Energy/Environment

Posted By: Andrew Moylan - February 7, 2012

Today, the Senate Finance Committee is marking up their transportation bill with an eye toward adding billions in tax increases to cover the overspending in the bill. More spending, more tax hikes to pay for it. Stop me if you've heard this before. But there are two proposals in particular that gave me a little bit of policy deja vu.

First, the so-called "Chairman's mark" includes a $3 billion retroactive tax increase targeting the "carrying forward" of credits claimed back in 2009. You might remember 2009 as the year before the year before this year. The halcyon days when we passed a "stimulus" bill that was going to help our economy boom by 2012. The optimistic times when we could totally afford a trillion-dollar government-run health care program and our debt was "only" $10-11 trillion (as opposed to $15 trillion and counting today). Some on the Senate Finance Committee apparently would like to relitigate tax policy from that wonderful era in American history and enact a retroactive tax hike.

Now, it should be noted that the two credits they're targeting (the alternative fuel mixture credit and the cellulosic biofuel producer credit) are not ideal tax policies by any stretch of the imagination. Particularly the alternative fuel credit, given that it's "refundable" and thus acts like government spending rather than simple tax reduction. A smart tax code wouldn't include either of these policies but would levy low, consistent taxes across the board for all types of fuels and producers. But enacting retroactive tax increases is a much more egregious violation of principles of sound tax policy than either of those dumb credits.

The second effort, a proposed amendment to the Chairman's mark from Senator Robert Menendez (D-NJ), would target the oil and gas industry for punitive tax treatment by eliminating provisions like the Section 199 manufacturer's deduction or the "dual capacity" credit for them alone. If we've written it once, we've written it a hundred times: singling out oil and gas companies for higher taxes is bad tax policy and it's bad energy policy. Thankfully, the Congress has thus far largely agreed with us as the dozens of attempts in recent years to impose Menendez-like tax increases have all failed at one point in the process or another.

The Senate Finance Committee will be taking up these issues this afternoon and we hope they focus their efforts on reducing wasteful spending and not on retroactive tax hikes or tired attempts to punish an unloved industry.

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What Wasn't in the State of the Union?

Posted By: Andrew Moylan - January 25, 2012

So President Obama's 2012 State of the Union is over now and everybody's analyzing the details of what he said (including our NTU Foundation, where researchers are working on figuring out exactly how much his proposals would cost for taxpayers). For someone who claims to be laser-focused on economic growth and job creation, we couldn't help but notice that he left a few things out that SHOULD have been in the speech. For example...

The Keystone XL pipeline

The President conveniently neglected to mention that his Administration just last week denied a permit to build the Keystone XL pipeline, a project to safely deliver Canadian energy resources to the American market. Construction of Keystone XL could have generated as many as 20,000 jobs while bringing much-needed energy to a hungry domestic market that has faced obstacle after obstacle from this Administration. We've been calling for its approval since last summer, but unfortunately for taxpayers and consumers, the President ignored those calls and put the kibosh on the project.

Unlocking valuable spectrum

Cost-free to taxpayers, beneficial in reducing our staggering deficit, and absolutely vital to the continued growth and innovation of technology and the internet. What no-brainer policy am I talking about? Competitive spectrum auctions. Did the President talk about it last night? Of course not! There have been rumblings from both sides of Capitol Hill and both sides of the aisle about spectrum for some time, but some Presidential leadership could work wonders in ushering a win-win policy to completion.

Allowing businesses to...you know, conduct their business

This one's sort of a personal pet-peeve, but of course the President failed to mention the meddling in which his Administration has engaged/will engage in private business operations. Things like the AT&T - T-Mobile merger (which NTU supported) that his Justice Department and FCC squashed last month. Or the ongoing FTC antitrust investigation into Google, a company which charges its users exactly $0 to access its search engine and other services. Or the ongoing process of the Express Scripts - Medco Health Solutions merger. Keeping the federal government out of the way, by and large, is the best way to foster economic growth, but this Administration has time and again shown a tendency towards populist intervention that is unhelpful to say the least.

