Less Supply, More Regulations and Higher Prices
for American Consumers

Before Wall Street’s implosion and the sharp economic downturn, energy policy dominated the headlines on the Presidential campaign trail. An overwhelming majority of Americans demanded access to offshore energy resources to help increase supplies and lower prices for everything from gas at the pump to groceries at the supermarket. As the outcry for more American energy grew louder, Congress and the presidential candidates finally listened, leading to the expiration of the 28-year old Congressional ban on exploration and production in the Outer Continental Shelf (OCS).

Amidst soaring gas prices this past summer, Senator John McCain reversed his long-standing opposition to offshore energy production by calling for an end to the federal OCS moratorium. And as the price continued to climb, President-elect Barack Obama joined in, expressing his support for a substantially more-limited drilling plan.

Based on the statements of President-elect Obama and the record of the newly expanded Congressional Democratic Majority, however, there is little doubt that the momentum for increasing domestic energy production will come to a grinding halt.

Taking him at his word, President-elect Obama is largely opposed to increasing the nuclear, oil, natural gas and coal energy supplies that powers our economy today and for the foreseeable future. And the Leaders on Capitol Hill, notably Senate Majority Leader Harry Reid (D-NV) and House Speaker Nancy Pelosi (D-CA), have expressed open hostility to the increased domestic production of oil and coal in particular.

The following is expected to top the legislative and regulatory agenda in Washington in the coming years with respect to energy and the environment. The analysis is based on the press accounts, direct statements and the legislative records of President-elect Obama, his advisors and the current leadership in Congress.

The Return of the Outer Continental Shelf and
Oil Shale Energy Moratorium

“The ban on OCS and oil shale development “will be a top priority for discussion next year.” –House Majority Leader Steny Hoyer (D-MD)

When oil prices hit $147 a barrel in July, President Bush overturned the executive moratorium on energy production on the outer continental shelf. Since then, oil prices have dropped dramatically. On October 1, the Congressional ban on offshore drilling to expired for the first time in 27 years. Ending these bans was an important factor in the initial drop in oil prices. But there are many in Congress who would like to reinstate the ban, despite great public support for increased domestic energy production. Late in the year, a bipartisan group of between 10 and 20 Senators attempted to make the ban permanent on much of the Outer Continental Shelf, and the House passed a bill that would have opened limited areas to drilling in exchange for placing those areas with the most oil and natural gas potential off limits. Expect these measures to return to the spotlight.

Cap & Trade: A New Energy Tax

“Coal makes us sick. Oil makes us sick…we’ve got to stop using fossil fuels.” –Senate Majority Leader Harry Reid (D-NV)

In the waning days of the campaign, a video of President-Elect Obama surfaced which revealed his desire to “take coal off the table as an ideological matter” and made clear that his policies would “bankrupt” electricity plants fueled by coal. These revelations were neither new nor surprising. After all, the very purpose of a cap-and-trade program is to dramatically increase the price of oil, natural gas, and coal to discourage their consumption. This tax on energy will be borne by all consumers in an attempt to use government policy to drive consumers to use alternative and more expensive forms of energy. If the U.S. was to commit to do this unilaterally, it would make the country less competitive while costing jobs, hindering economic growth and would do little, if anything, to reduce emissions of greenhouse gases on a global level. This indirect taxation would, however, fulfill the goal of providing the government with new sources of revenue.

“There is a growing tide even among House leadership about looking at a carbon bill as a way to raise revenue for other things.” – Mary Frances Repko, senior policy advisor to House Majority Leader Steny Hoyer

The Senate has attempted to pass a cap-and-trade bill for greenhouse gases for the past three Congresses, but have been unsuccessful each time. The main reason for its failure is simple. Up until now, Congress has lacked the votes to impose the massive cost of carbon dioxide regulation on the American people. This is because the only realistic way to regulate greenhouse gas emissions is to tax and regulate the use of energy, which, economically-speaking, is akin to taxing the consumption of oxygen. Nevertheless, one can be certain that President-elect Obama will work to approve a cap and trade program next year.

“No coal plants here in America.” – Vice President-elect Joe Biden

In the House, Energy and Commerce Chairman John Dingell (D-MI) has released a “discussion draft” greenhouse gas regulation bill. In the Senate, Environment and Public Works Chairwoman Barbara Boxer (D-CA) and Senator Joe Lieberman (I-CT) are likely to resurrect a revised draft of their climate bill from earlier this year.

