The budget vision

Feb. 6, 2015
Just because the budget proposed for fiscal 2016 by President Barack Obama mimics six predecessors in its treatment of oil and gas and again has no hope for congressional approval, the document merits concern.

Just because the budget proposed for fiscal 2016 by President Barack Obama mimics six predecessors in its treatment of oil and gas and again has no hope for congressional approval, the document merits concern. Budget proposals reveal presidential intent. Obama's budget proposals precisely define his energy policy.

Throughout his presidency, Obama has pushed the US to use less oil, natural gas, and coal and more energy from renewable sources such as solar, wind, and biofuel. In pursuit of that economically challenging transformation, his administration tries in every way possible to raise the costs of fossil energy and to boost otherwise noncompetitive alternatives with consumption mandates and subsidies.

Unchanging strategy

The strategy and tactics never change. The supporting narrative does. In this year's budget proposal, energy yields to a pointed agenda. Here's how the official explanation of proposals affecting energy begins: "In order to secure America's energy future, cut carbon pollution, and prepare the nation for the unavoidable impacts of climate change we are already beginning to experience, the budget supports a wide array of programs that promote advances in clean energy, improve energy security, and enhance preparedness and resilience to climate change." Everything relates to the polemics of climate change.

The administration thus proposes to invest in-that is, spend billions of public dollars on-"clean energy" and associated infrastructure. And to fund those programs, it proposes "eliminating inefficient fossil fuel subsidies"-that is, raising taxes on oil, gas, and coal.

Characterizing timing preferences and deductions available to other industries as "subsidies" is, of course, shopworn propaganda. Yet it endures. Promising to save more than $4 billion/year, the budget proposes, among other things, to repeal current-year expensing of intangible drilling costs, percentage depletion, and the domestic manufacturing deduction for oil and gas companies and to prolong amortization of geological and geophysical outlays by independent producers.

Those measures would have the combined effect of slashing drilling and denying oil and gas companies with international operations a deduction available to enterprises in other industries with which they compete for capital. But there's more. Jabbing again at Canadian producers facing a transport bottleneck because Obama won't approve the Keystone XL pipeline, the budget would make oil sands crude subject to the Oil Spill Liability Trust Fund Tax. It also would expose international producers based in the US to double taxation of foreign profits by changing rules on dual-capacity taxpayers. It would hurt some refiners by repealing the use of last-in, first-out inventory accounting. And it would pursue reforms sure to raise the costs and lower the values of federal oil and gas leases, such as by "evaluating"-read that raising-royalty rates, shortening terms, and "encouraging diligent development" with fees on nonproducing acreage.

These steps, all to be taken under the banner of fighting "carbon pollution," would amount to a financial assault against the US oil and gas industry. That they were rejected by past Congresses and will be rejected again is small comfort. They emanate from a disposition toward energy that's founded in environmental extremism and manifest in not only doomed budget proposals but also Executive Branch activity on energy, of which there has been too much.

Disposition at work

Hewing to this disposition, for example, the Obama administration limits federal oil and gas leasing and permitting, stalls an international oil project that would be good for US and Canadian business and for North American energy security, and besieges producers and refiners with proposals for excessively strict if not altogether unnecessary regulations. A sample product of the approach emerged the same day the administration published its budget proposal, when the Environmental Protection Agency urged the Department of State to "revisit" findings favorable to the Keystone XL proposal in light of the slump in oil prices.

Contrary to a popular complaint, the US has an energy policy. Driving the policy is a vision explicit in Obama's budget proposals. And it's hostile to oil and gas.