An energy strategy not centered on subsidies

The President did talk about energy last night, and some of it was commendable. He talked about opening up some more areas under federal control to energy exploration, though I'll await further details before judging. But most of what he said focues on how we should be showering even MORE subsidies on energy technologies that are to the liking of Barack Obama (namely: solar, wind, anything vaguely "green" or "renewable"). And of course he did it while taking swipes at the "Big Evil Oil Companies" he so frequently derides. Funny side note: the biggest of the oil companies that are the focus on Obama's vitriol was just passed as the most valuable company in the U.S. by Apple. The wife of the late Steve Jobs sat beside the First Lady during the speech and got a specific shout-out (a positive one!). I guess he doesn't mind that they're "the 1%" of companies and that they're sitting on tens of billions in largely idle cash reserves, another practice he has criticized elsewhere.

Any serious discussion of bipartisan spending reductions

The President made some vague remarks about "working together" in a bipartisan fashion, along with some passing comments about reducing waste in the federal budget. But he didn't come anywhere close to making it a serious and substantive part of his speech. Too bad. We already worked with the liberal U.S. Public Interest Research Group to give him a $1 trillion head start on spending cuts that left and right could agree upon and stand ready to assist him. Let's just say I'm not eagerly awaiting his call.

What else should the President have covered if he were serious about economic growth and job creation?

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The Dirty Reality Behind Obama's Clean Energy Standard

Posted By: Brandon Greife - January 25, 2012

For the second year in a row President Obama used his State of the Union to call for the creation of a “clean energy” standard (CES). Although various proposals have been knocking around Congress the past several years, the key feature is a requirement that electric companies generate a stated percentage of their electricity from certain enumerated “clean” sources.

President Obama hasn’t been shy about his desire to create a green (or clean) energy economy. In fact, one of his oft-repeated campaign promises was to invest $150 billion and create 5 million green jobs. Obama has been doing his best to make good on the promise by using deficit financed loan guarantees, cash grants, and subsidy payments to try and jumpstart the market for green energy.

The result, as one executive of a green-energy company told the New York Times, “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects. It is just filling the desert with [solar] panels.”

States have also been chipping in, offering their own tax breaks and clean energy standards, but the results have led many to reconsider. The New York Times reports:

These mandates often have resulted in contracts with above-market rates for the project developers, and a guarantee of a steady revenue stream.

“It is like building a hotel, where you know in advance you are going to have 100 percent room occupancy for 25 years,” said Kevin Smith, chief executive of SolarReserve. His Nevada solar project has secured a 25-year power-purchase agreement with the state’s largest utility and a $737 million Energy Department loan guarantee and is on track to receive a $200 million Treasury grant.

Because the purchase mandates can drive up electricity rates significantly, some states, including New Jersey and Colorado, are considering softening the requirements on utilities.

Failing to learn from the example of such states, President Obama is now proposing to create a national standard. The result will be a windfall for clean energy companies and a serious hit for taxpayers.

A clean energy standard “works” by taking lower-cost choices away from consumers. By requiring utilities to buy certain forms of energy, namely, wind, solar, biomass, and other Washington-approved fuels, a stable, but artificial market is created. It’s the equivalent of trying to reduce car emissions by mandating that everyone get around using roller-skates at least 80 percent of the time. Sure, it would take a lot longer to get to places, would be completely unworkable for many people who regularly travel long distances, and would create an overnight market for roller-skate makers.

But whereas Americans would largely pay for the roller-skate mandate in wasted time, a clean-energy mandate would result in vastly more expensive electric bills. Those higher prices arise by forcing providers to use costlier forms of energy than they would otherwise use. And those higher costs would go straight to the clean energy companies that President Obama has been so keen on subsidizing.

You see, Obama made a promise to create 5 million green-energy jobs. And that’s a promise he intends to keep…even if it just means shuttling money out of American’s wallets and into “clean” energy companies. Gives new meaning to the words money laundering.

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Obama's "Subsidize-All-of-the-Above" Energy Strategy

Posted By: Brandon Greife - January 24, 2012

“This country needs an all-out, all-of-the-above strategy that develops every available source of American energy — a strategy that's cleaner, cheaper, and full of new jobs.” – Obama’s 2012 State of the Union

That may be what the United States needs, but it is not what Obama is offering.

First off, it should be a no-brainer that an “all-of-the-above” strategy would include tapping into a safe, plentiful supplier of oil in our neighbor to the north. Nevertheless, the Keystone XL pipeline, a privately funded infrastructure project that would bring tens of thousands of jobs to the United States, was recently rejected by President Obama. The decision came despite a three-year environmental review that found no threat and the inescapable reality that without the pipeline the oil will just be shipped in tankers to China while we continue to import oil on tankers from the Middle East. Yet another triumph for politics over policy.