Green Jobs & Renewable Energy Mandates: Robbing Peter to Subsidize Paul

With a troubled economy, President-elect Obama is promoting a “green jobs” agenda in an attempt to “create jobs by encouraging electricity production from solar and wind” sources. A part of such a bill would likely be a nationwide renewable portfolio mandate of 10% by 2012 and 25% by 2025.

Regulation mandating the use of electricity from renewable sources “is a breath of fresh air.” –President-elect Barack Obama

This was a part of the Obama-Biden energy platform. Also, as a Senator, Obama co-sponsored an amendment to the energy bill in 2005 to require a renewable portfolio mandate. The energy sources that Obama and Biden support currently provide only about 2.5% of our electricity (of all the electricity produced in 2007, wind produced 0.77%, solar produced 0.01%, waste produced 0.41%, geothermal produced 0.36%, and wood produced 0.93%). These energy sources are many times more expensive than those currently used. Mandating that a percentage of the electricity one uses be made from more expensive sources than the market would otherwise not provide for is akin to compelling people to purchase Perrier instead of reaching for the tap when they are thirsty.

A Subsidy Here, a Subsidy There and Pretty Soon
You’re Talking Real Money

“I will invest $15 billion a year in renewable sources of energy…”
–President-elect Barack Obama

The Federal government currently provides over $4 billion a year in subsidies for renewable and other alternative forms of energy. For ethanol in particular, there are additional regulations including a mandate for the country to use 36 billion gallons of ethanol by 2022 and a 2.5% duty on imported ethanol plus a 54 cents per gallon tariff. Obama wants to greatly increase these types of renewable energy subsidies, in part to reward some of his important supporters.

Windfall Profits Tax: There You Go Again

The President-elect has stated his intention to follow the example of the Carter Administration and enact a windfall profits tax on oil as part of an “emergency” economic plan. Carter’s windfall profits taxes led to lowered domestic energy production by 1.2% to 4.8% and an increased reliance on foreign oil imports. The reason is simple: by increasing the costs on U.S. production of oil, foreign oil becomes more economic. By way of example, if U.S. automakers were making profits and a federal tax were placed on them alone, the only beneficiaries would be foreign auto makers.

More Regulations on Tap for the Obama Energy Agenda

While there will no doubt be huge battles on Capitol Hill over the President-elect’s plans to increase the price of energy, his advisers and supporters have already signaled a willingness to increase energy costs through increased regulations, bypassing Congress altogether. Obama’s top adviser on global warming recently told Bloomberg.com that Obama “would initiate rulemakings” to regulate greenhouse gases using the Clean Air Act. Such a plan would be fantastically expensive, costing America about $7 trillion from 2010 through 2029 along with an estimated 2.9 million jobs. It would also have the perverse effect of incentivizing U.S. energy companies to lobby Congress for greenhouse gas legislation in the name of providing legislative and legal “certainty” for their businesses.

Besides regulating of greenhouse gases through the Clean Air Act, an Obama Administration could easily take a number of steps to hinder energy production without waiting for Congress to join the fray. For example, to ostensibly protect the polar bear (whose numbers may be near an all time high), they could use the Endangered Species Act to shut down exploration and production on the North Slope of Alaska. By applying the Safe Drinking Water Act to the water used in hydraulic fracturing of shale gas reservoirs, the Obama EPA could quickly shut down this form of production which has added huge new clean supplies of natural gas to U.S. reserves. Existing laws like the National Environmental Policy Act (NEPA), the Endangered Species Act (ESA), the Resource Conservation and Recovery Act (RCRA), Superfund (CERCLA), the Clean Air Act and the Clean Water Act all provide tremendous regulatory flexibility to the Executive branch, enabling an Obama Administration to erect a host of new rules to make energy more difficult to produce and more expensive for consumers, one of Obama’s stated goals.

Congressional Comings and Goings

The Democrats have increased their control of the House and Senate, expanding their margin in the House of Representatives by at least 20 seats and building a near filibuster-proof majority in the Senate.

The leadership of the Senate Environment and Public Works committee will continue under Chairman Barbara Boxer (D-CA), who has long been committed to addressing global warming through the regulation of greenhouse gases. Senator Jim Inhofe (R-OK), a fierce opponent of the Boxer climate bill, has been reelected and is expected to return as the Republican Ranking Member. Senator Boxer has announced she will introduce legislation to elevate EPA to a Cabinet-level position as her first order of business.

