Just when it seems utterances from Washington, DC, can't get any loonier, someone in the Obama administration says what he thinks.
The first budget proposal by President Barack Obama is a frontal assault on the US oil and gas industry (OGJ Online, Feb. 26, 2009).
It calls for new taxes on oil and gas companies and on production from the Gulf of Mexico and for repeal of tax preferences crucial to independent producers, such percentage depletion and expensing of intangible drilling costs.
In fact, the budget items specifically addressing oil and gas revive disastrous ideas proposed but rejected in a vengeful Congress when gasoline prices were extraordinarily high.
If enacted, they will curtail drilling and chase some companies out of the country while subsidizing renewable energy forms.
The budget also proposes to raise hundreds of billions of dollars from a cap-and-trade system for cutting emissions of greenhouse gases. That move amounts to a tax extracted through sharply higher energy costs.
A logical response to these missiles aimed at the oil and gas industry and US economy has been to ask: What are these people thinking?
Now we know.
"We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem)," said Interior Sec. Timothy Geithner in testimony to the Senate Finance Committed, according to Reuters. "We don't think that's good economic policy, and we think changing those incentives is good for the country."
In fact, tax preferences for oil and gas, not all of which represent subsidies, aren't as large as Geithner implies. They're not nearly as large on a per-btu basis as subsidies in effect for the high-cost, low-volume fuels this administration prefers.
If the incentive changes occur, especially in conjunction with an aggressive cap-and-trade scheme, the US will produce less cheap energy than it does now and not nearly enough politically favored, costly energy to compensate. Oil imports will surge. Energy costs will leap.
That the treasury secretary sees those outcomes as improvements to economic policy is frightening.
(Online Mar. 6, 2009; author's e-mail: email@example.com)