Secondly, federal subsidization of certain renewable energy technologies has more often than not been a bust. Obama may tout the increased use of renewables and the thousands of jobs created, but when set against the billions of dollars in taxpayer money that has been invested in ensuring their success, those statistics become less impressive. After all, let’s not forget that at the outset of the Obama campaign Obama promised to “create 5 million green jobs.” Now, he’s reduced to touting the “thousands” that he’s managed to prop up with deficit-financed support.

Somehow Obama still hasn’t learned his lesson from Solyndra.

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Obama Ignores Jobs Council Recommendation, Rejects Keystone XL

Posted By: Brandon Greife - January 18, 2012

Shot: Yesterday, Obama’s Council on Jobs and Competitiveness released a report calling for an “all-in” approach to energy.

“Continuing to deliver inexpensive and reliable energy is going to require the United States to optimize all of its natural resources and obstruct pathways (pipelines, transmission and distribution) to deliver electricity and fuel. The Council recognizes the important safety and environmental concerns surrounding these types of projects, but now more than ever, the jobs and economic energy security benefits of these energy projects require us to tackle the issues head-on and to expeditiously, though cautiously, move forward on projects that can support hundreds of thousands of jobs.”

Chaser: From today’s Washington Post:

“The Obama administration today formally rejected a bid by Canadian energy company TransCanada to build a $7 billion oil pipeline linking the tar sands of Alberta to refineries in the Gulf of Mexico.”

Hangover: In a statement President Obama said that the Congressionally-imposed deadline for review of the Keystone XL pipeline did not allow the State Department to finish a “full assessment of the pipeline’s impact.” This ignores the fact that the project has already undergone tremendous amounts of regulatory scrutiny including three years of review conducted by ten federal agencies. And thus far the Keystone XL has passed every test with flying colors.

The State Department’s Supplemental Draft Environmental Impact Statement (the second round of reviews) even found that, “from a global perspective, the project is not likely to result in incremental greenhouse gas emissions.” Even going so far as to say that the “proposed project would have a degree of safety over any other typically constructed domestic oil pipeline system.”

So it’s not the environment that Washington is endangering, it’s a secure source of energy and jobs. According to a study by the Perryman Group, over the life of the project it would lead to $20.9 billion in spending, $9.605 billion in increased output, and 118,935 person-years of employment! That’s tens of thousands of U.S. jobs that our recovery could desperately use.

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New Study Reveals the of U.S.'s Domestic Energy Supply

Posted By: Brandon Greife - December 14, 2011

Riddle: Every year the consumption of me goes up. No more of me is created. And yet every year the supply of me increases. What am I?

Solution: The recoverable supplies of oil, natural gas, and coal in the United States.

Ok, so it wasn’t the greatest of riddles, but it highlights an interesting point – thanks to new innovations in exploration and production technology, America’s bounty of domestic energy continues to increase.

A new report released by the Institute for Energy Research reveals the extent of America’s natural riches. North America has 1.79 trillion barrels of recoverable oil – almost twice as much as the combined reserves of OPEC nations! We also have 4.244 quadrillion cubic feet of natural gas – enough to provide the U.S. with electricity for 575 years at current rates.

Despite these gaudy numbers, the Obama Administration continues to make the misleading claim that America’s consumption far outstrips its available resources. Indeed, Obama said earlier this year, “The problem is we only have about 2 to 3 percent of the world’s oil reserves.”

The trick is all in the semantics. As the IER report reveals,

“Proved reserves represent quantities of oil that are known to exist in places where development is already occurring at current economic prices. . . These figures do not, however, account for the massive quantities of oil that exist in areas where development is not permitted to take place or where new technology will add to the reserve base.”

And under Obama, the areas where development is permitted is tiny. Current regulatory barriers only permit production on less than 6 percent of federal lands onshore and 2.2 percent offshore.

The misinformation about the size and scope of America’s energy riches has provided ammunition for lawmakers to argue the need for taxpayer funding for “green” energy. Over the past three years federal subsidies for oil and natural gas has totaled $2.8 billion. By comparison, renewable energy subsidies have nearly tripled, going from $5.1 billion to $14.7 billion. The discrepancy becomes even more apparent when you consider their share of the total energy pie. For instance, solar energy receives more than $775 in taxpayer subsidies per megawatt hour of energy created, while oil and natural gas receive $0.64 per megawatt hour.