Senate Energy & Natural Resources Chairman Jeff Bingaman (D-NM) is expected to continue to hold that panel’s gavel, while the retirements of Ranking Member Pete Domenici (R-NM) and Senator Larry Craig (R-ID) has left an opening in the top post for the Republicans. Top contenders for the Ranking Republican slot include Senator Lisa Murkowski (R-AK) and Senator Jeff Sessions (R-AL).

The House Energy & Commerce Committee is currently chaired by Representative John Dingell (D-MI), with Representative Joe Barton (R-TX) serving as the Ranking Member. Dingell, who has introduced a cap-and-trade bill to serve as the basis for upcoming climate change discussions in the House, is currently facing a fierce challenge from ultra-liberal Representative Henry Waxman (D-CA) for the top post. Barton is expected to hold onto his post as Ranking Republican.

No leadership changes are expected for the House Natural Resources Committee, as both Chairman Nick Rahall (D-WV) and Ranking Republican Don Young (R-AK) were both reelected.

The Obama White House Staff: Clinton Veterans Already
Occupying Top Posts

At first glance, an Obama White House is looking very similar to the Bill Clinton’s White House. Obama has announced that former Clinton White House staff member, Representative Rahm Emanuel (D-IL), will be the new Chief of Staff. As a member of the House Democratic leadership, Rep. Emanuel has spearheaded misleading attacks against energy companies for not producing oil quickly enough on Federal leases and joined Speaker Pelosi in preventing legislation that would have increased access to oil and gas on federal lands from coming to the House floor.

The President-elect has also announced that the former Clinton White House Chief of Staff, John Podesta, will help oversee his transition team. Podesta and other former Clinton aides created the left leaning Center for American Progress in 2003, with generous funding from George Soros, to serve as a counter to free market groups such as IER. Podesta is a strong proponent of taxing greenhouse gas emissions through an auction-based cap-and-trade program and using those funds to subsidize politically-correct energy sources.

The following are some of the additional names that have been circulating as potential heads to the energy and environmental posts in the new Obama administration:

Secretary of Energy

  • Ernest J. Moniz, MIT professor, former Energy Undersecretary for Clinton who has experience with the nuclear weapons stockpile and as Co-director of MIT’s Energy and Environment lab.
  • Philip R. Sharp, Resources for the Future President, former ten-term Indiana Representative who pushed President Carter’s energy package.
  • Edward G. Rendell, Pennsylvania Governor who pushed the state’s Renewable energy mandate.

Secretary of the Interior

EPA Administrator

  • Kathleen McGinty, a protégé of former Vice President Al Gore. McGindy chaired the Council of Environmental Quality during the Clinton Administration.
  • Lincoln Chafee, former Republican Senator from Rhode Island who has since switched his party affiliation to Independent.
  • Peter Lehner of the Natural Resource Defense Council and formerly in the New York Attorney General’s office heading the Environmental Protection Bureau.
  • Robert F. Kenney Jr., an environmental activist and lawyer. Kennedy led opposition to the development of wind power development of the Massachusetts coast.
  • Mary Nichols, current Chairman of the California Air Resources Board. The California Air Resources Board is working to implement California’s greenhouse gas regulations.

Attorney General

  • Jamie Gorelick, partner at WilmerHale, former Deputy Attorney General under Clinton and Vice-chair of Fannie Mae.
  • Eric H. Holder Jr., a Partner at Covington and Burling and former Deputy Attorney General who was made a trial court judge by President Reagan.
  • Rep. Arthur Davis (D-AL) former Assistant U.S. Attorney and member of the House Judiciary Committee.

President-elect Obama has promoted and supported policies that will increase the cost of energy and make it more difficult to produce domestically. Under his proposals, significant resources will be used to discourage the production of economically viable energy sources and encourage—through mandates, tax credits and subsidies—those that are less economically viable. Finally, taxes will be increased—both directly and indirectly—with proposals such as cap-and-trade and the imposition of a profits tax on domestic oil companies. These new taxes will almost certainly kill American jobs and further strain our already fragile economy. When it comes to energy policy in America, this is most certainly not the kind of change we need.

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