Obama uses address to renew call to repeal oil tax exemptions

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 26 -- US President Barack Obama urged Congress to financially support clean energy and other innovative technologies in his 2011 State of the Union address. Repealing billions of dollars in federal oil tax exemptions would be a good place to start, he suggested.

“We’ve begun to reinvent our energy policy,” the president said in his nationally televised address to the 112th Congress on Jan. 25. “We’re not just handing out money. We’re issuing a challenge. We’re telling scientists that if they assemble the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo projects of our time.”

Obama said, “With more research and incentives, we can break our dependence on oil and become the first country to have a million electric vehicles on the road by 2015. We need to get behind this innovation. And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

Oil and gas industry groups quickly criticized the idea. “The American people spoke loud and clear in the last election and directed the president and new Congress to focus on one main issue—job creation,” American Petroleum Institute Pres. Jack N. Gerard said. “It's unfortunate that the administration seems poised to stifle what remains one of America's strongest job-creating industries.”

Republicans who chair the two key US House committees for energy issues also weren’t impressed. “Innovation is not measured in federal dollars spent or government mandates imposed. Energy independence is not achieved through government dependence,” said Energy and Commerce Committee Chairman Fred Upton (Mich.).

‘Preferred industries’
Upton said, “Congress spent tens of billions of dollars on the federal government’s favored energy sources in the stimulus, yet America remains dependent on hostile foreign nations to power our lives. We know the answer is not to hypersubsidize preferred industries or force consumers and job creators to purchase energy they cannot afford. That is not how the free market works.”

Natural Resources Committee Chairman Doc Hastings (Wash.) noted in a separate statement: “Today, American families are facing the harsh realities of rising gas prices, higher electricity costs, and near double-digit unemployment. Instead of addressing these issues head-on, the administration has spent the past 2 years blocking access to America’s resources that create jobs and produce more energy. These policies have only succeeded in driving American jobs overseas, threatening our economic recovery and making us more dependent on hostile foreign nations for our energy needs.”

Obama set the stage for his suggestion by saying the country has a reached a point similar to when the Soviet Union launched history’s first artificial satellite into space on Oct. 4, 1957. “This is our generation’s Sputnik moment,” he declared. “Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean-energy technology, an investment that will strengthen our security, protect our planet, and create countless new jobs for our people,” the president said.

He said the US free enterprise system drives innovation. “But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need,” he said. “That’s what planted the seeds for the internet. That’s what helped make possible things like computer chips and [global positioning systems]. Just think of all the good jobs, from manufacturing to retail, that have come from these breakthroughs.”

‘A new goal’
Obama also said clean-energy breakthroughs only are possible if businesses recognize that there will be markets for the technologies. “So tonight, I challenge you to join me in setting a new goal: By 2035, 80% of America’s electricity will come from clean energy sources,” he told House and Senate members. “Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all—and I urge Democrats and Republicans to work together to make it happen.”

He also urged federal lawmakers to knock down barriers to innovation, education, and infrastructure investments which would make America a better place to do business and create jobs. “For example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,” he said. “Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.”

He said, “So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years—without adding to our deficit. It can be done.”

Gerard said Obama’s address was a missed opportunity. “The president focused on job growth through federal spending, but was silent on one of the best ways to create jobs: Allow more energy development,” he said, adding, “Natural gas and renewables are important components of our energy mix, but we will need our nation's vast oil resources for decades to come.”

Gerard called the US oil and gas industry “a key driver of new jobs and economic prosperity.” He said, “Producing more oil and gas at home, which most Americans want, could create hundreds of thousands of jobs, reduce our deficit by billions of dollars, and enhance our energy security. Even better, the government wouldn't have to invest a single taxpayer dollar: Just give industry a green light to invest its own money.”

Right and wrong
National Petrochemical & Refiners Association Pres. Charles T. Drevna said on Jan. 26 that Obama was right to set job creation and economic growth as top priorities, but wrong to advocate policies that would have exactly the opposite effect.