Rather than continue to throw good money after bad in trying to prop up green energy programs, Washington should be taking steps to removing the regulatory roadblocks from utilizing the unmatched domestic oil and natural gas resources available. After all, it’s not some unbreakable riddle, it’s just common sense.

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Best Line of the Day

Posted By: Jeff Dircksen - November 28, 2011

In discussing the EPA's attempts to increase average vehicle fuel economy, the Journal editorial board has this great line: "Yes, 13 automakers agreed to this standard in July, confirming behavioral science on hostages."

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America Needs Keystone Pipeline, Not Keystone Kops

Posted By: Brandon Greife - November 11, 2011

Rather than move forward with the Keystone XL pipeline – a project that would provide hundreds of thousands jobs (and barrels of oil) – President Obama has turned into a Keystone Kop.

The Keystone Kops were a set of incompetent, fictional policemen that starred in silent film comedies in the 20^th century. Their slapstick humor had them constantly running feverishly in conflicting directions, clumsily destroying anything in their path, grasping their bowler caps in consternation, and generally looking confused. Which pretty much sums up the Obama Administration’s response to the Keystone XL pipeline – unsure of what to do and how to do it.

Rather than move forward with the project, which was first proposed in 2008, but has been needlessly stuck in the permitting process, the Obama Administration decided to do what it always does when facing a difficult decision – punt. Yesterday, the Administration announced it was going to review the route of the pipeline, effectively delaying any decision until after the 2012 election.

The decision seems questionable in light of the regulatory hoops that have already been jumped through to ensure the environmental safety of the project. As reported by Bloomberg, “The State Department said its new study will supplement an environmental impact statement issued in August that found Keystone XL would cause “no significant” environmental damage provided that TransCanada complies with U.S. law.”

Indeed, the impact statement states that, the “DOS [Department of State] determined that incorporation of the Special Conditions would result in a Project that would have a degree of safety greater than any typically constructed domestic oil pipeline system under current regulations.”

Given the timing of the delay and the questionable basis, some have questioned whether the delay is purely political. By punting the President avoids having to make a decision that would have angered one of his core political constituencies, regardless of the position he took. Support the pipeline and risk the (misplaced) ire of the environmentalists, reject it and lose support from labor unions who realized the pipelines’ job-creating potential.

But while the political calculus was complicated, the economic math was simple – Keystone Pipeline = Jobs + Secure Energy Source.

With the economic recovery continuing to sputter along at stall speed, it is sad that narrow political interests could derail a project with the potential to create thousands of jobs right away.

With nearly 1,000 business in 47 states already providing services to the development of Canadian oil sands (which the pipeline will carry to U.S. refineries), the U.S. is already intimately tied to their success. And yet, in true Keystone Kop fashion, we may have just shot ourselves in the foot. Following announcement of the postponement, the pipeline’s developer said, “If we have to delay too long, this project will not be viable.”

Construction of the Keystone XL, and the development of Canadian oil sands that it would spur, would be a tremendous boon to our economy, both in terms of jobs and a secure supply of oil. But rather than do the obvious thing – the Obama Administration is furiously running around, spinning its wheels, creating more problems than its solving. America needs the Keystone pipeline, not a return of the Keystone Kops.

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Energy Exploration Should Be a Centerpiece of Obama's Jobs Agenda

Posted By: Brandon Greife - September 8, 2011

The President is gearing up for yet another jobs speech, the latest attempt to show that this iteration of the mythical “jobs pivot” is for real. Sadly, if we had a job every time Obama gave a jobs speech, why, we’d be pretty close to full employment by now.

Rather than continue talk Americans to death, NTU has been advocating a number of actions Obama could take to breathe some life into our stagnant economy. One of the most important things is to allow companies to responsibly search for and develop domestic energy sources.

For years, the federal government has kept vast amounts of energy under the lock and key of an exploration moratorium, or its more modern, but no less nefarious cousin, the “permitorium” whereby development is ground to a halt through bureaucratic pigheadedness rather than statutory barriers.

Already this year the House of Representatives has passed several pieces of legislation aimed at putting an end to the governmental obstructionism that is forcing rigs to leave our waters, energy exploration to slow, and investment to flow to other countries. Sadly, each of these bills has languished in the Democrat-held Senate where most of them have not even been brought to a vote.

Tonight’s jobs speech presents yet another chance for President Obama to wake up to the fact that improving the efficiency and rate of permitting activity could rev our idle jobs engine. In anticipation of Obama’s supposed plan, a group of 18 organizations have put together a coalition letter urging him to consider the positive economic impacts of safe and reliable domestic energy.

