Better alternatives available to cap-and-trade legislation
Rick Slack,WellPoint Systems, Houston
While recent public attention has centered on healthcare reform, another highly controversial issue simmering just below the surface will likely reclaim some of the spotlight in the coming months.
The Senate is expected to take up its version of HR 2454, the Henry Waxman and Ed Markey-sponsored American Clean Energy and Security Act of 2009 (a.k.a. cap-and-trade), which narrowly passed the House of Representatives in June.
Proponents of cap-and-trade hail the legislation as the means to "achieve a clean-energy economy transformation," which in the process will create millions of new jobs, fight global warming, and improve America's energy security. While almost no one would dispute these as worthy goals, the fact is that this 1,400-plus page disgrace of a bill fails miserably on all accounts. In fact, HR 2454 is little more than a complex tax on energy derived from carbon-emitting fossil fuels disguised as environmental legislation.
First of all, the bill's heralded job creation assumptions are deeply flawed. To be sure, mandated redistribution of resources from households and businesses that rely on traditional forms of energy to those subsidized by the government will indeed spur creation of new "green" jobs in certain specific industries. Unfortunately, the positive economic impact of these new jobs will be overwhelmed by costs associated with massive job losses in other industries and electricity costs that in the President's words "would necessarily skyrocket."
According to a recent Heritage Foundation study, Waxman-Markey will result in net job losses averaging more than 1.1 million per year between 2012 and 2035 – many in the manufacturing sector that will undoubtedly relocate to China and India – and aggregate loss of GDP of approximately $9.4 trillion.
One needs to look no further than a recent study conducted by the Juan Carlos University in Madrid to see the potential impact on the US economy. The study revealed that in Spain, which has been touted by the Obama administration as a model for green job creation, for every "green" job created, 2.2 others were lost. Furthermore, only one in 10 of the newly created green jobs became a permanent one.
Equally puzzling is how this legislation can realistically improve America's energy security when there is no provision whatsoever to promote development of our nation's abundant oil, gas, and coal resources. Like it or not, carbon-based fossil fuels provide 85% of America's energy needs.
HR 2454 will significantly increase the cost of domestic exploration, production, and refining while at the same time will rely on energy coming from large-scale deployment of yet-to-be-developed technologies and alternative energy sources to meet future energy demand increases. Any domestic shortfall would need to come from imported sources, which would ironically increase our dependence on foreign oil.
So one would rightfully then assume the additional cost burden to the American people would be well worth it given the legislation's dramatic improvement on world climate, correct? Well, not so fast. According to climate researcher Chip Knappenberger, Waxman-Markey would moderate temperatures by only hundredths of a degree in 2050 and no more than two-tenths of a degree at the end of the century. Without the participation of China and India, unilateral action by America will have a negligible effect, irrespective of the validity of climate change science.
Fortunately, there is a smarter, proven model to achieve Waxman-Markey's objectives. Let's turn our nation's energy companies loose by immediately expanding the exploration, development, production, and delivery of all forms of our nation's abundant energy resources. Bolstering our domestic energy supply will not only put America on the path to regaining energy sovereignty, it will directly and indirectly put millions of Americans back to work. More energy supplies mean lower utility bills for households, lower input costs for manufacturers and businesses, and cheaper fuel for transportation.
Additionally, utilization of America's natural resources is in no way a call to abandon or impede the continued development of new, cleaner, renewable forms of energy. In fact, increasing activity in the energy sector will actually stimulate more alternative energy research and will create a realistic bridge to a future, clean-energy economy.
Traditional energy companies are already among the leaders in developing alternative energy. The American Petroleum Institute estimates that the oil and gas industry is responsible for 44% of the $133 billion in total public and private sector investments in low-carbon energy technology since 2000. Profits generated from these private sector activities – not taxes - will allow firms to expand alternative energy efforts, which will include adding green jobs.
The public sector can also play a vital role in America's energy renaissance. Federal revenue generated from the sale of new oil and gas leases should be used to directly support research into new, renewable energy technology. Since this will be new revenue, there will be no effect on the deficit or need to raise additional taxes.
All of us in the petroleum industry have a part to play in educating friends, families, and neighbors on the realities of Waxman-Markey. More importantly, it's time the American people got reacquainted with the current and future benefits our nation's energy industries can provide. OGFJ
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Study says proposed tax changes will have negative economic impact
The Texas Alliance of Energy Producers has released a study that estimates that the Texas economy will be damaged by $20 billion if Congress passes proposed changes to the tax code.
Hearings were held in September by the Subcommittee on Energy Natural Resources and Infrastructure to the Senate Finance Committee in Washington to discuss the proposed oil and gas tax provisions in President Obama's 2010 budget. Up for discussion is the proposed repeal of eight tax provisions – including the important provisions of percentage depletion and intangible drilling costs (IDCs) – and implementation of a new federal excise tax on oil and gas production from federal waters in the Gulf of Mexico.
The Texas Alliance of Energy Producers submitted a study to subcommittee members, including Sen. John Cornyn (R-Tex.), that estimates that if the tax proposals were adopted, the total negative economic impact to the state of Texas alone would be about $20 billion over the next four years.
The Alliance noted that percentage depletion and IDCs were important tax laws that had been around since the 1920s, and allowed independent oil and gas producers, who drilled 96% of the wells in Texas last year, to finance the drilling of wildcat wells.
The study noted that Texas would lose about 70,000 oil industry workers because drilling activity would decline to record lows in a matter of months. The Baker Hughes Rig Count for the nation would decline from 999 to 330 and in Texas from 376 to 124.
As a result of not finding and replacing new reserves, oil and natural gas production tax revenues in Texas would drop $2.1 billion over the next three years. Additionally, the Permanent School Fund and the Permanent University Fund would lose an estimated $125 million in royalties, lease bonuses, and other oil and gas activities.
Crude oil imports will increase, too. The Alliance estimates that an additional $551 billion will be spent to purchase imported oil.
The Alliance submitted a statement to the committee members that stressed the proposed repeal of tax provisions would negatively impact independent oil and gas producers – not Big Oil. The major oil companies are excluded from using percentage depletion and IDCs.
If Congress passes the repeal of these tax provisions coupled with a cap-and-trade program, the US oil and gas industry would quickly collapse. The repeal of the tax provisions would be a quick death, while cap-and-trade would be a slower death.
It is the most serious threat to the industry since the price controls and "windfall profits" tax in the 1970s and 1980s, adds an Alliance spokesman.
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