2010 Archives

Opinion: Obama's energy policy could use a dose of reality


The following was written by Bernard Weinstein of SMU and published in the February 10, 2010, edition of The Fort Worth Star-Telegram. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of Business Economics in the Cox School of Business.

Bernard Weinstein
Bernard Weinstein

February 18, 2010


With health care reform apparently on the back burner for the time being, the Obama administration has again turned its attention to energy policy. Unfortunately, rather than looking at the energy sector as a vehicle for reinvigorating the American economy, the president has instead proposed hiking the tax burden on oil and gas companies by $45 billion.

Specifically, the administration is seeking to raise $36.5 billion between fiscal 2011 and 2020 by ending certain tax credits and deductions for domestic oil and gas production. Another $8.5 billion would be raised by eliminating the credit for taxes paid by oil and gas companies overseas. A portion of these revenues would be used to provide additional subsidies for "renewables" such as wind, solar and biofuels. For example, in 2011 alone, subsidies for solar energy would increase 22 percent and wind energy 53 percent under the Obama plan.

The Sierra Club, a strong advocate of the plan, claims that the tax hikes will "help correct some of the market distortions that unfairly advantage dirty energy at the expense of clean energy." (In reality, it's the other way around: On a Btu-equivalent basis, the subsidies for renewable energy sources dwarf those received by fossil fuels.)

To make matters worse, another administration proposal would eliminate the domestic manufacturing income deduction, known as Section 199, for refiners while allowing all other manufacturers (automakers, drug companies, etc.) to continue using it. Because refinery margins are at their lowest level in decades, removal of this deduction would further limit America's ability to produce its own gasoline and diesel fuel while giving an unfair advantage to foreign competitors who would be unaffected by the provision.

What's more, reducing our refiners' ability to bring products to market will increase price volatility at the pump and transfer more American jobs and revenue overseas.

Hiking taxes on domestic energy companies could also derail the shale gas revolution under way in many parts of the nation.

A decade ago, the conventional wisdom had it that natural gas production was on a permanent decline. But thanks to new drilling technologies, the U.S. Energy Department estimates we have at least 90 years of proven and potential reserves from shale formations in Texas, Louisiana, West Virginia, Pennsylvania, New York and other states. This clean domestic resource can be used for power generation, home heating, transportation and petrochemicals while reducing our dependence on imported oil. What's more, the exploration, production, processing, transmission and delivery of shale gas can support tens of thousands of new, sustainable American jobs.

It's time to wake up to reality when it comes to the nation's energy future. Despite the Obama administration's love affair with renewables, the government's own Energy Information Administration estimates that fossil fuels will account for 79 percent of U.S. energy demand in 2030. The obvious conclusion is that we should be embracing policies to ensure our domestic producers can meet as much of that demand as possible. Raising the industry's tax burdens doesn't do the job.

Ultimately, it will be American consumers, workers and businesses that bear the burdens of uncertainty and price volatility as new taxes on the oil and gas industry retard domestic production, increase our dependence on imports from countries that may be unstable or unfriendly, and shift jobs overseas. With 1 in 10 American workers unemployed, these losses are the last thing our struggling economy needs right now.

Oil and gas companies already generate billions of revenue each year for federal, state and local governments. Obama's plan to further hike taxes on America's energy producers threatens our economy, our security and the environment.

It should be rejected hands down.

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