Here’s an excerpt and the full letter can be found at the link below,

“According to a recent study from some of the leading energy economists in the world - IHS Global Insight and IHS CERA - increased exploration and production activities in the Gulf would create 230,000 jobs, increase US gross domestic product by more than $44 billion, and contribute some 400,000 barrels per day of oil production towards US energy independence

. . . Therefore, we urge you to make responsible and effective exploration and development of energy resources in the Gulf of Mexico and elsewhere a centerpiece of your jobs agenda.”

http://www.gulfeconomicsurvival.org/phx-content/assets/files/Obama_Letter_on_Exploration_and_Jobs.pdf

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Global Warming: Public Choice Problems and Perverse Incentives

Posted By: Jeff Dircksen - August 4, 2011

A guest post by Zebulen Riley:

Recent high temperatures have global warming activists confusing weather and climate. Americans must keep their cool during this heat wave, rather than melt down in the face of pressure from advocates for sweeping climate change policies. These self-styled defenders of the ecosystem demand heavy government intervention in the economy to mitigate rising global temperatures and sea levels, and, of course, to save the polar bears. However, simple economic analysis reveals that it is unreasonable to believe government capable of solving any kind of climate crisis.

Public choice theory shows that regardless of whether the activists are right or wrong about the science of climate change, they’re dangerously wrong about how to approach it. Public choice economics extends the behavioral assumptions of economics to government. That is, just as economists assume that people engage in rational, self-interested behavior in daily market transactions, public choice theory assumes politicians and bureaucrats engage in rational, self-interested behavior in political decision-making. To assume that people become entirely selfless promoters of the public good upon entering politics is fitting for a 7^th grade civics textbook, but not for real life. Of course, the goal of serving the people can motivate some to become involved in government, but politicians who advocate heavy regulation to combat global warming act in self-interested ways, just like everyone else.

When citizens feel guilty about their environmental footprint and buys carbon offsets to ease their conscience, a former vice president cashes in at the bank. When a wind farm was built off the coast of beautiful Nantucket Sound, destroying the view from his living room, a late Massachusetts Senator cried foul. And when scrubbers were mandated for companies burning “dirty coal,” a late Senator from the state that produced the supposedly offensive dirty coal required scrubbers be used in states that burned cleaner coal in the first place. Self-interested behavior in Washington perfectly illustrates the attitude toward combating climate change: It’s great as long as I’m reaping the benefits and avoiding the costs. Because legislators have an incentive to shift the cost of fighting global warming to citizens outside their constituency, environmental regulations are imposed where they are most politically effective, not environmentally effective. With thousands of legislators and bureaucrats, each trying to cost-shift onto the other, there is little reason to believe government action will be efficient in reducing the United States’ environmental footprint (whatever size it may be).

Cost-shifting occurs internationally as well. Just like hypocritical senators love wind farms in someone else’s backyard, nations that would suffer serious financial cost to combat global warming prefer that other countries wreck their own economies instead. Just as it is in an individual’s self-interest to shift the cost of environmental regulation onto others, it is in a nation’s self-interest to free ride on the costly efforts of other nations. When the United States reduces its pollution, the rest of the world benefits at U.S. expense. Thus, there is an incentive for the rest of the world to do nothing and “free ride” off the U.S. Without legally enforceable anti-pollution contracts between every country (a dubious proposition), a free rider problem will always exist when trying to mitigate global climate change.

If average temperatures are indeed on the rise, a single country taking unilateral action will be insufficient to bring an end to global warming. Because environmental regulations are most politically supported when the beneficiaries of those regulations don’t bear the costs, politicians and voters will always try to shift the regulatory costs to others. Regulations, thus, are designed to be politically effective, not environmentally effective. And without legally enforceable contracts between every country, too few nations would contemplate the radical environmental and energy policies to reduce global temperatures, and trillions of dollars worth of economic resources will be wasted for naught.

No serious climate scientist argues that unless urgent action is taken Earth will spontaneously combust from rising temperatures. Most peer reviewed studies project mild warming over the next century. Rather than losing our cool and spending trillions of dollars on the cause of “fighting global warming,” Americans would do better to acknowledge government’s inability to meaningfully affect world temperatures and recognize the perverse international incentives that make the dream of reversing global warming a near-impossible feat.

Zebulen Riley is an associate policy analyst with the National Taxpayers Union Foundation.

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