cannot be used to drive our nation’s manufacturing base.

If the Obama Administration’s goal is to reduce our dependence on foreign oil, it is certainly attainable; however, it will only become a reality if this government implements policies that encourage increased domestic production of homegrown resources. The U.S. has the capability and technological know-how to achieve this goal. But to do so, policymakers must demonstrate a commitment to commonsense, pro-job, pro-American energy policies, which have been noticeably absent in Washington for the past 30 years.

Visiting our allies in the Middle East to discuss energy security is important. But this administration’s efforts to demonize domestic energy production, add layers of bureaucratic red-tape, and impose enormous, burdensome tax hikes on the very resources that serve as the foundation for economic growth and prosperity will only cause our nation’s long-term energy security to weaken.

One has to wonder if the Energy Secretary could accomplish more if he were to “discuss a range of energy issues, including energy security” with his colleague, Interior Secretary Salazar. At a minimum, by walking the 15 blocks to the Department of the Interior, he could have saved energy– the kind derived entirely from oil.

NOTE: According to a Energy Dept. press release, Secretary Chu will travel to the energy rich nations of Saudi Arabia and Qatar, and the Emirate Abu Dhabi. The estimated distance of this trip is roughly 15,363 miles. However, a distance to the Interior Department is at most 15 city blocks.

For additional information, please contact Patrick Creighton, 202-621-2947, or Laura Henderson, 202-621-2951.

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Drill Gate: Obama Administration Ignores American People, Enacts De-Facto Ban on New Offshore Energy Exploration and Production

admin — Fri, 12 Feb 2010 18:25:33 +0000

One of the most disappointing aspects of the Obama Administration’s domestic policy has been the way it has dealt with domestic energy production – in particular new offshore energy production. It took oil prices reaching $147 a barrel for President Bush to tear up the moratorium on offshore energy production, but at least when he did, he quickly moved forward with the regulatory process to give Americans access to these energy sources—and the jobs this development would create. The Obama Administration, on the other hand, would be hard pressed to move any slower than they already have, never mind what the American people want.

It has recently come to light, through a Freedom of Information Act (FOIA) request by American Solutions, that there may be more here than meets the eye. More on that in a second; first, a bit of history on what led up to what is now called “drill gate.”

In July 2008, when oil prices reached $147 a barrel, the Institute for Energy Research called on President Bush to end the moratorium on additional offshore energy exploration and development. For years and through both Republican and Democratic administrations, the Federal government had not allowed new offshore energy exploration or production. But when oil prices hit new highs, President Bush saw the light and started the process of opening up new areas for energy development.

President Bush saw that the public wanted new offshore energy production. The public favored additional offshore drilling by a 2 to 1 margin and President Bush acted accordingly, implementing the necessary regulation to open up new areas for energy development.

Less than a month after taking office, instead of moving forward with the plan the Bush Administration proposed, President Obama and his Interior Secretary Ken Salazar decided that first, they needed 6 additional months to hear from the American people. They made this decision despite the fact that the Bush Administration had already solicited comments from concerned citizens; the Obama Administration wanted more time for even more comments.

Maybe they hoped that by waiting 6 months, environmental groups and their well-honed letter writing operations would send more comments to the Administration than people who want increased energy security and jobs created by offshore energy development. But if that was the Administration’s plan, it backfired.

The Institute for Energy Research and several other like-minded groups organized our own plans to help Americans let their government know they favored additional offshore energy production. Unfortunately for the Obama Administration, our efforts paid off. The Administration received pro-drilling comments from the public by a 2 to 1 margin.

But here’s the catch… the Obama Administration didn’t publicize this information, despite having the information months ago. We only recently found out because another pro-energy, pro-jobs, pro-economic growth group, American Solutions used the Freedom of Information Act to pry this information from the Administration.

So why does offshore drilling matter? One reason is that it will create a lot of new jobs. In fact, one study estimates that over a million U.S. jobs are locked away in the job-creating energy resources we have offshore. Also, by producing oil and natural gas at home we’ll help stabilize the world market for oil, holding the price lower.

In his State of the Union address, President Obama said that he was open to offshore energy production. Now is the time for him to walk the walk and not just talk the talk on offshore energy and jobs production.