The US Congress has a tangle of proposals to unravel if it is to enact energy legislation before the current session ends. It has little time left in which to do it. Danger is great that haste and expediency will produce errors damaging to national economic and security interests. Yet the need is great for an energy bill that includes some of what's proposed.
For reasons of practicality, the conference committee working to reconcile divergent House and Senate bills should suspend action on big controversial provisions. First to go should be action on oil and gas leasing of the Arctic National Wildlife Refuge coastal plain. Yes, Congress should approve leasing. It should have done so long ago. But an energy package that includes ANWR leasing won't pass this year. There's some consolation in the absence of serious proposals to foreclose leasing forever by designating ANWR a wilderness. Suspending action now enables Congress to revisit the issue when leasing stands a better chance of passing, probably when there's an oil-supply emergency.
Electricity reform
The conference committee also should take no action now on reform of the electricity industry. The timing couldn't be worse. Scandals involving high-profile energy traders have agitated political tempers in an election year. To some lawmakers electricity reform means punishing power generators and utilities for the sins of maverick traders. To others it means advancing deregulation, which remains a good idea. The committee won't reconcile those goals in the little time it has remaining. The issue is important and complex. Congress should address it when constructive action is more likely than it is now.
Simple principles can sort out the rest of the energy proposals before the committee. Here's one: Energy policy should not mistreat people who produce or consume energy.
Congress can avoid mistreatment of oil and gas producers by making proposed tax adjustments, precluding unnecessary regulation of hydraulic fracturing of oil and gas reservoirs, broadening access to federal land, and approving a royalty-in-kind program for federal leases. These goals come from the Independent Petroleum Association of America. They make sense. They would sustain oil and gas production and wouldn't hurt consumers. They can't be enacted, however, if stalemate over ANWR or electricity reform crushes the whole initiative.
Tax changes favoring oil and gas producers always meet resistance based on static fiscal analysis, which is misleading. Total tax liabilities wouldn't decline over time, for example, if producers could charge immediately to expense costs now booked in asset accounts and written down over several years. In fact, they'd grow to the extent producers used the newly freed cash to produce more oil and gas. The energy legislation under discussion would allow this treatment for geologic and geophysical costs and delay rentals. It's a good deal for taxpayers as well as producers.
Tax credits to keep marginal oil and gas production on stream during periods of low prices would, by contrast, directly cut tax payments to the government while in effect. Because price thresholds and levels of qualifying production are low, however, dollar amounts would be small. And keeping distressed production on stream in periods of low commodity prices would preserve a tax base that might otherwise vanish.
Congress can avoid mistreatment of energy consumers by hewing to market principles. That means scrapping proposed intrusions such as the scandalously misguided mandate for ethanol in gasoline, the tightening of vehicle fuel consumption standards, the requirement for renewable fuels in generation of electric power, price subsidies and protection against Canadian competition for a pipeline crossing Alaska for North Slope natural gas, and sneaky implementation of the Kyoto Protocol on Climate Change via gas-emission reporting requirements. That kind of government meddling raises costs and distorts markets.
Lapsing credits
For the same reason, Congress also should let tax credits lapse for production of unconventional fuels, including gas from tight formations and coal beds. Like other energy forms, unconventional oil and gas should compete for market acceptance without taxpayer help.
Congress can still pass a worthy energy bill if it will trim the package now in conference of its many excesses. Some provisions left behind by this approach will need attention later. Some, such as the ethanol mandate, would help national interests most by staying left behind forever.