“If his attack demonizing the petroleum industry succeeds, it will destroy jobs instead of creating them, raise costs for consumers instead of lowering them, and require billions in taxpayer dollars to fund unending subsidies for untested technologies unable to survive on their own,” Drevna warned. “It makes no sense to destroy existing jobs held by hard-working Americans today in hopes of creating new jobs that may never materialize tomorrow. We need to grow our economy and increase the number of jobs, not simply try to shift jobs from one sector to another.”

Independent Petroleum Association of America Chairman Bruce H. Vincent said on Jan. 26 that Obama was “absolutely right” about free enterprise driving innovation. “Sadly, though, the president—rather than working to further bipartisan policies that encourage the responsible development of America’s abundant, job-creating oil and natural gas reserves—renewed his misguided call to levy massive amounts of job-crushing tax increases on the backs of independent energy producers, who are overwhelmingly small business owners,” he continued. “Billions of dollars in new taxes on the American oil and gas industry, despite what the president asserts, will fundamentally undercut our nation’s long-term energy security objectives, and will put into jeopardy tens of thousands of good-paying jobs and thousands of small businesses.”

Vincent, who also is president of Swift Energy Co. in Houston, noted that independent producers invest 150% of their cash flows toward hiring employees and contractors, buying and maintaining equipment, drilling wells, and acquiring assets. The federal tax code has addressed ordinary and necessary expenditures associated with oil and gas development for decades and provided a stable framework to encourage common sense investments, he said.

“The president’s massive tax hike proposal—which was soundly rejected by Democrats and Republicans on Capitol Hill last Congress—would cripple our industry’s ability to compete, leaving struggling American consumers more vulnerable to unstable energy prices at the pump and in their homes, and deepening our nation’s dependence on often unfriendly region’s of the world to fuel our economy, which would further worsen our balance of trade,” said Vincent.

‘A basic disconnect’
He said that while US upstream independents primarily produce gas, they also recover crude oil, creating what he termed “a basic disconnect.” Raising taxes for oil production also would undercut gas, which Obama included among his clean energy alternatives, and cost tens of thousands of jobs, Vincent said. “Not only would this move devastate small oil and gas producers, but the damaging effects will ripple through the entire US economy—hitting the oil and gas service and supply companies, as well as the entire manufacturing base due to an increase in energy and feedstock costs, consequences that damage America’s ability to compete in the world economy,” he said.

The Denver-based Western Energy Alliance took a more positive view as it emphasized Obama’s pledge to reduce barriers to growth and investment along with his recent executive order for government agencies to review redundant and excessive regulations. The two moves “give hope to an industry that, over the past 2 years, has been shackled with redundant and unnecessary regulations that make developing American energy even more expensive and costly,” said Marc W. Smith, executive director of what formerly was the Independent Petroleum Association of Mountain States.

Smith said IPAMS has documented $3.9 billion of investment and up to 16,000 jobs which were diverted from the West during 2010 because of red tape at the US Department of Interior. Smith suggested that a federal government-wide review of agencies include recent US Environmental Protection Agency regulatory expansions; redundant DOI regulations which add three layers of regulations to oil and gas exploration on US nonpark, nonwilderness public lands; and proposals to duplicate and usurp state regulations which already work.

Other groups also criticized Obama’s energy proposals. “We see the president’s message as an inaccurate reflection of our current energy needs and the impact these resources have on our jobs and the economy,” said David Holt, president of the Consumer Energy Alliance in Houston. “Americans need more affordable and accessible renewable energy, but not at the expense of those resources we rely on every day, and certainly not at the rate of billions of dollars in tax increases. Along with more solar power and other renewables, we should also expand access to all sources of energy—everything from offshore oil and gas to more affordable nuclear development.”

“The president continues to talk about how America needs to become more competitive. But his administration’s plans do nothing but hurt our ability to compete,” said Institute for Energy Research Pres. Thomas J. Pyle. “We don’t have a competitiveness problem, an innovation problem, or a resource availability problem; we have a government problem…. We have vast resources offshore, but 97% of our ocean energy lands are not leased for oil and gas production. We have enough oil shale to free us from any imports, but his administration stopped development. If the president and his government will just get out of the way, our energy problems might not be solved, but it’d certainly be an improvement.”

Contact Nick Snow at nicks@pennwell.com.

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