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Cost study plus math should doom US energy bills

Bob Tippee
Editor

The oil and gas industry should welcome an important study projecting the costs of energy bills under consideration in Congress. But it should not let an impressive modeling exercise obscure simple mathematics.

Forecasts about economic effects are difficult to make and easy to nitpick. Flawed details and disputed assumptions can discredit whole studies that reach otherwise valid conclusions.

Energy bill supporters will treat the new cost study by Charles Rivers Associates that way if they don't try simply to ignore it.

Commissioned by the American Petroleum Institute, the study says the legislation would lower US gross domestic product by 1.7% against baseline projections in 2020 and by 4% in 2030 (OGJ Online, Nov. 14, 2007).

By 2030, the study says, the legislation would lower employment by 4.9 million jobs and average annual purchasing power of US households by $1,700.

And it would trim production of oil against baseline projections by an average of 4%/year and gas by 2%/year during 2010-20. Demand for oil would be about 18% lower than expectations in 2020 and 33% in 2030 due to "significantly higher costs faced by end-users."

These things happen when a government raises taxes on and in other ways punishes the industry that produces commodities representing almost two thirds of US energy supply. They are strong reasons not to impose the taxes or inflict the punishment.

If backers of the energy bills pay the study any attention at all, they'll assault details and insist questionable tidbits discredit everything. Or they might dismiss the study on sight because of API's role in it, arguing that anything touched by an oil group bears ineffaceable tarnish.

These days, US energy policy-making repels facts about energy, especially facts from an industry that knows something about the subject.

Even if industry opponents manage to sweep aside an important study, though, the energy bills still won't bear up to math.

It's mathematically impossible to lower energy costs by replacing oil and gas with costlier substitutes.

It also should be mathematically impossible for anyone who argues otherwise to hold elective office, but politics follows its own weird rules.

(Online Nov. 16, 2007; author's e-mail: bobt@ogjonline.com)


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