Energy Blog

Energy Blog

US Chamber of Commerce Blog

J.D. Foster Four oil pumpjacks operate outside Williston, N.D.Four oil pumpjacks operate outside Williston, N.D. Photo credit: Daniel Acker/Bloomberg.

Anyone wondering why the U.S. economy struggles need look no further for the answer than the president’s proposal, outlined by the White House on Thursday and to be formally released with the budget on Monday, for a $10 a barrel tax on oil at the wellhead.

Of course, the tax itself isn’t in effect yet and so cannot have plagued the economy in months past. Of course, the tax has entered a new class of presidential proposals: dead prior to arrival. But the proposed new tax well illustrates the general tenor of the president’s confused economic philosophy, manifested in his policies, and painfully felt across so much of the American economy.

The U.S. economy has experienced the slowest growth out of a recession in modern memory. In the fourth quarter the economy grew at less than 1 percent, and data released thus far in 2016 suggests the softpatch is getting softer. This is no time to be playing games.

Fortunately for most of American business the administration’s new anti-growth oil tax proposal will not come as a shock as it is fully consistent with the approaches demonstrated in the administration’s past policies. But the proposal certainly doesn’t provide any hope the administration is starting to figure it out. Toward the end of his administration, Jimmy Carter imposed an oil import fee of $4.62 a barrel, recalling the old line about “birds of a feather.”

Why the new oil tax?  To spend more money, of course. The president outlined a long list of lovely items on which to spend more money, like “clean transportation infrastructure” and “self-driving cars,” along with the usual suspects.  Many of these areas might be ripe for spending increases, but that’s another debate.  If they are so meritorious, then how is it the administration can’t find less meritorious spending in the rest of the nearly $4 trillion budget?  Why must all new spending be more spending? 

And who would pay this new tax? It would be collected by domestic oil producers, but according to the president’s chief White House economist, Jeffrey Zients, only “some of these costs would be passed on to consumers.” This is pure fantasy, unless one defines 99.99999 percent as “some.” Nor would the tax be passed on to consumers proportionally or even randomly, but overwhelmingly the tax would fall on low- and middle-income consumers. 

To be sure, the president’s many fans in the Northeast corridor would generally be little affected because they drive relatively short distances. But in the rest of the country, like Colorado and Florida and Ohio and Wisconsin and Minnesota, distances are long and miles driven many. This proposal is not merely anti-growth, and regressive, but it is also regionally divisive at a time when the nation already faces enough strains.  It’s time to put ideology aside and focus on economic growth, for a change.

Sean Hackbarth President Barack Obama.Photographer: Andrew Harrer/Bloomberg.

Apparently oil prices are too low, so President Barack Obama thinks it’s a good idea to slap on a $10 per barrel oil tax. Politico reports:

Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion. To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.

Based on current prices, this would be a roughly 30% tax on a barrel of oil.

It’s disturbing that the president’s reaction to an industry slashing jobs and cutting investments in a tough business environment is to place a massive tax on the product they produce.

It’s also troubling to see that President Obama thinks of the tax as a quid pro quo for ending the oil export ban. (Something he opposed.) 

“You're allowed to export, but we’re also saying is that we’re going to impose a tax on a barrel of oil,” President Obama said at a press conference.

WATCH: President Obama on #oil and gas prices.https://t.co/pcgOvCyDMh

— CSPAN (@cspan) February 5, 2016

Thankfully this tax is already “dead on arrival” in Congress, said House Speaker Paul Ryan (R-Wis.).

President Obama knows this, but doesn’t care. As Politico notes, “It’s mostly an effort to jump-start a conversation.” And it falls squarely with his mission to end fossil fuel use in the United States.

“It’s really about taxing the energy they don’t like to make President Obama’s favored energy sources,” said Institute for Energy Research President Thomas Pyle.

The president acknowledged this. When questioned by reporters, President Obama said if imposed, the tax “will have further weaned our economy off dirty fuels.”

But his sweeping plan runs straight up against reality. Americans will be using oil and other fossil fuels for decades to come. Until economically viable alternatives are developed that offer the same benefits (convenience, reliability, energy density), fossil fuels will be needed to keep America’s economy moving.

There’s no question we need more revenue to fix America’s broken roads and bridges, but the oil tax covers over the real intention behind the proposal: The radical transformation of America’s energy economy.

Sean Hackbarth Oil rig off the Louisiana coast.Oil rig off the Louisiana coast. Photo credit: Derick E. Hingle/Bloomberg.

As I’ve written previously, President Barack Obama is building his legacy on coal’s demise, but coal isn’t his only energy target. The bigger project is a "nothing-from-below" energy strategy of ending all fossil fuel use.

Here are two recent examples of how this is happening with offshore oil development.

A proposed Interior Department regulation will limit drilling in the Gulf of Mexico, FuelFix reports:

Announced last April by Secretary of the Interior Sally Jewel, the rule would tighten standards on blowout preventers – the device that failed in the case of Deepwater – as well as put more controls on how companies drill and monitor wells deep under the surface of the ocean.

The study released Monday by the Gulf Economic Survival Team –  founded by Louisiana Governor Bobby Jindal in 2010 in response to a post-Deepwater drilling moratorium in the Gulf of Mexico – and the consulting firm Wood Mackenzie, predicts the rule would raise drilling costs to such a degree it would push many offshore rigs out of the area.  It forecasts a 35 percent drop in oil production from the Gulf by 2030, resulting in more than 100,000 jobs lost, mostly in Texas and Louisiana.

Federal officials also dropped a regulatory obstacle out west. The Interior Department put a moratorium on hydraulic fracturing off California’s coast, the Associated Press reports:

The federal government has agreed to stop approving oil fracking off the California coast until it studies whether the practice is safe for the environment, according to legal settlements filed Friday.

Separate deals reached with a pair of environmental organizations require the Department of Interior to review whether well techniques such as using acid or hydraulic fracturing, also known as fracking, to stimulate offshore well production threatens water quality and marine life.

This is despite decades of safe, federally-regulated, oil production using the technology.

These efforts fit a pattern for the administration. In 2015, it used excessive regulations to make it nearly impossible to explore off the Arctic coast. Unsurprisingly, companies gave up and left.

And while the Interior Department is considering opening some of the Atlantic coast to energy development, it could give in to extremists and pull back its offer (like it did in 2010) when it finalizes its next round of lease sales.

Numbers don’t lie about the effects of these policies. While the U.S. has enjoyed an impressive boost in domestic oil production, it has come on state and private lands. As you can see in the chart below, production on federal lands—which includes offshore—are flat and remain an underutilized resource.

api_ong_fed_vs_private_state_lands.jpg U.S. crude oil and natural gas production on federal and non-federal lands. U.S. crude oil and natural gas production on federal and non-federal lands.Source: American Petroleum Institute.

It would be one thing if demand for oil is expected to decline, but according to Energy Information Administration projections oil will make up one-third of all domestic energy consumption for decades to come.

There’s no assurance that the low oil prices we’ve seen for the last year will continue, just as we don’t know that the future geopolitical situation with regards to energy will be. Maintaining domestic sources is valuable for energy security and price stability.

While coal being shoved off the energy stage gets the headlines, the Obama administration's regulatory campaign against offshore oil could prove just as harmful to families and businesses.