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One Tiny Cheer for Obama on Drilling

Posted By Nicolas Loris On May 16, 2011 @ 4:45 pm In Energy | Comments Disabled

President Obama has often said that we need more oil and gas drilling in the United States, but rarely have the Administration’s actions matched his rhetoric. In his weekly video address [1], however, the President called for more lease sales in Alaska’s National Petroleum Reserve, extended leases in the Gulf of Mexico and the Arctic Ocean, and expedited preliminary reviews to move forward with drilling off the Atlantic coasts.

House Natural Resources chairman Doc Hastings (R–WA) hit the nail on the head when he labeled President Obama’s announcement as [2] “tiny baby steps,” and for that the President receives one tiny cheer.

But there are plenty of opportunities for the President to earn more cheers when it comes to energy policy that can help the economy as a whole. With regards to his weekly address, here are four of them:

  1. Really open up Alaska. Although increasing production in the Alaska’s National Petroleum Reserve is a welcoming step, it’s a far cry from the state’s true potential. The Arctic National Wildlife Refuge—which holds an estimated 10 billion barrels of oil beneath a few thousand acres [3]—is still off limits, and the Administration wants to keep it that way. Further, 27 billion barrels lie off the coasts of Alaska that Shell was eager to explore and develop, spending five years and over $4 billion to do so. But the Administration’s U.S. Environmental Appeals Board delayed the plans by withholding air quality permits because Shell did not take into consideration greenhouse gas emissions from an ice-breaking vessel that would affect a one-square-mile village of 245 people 70 miles from the offshore drilling site. Currently, Shell is applying for new licenses [4].
  2. Stop blaming speculators and traders. In his weekly address [1], Obama mentioned his call for an investigative task force to root out causes of fraud in the market. Finger-pointing at speculators and formation of a gas task force [5] to investigate prices at the pump ignore the real cause of rising gas prices: supply and demand coupled with a weak dollar. The allegations of speculators manipulating the market occur every time gas prices rise. They have been investigated numerous times by the Federal Trade Commission and others and have been found to be without merit, but few critics are ever convinced. Several Federal Reserve studies [6] found no correlation between speculation and the price of any commodity.
  3. Don’t punish the oil industry. President Obama repeated his call for repealing “tax subsidies” for the oil and gas industry, saying that the $4 billion in tax breaks “isn’t fair” and “makes no sense.” What truly makes no sense is targeting a specific industry because gas prices are high and they’re making a profit. These are not tax subsidies. The tax breaks that the President wants to repeal are tax breaks that are not specific to the oil and gas industry, and repealing them would be a punitive tax hike on the industry [7].
  4. Let the market work. President Obama used the speech to make his traditional call for more “investments” in wind and solar technologies. Interestingly, when the government gives a handout to a hand-picked industry, it’s an investment, but a broadly applied tax break is a taxpayer-funded subsidy. And as Heritage’s David Kreutzer points out, the production tax credit for wind accounts for 40 percent of the wholesale cost of electricity on average [8], and even if you did consider the $4 billion in tax breaks as a subsidy, it pales in comparison to what renewable energy receives. It’s not the government’s role to be determining what energy we produce, nor is it a good use of taxpayer dollars. Furthermore, pushing for pricier wind and solar in response to high gas prices is a non sequitur, because these sources of energy affect electricity generation, not transportation fuels.

We’ll be happy to commend the Administration when it opens up access to all of our domestic resources so that industry can develop and produce oil and gas in a safe and timely manner—and when the government allows the market to determine which industry can provide the lowest cost form of energy for consumers. Until then, this Administration’s energy agenda is largely anti-energy.


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URL to article: http://blog.heritage.org/2011/05/16/one-tiny-cheer-for-obama-on-drilling/

URLs in this post:

[1] his weekly video address: http://www.washingtonpost.com/business/economy/obama-announces-steps-to-speed-oil-production/2011/05/14/AFXi3Q3G_video.html

[2] labeled President Obama’s announcement as: http://www.redstate.com/dhorowitz3/2011/05/16/obamas-oil-drilling-subterfuge/

[3] which holds an estimated 10 billion barrels of oil beneath a few thousand acres: http://www.heritage.org/research/reports/2011/03/what-to-do-about-high-oil-prices

[4] applying for new licenses: http://www.ft.com/intl/cms/s/0/c91db740-7b28-11e0-9b06-00144feabdc0.html#axzz1MWqpEyir

[5] Finger-pointing at speculators and formation of a gas task force: http://www.cbsnews.com/8301-503544_162-20056205-503544.html

[6] Federal Reserve studies: http://www.federalreserve.gov/pubs/feds/2009/200929/200929pap.pdf

[7] repealing them would be a punitive tax hike on the industry: http://www.heritage.org/Research/Reports/2011/05/Whats-an-Oil-Subsidy

[8] for 40 percent of the wholesale cost of electricity on average: http://www.foundry.org/2011/05/13/what-if-oil-producers-actually-received-subsidies-like-wind-energy-producers/

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