President Obama has become the anti-energy president through his determined effort to regulate, tax, and spend in order to prop up the most expensive, least reliable energies at the expense of consumer-chosen ones. Think wind power, (on-grid) solar power, and ethanol at the expense of natural gas, oil, and coal.
In his June climate speech, the President repeated a familiar refrain, asking “Congress to end the tax breaks for big oil companies.” This sound-bite harks back to another anti-energy president, Jimmy Carter, who needed a scapegoat for the energy crisis of his own making. The U.S. suffered through long gasoline lines caused by federal price and allocation controls (much like what is ahead with ObamaCare).
What about the “tax breaks,” which the Administration calculates to be about $4 billion annually? This “oil industry giveaway,” to use another Obama dig, is nothing of the sort. These aren’t giveaways; they are merely the same standard types of tax provisions other industries are allowed to use.
The U.S. Tax Code contains tax incentives to help manufacturers (including oil and gas) recover a portion of their costs and to encourage them to hire more U.S. workers. However, large oil companies are specifically excluded from some of the tax incentives.
For example, the percentage depletion deduction allows companies that extract metals and other natural resources to deduct the cost of leasing land. Gold, iron, and other companies can use the deduction on their tax forms. Large integrated oil companies cannot.
Major integrated oil companies also cannot take full advantage of the intangible drilling costs provision. Small companies specializing in exploration and production are allowed to recover some drilling costs in the same year the costs are incurred, just as your employer gets to deduct your wages as an expense. Their larger rivals, however, can recover only 70 percent of their drilling costs in the first year and must recoup the rest over the next five years.
President Obama’s plan would end these breaks for oil companies—but not other similar industries. The result would be to hurt independent oil and gas companies the most. A Wood Mackenzie study estimates that tens of thousands of (middle class) jobs would be put at risk at a time when oil and gas is leading an otherwise lackluster recovery. Obama is all for new jobs and an expanding opportunity except when it comes to domestic oil and gas.
So why is Obama looking at pennies instead of real dollars—and in the wrong places? Why is he myopically attacking America’s energy dream team for sandbox players? Fact is that his well-publicized war on coal is really a wider war on carbon-based energies, including oil and natural gas.
Ensuring reliable, affordable energy production under the rule of law and limited government is not the President’s primary goal. As he said in an off-guard moment, electricity costs must “skyrocket” to combat global warming. Never mind the Earth hasn’t warmed since the Clinton/Gore years.
The President and his agency heads are using the summer heat to raise fears about nebulous climate change and promote politically-correct energies. They are at war against natural gas, oil, and coal—the sources of energy Americans naturally buy because of cost, reliability, and convenience.
It’s time for a new energy strategy from the White House, one based on consumer welfare and taxpayer relief rather than politics and faux environmentalism. A strategy based on competitive capitalism, not cronyism. Will new leadership please step up?
Robert L. Bradley Jr. is founder and CEO of the Institute for Energy Research. His most recent book is Edison to Enron: Energy Markets and Political Strategies.