U.S. CHAMBER OF COMMERCE

Energy Blog

Energy Blog

US Chamber of Commerce Blog

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.

Sean Hackbarth Electricity meter Photo credit: Michael Nagle/Bloomberg.

Much has been written here and elsewhere about EPA going way beyond its authority to tell states how to generate electricity. The agency’s Clean Power Plan—using the hollow word “flexibility”—limits the states’ options to reduce carbon emissions by stacking the deck against coal and natural gas and in favor of wind and solar.

Sens. Angus King (I-Maine) and Harry Reid (D-Nev.) want to play the same game by restricting states’ ability to change electric metering policies for rooftop solar power generation.

Distributed solar power could be the wave of the future, just as the Internet distributed computing power. As Noah Buhayar at BloombergBusinessweek writes, just like the price of computing has collapsed, innovations have cratered the price of solar power:

Adjusting for inflation, it cost $96 per watt for a solar module in the mid-1970s. Process improvements and a huge boost in production have brought that figure down 99 percent, to 68¢ per watt today, according to data from Bloomberg New Energy Finance.

A new industry of solar panel designers and installers has sprung up like daisies in the spring to meet this demand.

Some people install panels to shave a few dollars off their electricity bills; for some, rooftop solar is a status symbol that matches the hybrid car sitting in their garage, and for others it’s a step toward going “off the grid.”

Whatever the reasons, lower prices, taxpayer subsidies, and a state electricity policy called “net metering”--which allows consumers with solar panels to sell excess electricity back to utilities—has spurred demand for rooftop solar panels.

Forty-four states have some form of net metering, according to BloombergBusinessweek, but as executive director of the Harvard Electricity Policy Group and a former Ohio public utility commissioner Ashley Brown explains, the policy creates cross-subsidy problems:

Because utilities must pay a retail price for a wholesale product, net metering enables those with rooftop solar systems to avoid contributing to the costs of maintaining the electric grid and keeping it operating reliably.

Brown continues:

What results is an inequitable shift in grid costs to non-solar customers, who are, on an aggregated basis, less affluent than those they are being asked to subsidize. Recently, the Nevada Public Utilities Commission found that, "the annual subsidy associated with the existing shift in fixed costs from net metering customers to other customers is approximately $623 for each residential net metering customer in southern Nevada and $471 for each residential net metering customer in northern Nevada."

Under net metering, when the sun isn’t shining, rooftop solar owners enjoy the use of transmission lines, transformers, and other components of the modern power grid without paying their fair share for these facilities.

A non-solar neighbor should not have to pay the full freight for his neighbor’s electricity grid access solely because the neighbor has the wherewithal to install solar panels on their roof. 

Federalism is a good solution. States are in the best position to find the right balance between electricity producers and consumers. However, an amendment by Sens. King and Reid in Sen. Lisa Murkowski’s (R-Alaska) energy bill would remove state flexibility by locking in place inequitable net metering policies, as Justin Sykes at Americans for Tax Reform writes:

The King-Reid amendment would establish stringent federal standards dictating how each state may operate their net metering programs. Net metering policies vary by state, but in general electric utilities are required to purchase excess electricity generated by customers with rooftop solar installations at the full retail rate as opposed to wholesale. As result, solar customers avoid paying for many of the fixed costs of the grid, and thus these fixed costs are shifted onto non-solar customers. 

The new federal standards imposed by the King-Reid amendment, such as requiring extensive evidentiary hearings, would thus act as a new legislative barrier to states seeking to address the cost-shifting dilemma.

This amendment would effectively take such decision making ability away from the states and give it to the federal government. Furthermore, the King-Reid amendment would only work to further the practice of forcing non-solar customers to subsidize net-metered customers.

States, rural electric cooperatives, and certain localities are undoubtedly in a much better position than the federal government to make decisions about state energy policy. The states are already reeling from a slew of regulations put forth by President Obama, such as the Clean Power Plan, that empower federal regulators at the expense of state sovereignty.

The National Association of Regulatory Utility Commissioners also opposes the King-Reid amendment stating:

The amendment is well intentioned, and NARUC's members are strong believers that regulatory determinations on rates should be based on an impartial judgment on the most complete evidentiary record possible, but which are nimble enough to meet a sector that is changing rapidly.

The practical implications of the amendment to State utility commissions would weigh down commissions and prevent them from this nimbleness.

Fair metering policies aren’t anti-solar. No one wants to stop anyone from installing solar panels on their rooftops. Solar power has a role in electricity generation just as much as does coal, natural gas, wind, nuclear, and hydropower. However, it needs to compete fairly in the marketplace. Free-riding on the power infrastructure is not acceptable.

Just as EPA shouldn’t mandate to states how electricity should be produced, Congress shouldn’t take away state regulatory authority by tipping the scales in favor of one form of energy over another.