US Chamber of Commerce Blog
Bravo to the House of Representatives for voting to end the 40-year-old ban on American oil exports:
The House on Friday approved a bill to lift the federal prohibition on crude oil exports.
Lawmakers voted 261-159 to end the 40-year-old crude oil export ban, arguing that the measure is necessary to help prop of the American oil industry by allowing its product to hit the world market.
Lifting the ban, supporters argued, will increase the global supply of oil and lead to lower gasoline prices for American consumers.
“This bill is a market-based bill: willing-buyer, willing-seller,” Rep. Joe Barton (R-Texas) said during floor debate on Friday.
“U.S. oil can go anywhere in the world if we allow it to. That is an economic asset, it is a military, strategic asset.”
“The ban on crude oil exports is a relic of the past that robs Americans of good jobs across the nation and handicaps our economy,” said Tom Donohue, president and CEO of the U.S. Chamber. “Lifting the ban will give America the same opportunity the administration proposes to give Iran and that every other oil producing nation in the world embraces—the opportunity to sell oil to the global market.”
“Lifting the ban on oil exports will boost our economy, create jobs, and strengthen our national security," said Karen Harbert, president and chief executive officer of the Institute for 21st Century Energy, at a press conference on Capitol Hill.
Here are three reasons to cheer the House vote.1. It Will Create Jobs.
Allowing American energy companies to sell oil on the world market will stimulate investment in energy development and create jobs.
The Brookings Institution estimates 200,000 new jobs per year, the Aspen Institute predicts 630,000 more jobs by 2019, and IHS estimates 859,000 new jobs annually.2. It Will Mean Economic Growth.
IHS estimates that lifting the ban will mean an increase of $86 billion - $170 billion annually in GDP from 2016 to 2030, while the Brookings Institution estimates that from 2015-2039, we could see as much as $1.8 trillion added to the economy.3. It Will Lower Energy Prices.
We could see anywhere from $0.02 to $0.12 a gallon decrease in gas prices if the ban in lifted. One study by ICF International estimates consumers will “save up to $5.8 billion per year, on average, from 2015 to 2035 as a result of lowered prices on all petroleum products.”
“Today’s bipartisan vote in the House demonstrates continued momentum to lift the ban, and we urge the Senate to follow their lead,” Donohue said.
Then will see if the White House is willing to veto something that will be good for the economy.
Learn more about lifting the oil export ban.infographic-accf-oil_export_ban.png Facebook TweetLifting the crude oil export ban is good for AmericaSource: American Council for Capital Formation.
Never mind that domestic oil production is near record highs, if now isn’t a good time to rethink the 40-year-old oil export ban, when would a better time be?
Yet even though the economics make sense, the White House has threatened to veto legislation lifting it:
But in a formal “statement of administration policy,” the White House’s Office of Management said “legislation to remove crude export restrictions is not needed at this time.”
If President Barack Obama were presented with the legislation, “his senior advisers would recommend that he veto the bill,” the OMB said.
“Congress should be focusing its efforts on supporting our transition to a low-carbon economy,” the office said. “It could do this through a variety of measures, including ending the billions of dollars a year in federal subsidies provided to oil companies and instead investing in wind, solar, energy efficiency and other clean technologies to meet America’s energy needs.”
With domestic production near record highs, if now isn’t a good time to rethink this policy, when would a better time be?
More sensible minds that have looked at current oil markets see it differently.
USA Today’s editorial board calls for lifting the ban, writing, “Four decades have passed since the energy crisis. It’s time to adopt policies that fit the times.” The editorial explains how doing so will support domestic production and jobs:
The price of global oil is now about $6 to $8 per barrel higher than the domestic benchmark known as West Texas Intermediate. This discrepancy stems from a mismatch between the type of oil being produced and the type of oil that domestic refiners are designed to process.
The lower prices domestic producers get is a serious problem at a time when falling oil prices are wreaking havoc on oil industry that had been on a roll. The Energy Department has twice cut its estimates for June oil production, shaving some 250,000 barrels a day, or about 2.7%, off the total. This is mostly the result of a global oil glut. But the inability of producers to get a fair price in a tough market makes matters worse.
USA Today joined other media outlets calling for lifting the outdated export ban.Earlier this year, The Wall Street Journal editorial board warned that the ban was “one of the biggest threats to this U.S. production boom.” In 2014, The Washington Post editorial board noted the energy security benefits: “[E]xpanded exports would encourage the development of oil fields and transport infrastructure, which would help the country weather some disruption in the global oil trade.”
As I’ve previously written, lifting the ban will mean more jobs (as many as 859,000 annually), a stronger economy (as much as $1.8 trillion added to GDP), and lower gas prices.
Let me emphasize this last point. Every study that has looked at this has found that lifting the oil export ban will not raise gasoline prices.
One more point to make. At the same time the White House announced it wants to keep export restrictions on U.S. oil, it’s been pushing for expanded trade on other fronts.
“It’s discouraging to see this White House negotiate a Trans-Pacific trade agreement and authorize Iran to export its oil, while America’s energy producers are left tightening their belts and shutting down their rigs,” said Barry Russell, president of the Independent Petroleum Association of America. “Shouldn’t American companies have the same access to global markets?”
Indeed. It doesn’t make sense to keep treating oil differently than any other commodity.
Think about this, we could see Iran sell oil on the world market while U.S. producers are locked out by their own government.
Congress should lift the oil export ban, send it to the President, and see if he’ll follow through on his threat. After 40 years, it time for a change.
While Ukrainian government, legislature, business and taxpayers are appropriately focused on the coming winter heating season, international stakeholders have the luxury of looking ahead and encouraging reflection on the medium-term direction of the Ukrainian economy.
Ukraine’s frequently voiced desire for greater U.S. investment in the energy sector has yet to translate into rules that are more attractive and reliable than those offered in other countries, particularly in the energy sector, to judge by the analysis offered by Robert Bensh, senior managing partner at Pelicourt LLC. Given the particularly long-term horizon of energy investors, it is important to envisage how Ukraine may structure its energy balance sheet and the entire sector for the next 25 years. How will it conduct the promised privatization of state-owned enterprises and ensure a competitive business environment among domestic and international firms? What types of energy sources will be used to produce stable electricity? Can Ukraine afford effective incentives for renewable energy sources? How does Ukraine plan to distribute its energy sources to its consumers given an aging and inefficient power grid? To engage better with the international and domestic investors and donors, Ukraine may need to develop a vision for its energy consumption culture for both households and businesses.
In 2014, Ukraine produced 47 percent of its natural gas needs, or approximately 700 billion cubic feet. Ukrainian Officials have expressed a desire to reduce their country’s dependence on Russian gas, and given the rich subsoil of reserves, this could theoretically be achieved in the near future. Recently, Minister of Finance Natalie Jaresko proposed a new tax regime for energy producers in Ukraine, which cuts gas royalties as an incentive for increased private investment.
Although this would typically be viewed as a timely step in the right direction, the plan also introduces a “surcharge tax” of 30 percent on profits. In fact, the Financial Times confirms a statement that companies represented at the U.S. Chamber of Commerce’s U.S. – Ukraine Business Forum voiced in July, “that this is the government giving with one hand, but taking away with the other.” In other words, Ukrainian officials should return to the drawing board and finalize a tax regime that makes sense for investors.
Traditionally, Ukraine has relied on its abundance of nuclear and coal resources for production of electricity. However, nuclear generation is running close to full capacity, and several coal stations have closed as a result of the violent unrest in eastern Ukraine. Neither coal production nor nuclear is likely to expand substantially any time soon. It is therefore in Ukraine’s best interest to diversify its energy sources used to produce electricity. The World Bank also sees a benefit to diversification and has allocated over $60 million to increase Ukraine’s capacity of hydropower through renovations to the Dnipro and Dniester hydroelectric plants. In addition, the International Finance Corporation is exploring renewable energy investment for Ukraine. Even with these investments in additional generation capacity, the role of energy efficiency cannot be overestimated. The country’s place in the European markets will not be secure unless its industry makes a transition to a more sustainable use of all resources, including energy.
Fortunately, Ukraine has already adopted or tabled a range of legislative and regulatory acts facilitating investments in energy efficiency in the public sector, industry and households, including energy performance contracting and Energy Service Companies (ESCOs). However, the overall creditworthiness of both the banks and borrowers casts a shadow over this fledgling sector. While Ukraine has encouraged renewable investment through high feed-in tariffs, the concessions and licensing process is still viewed by many as opaque while Ukraine’s ability to afford such high level of incentives for wind and solar energy is far from certain. The Institute for Energy Efficiency in Ukraine advocates for the introduction of renewable energy sources. The group believes that a government target of 9 percent energy savings through renewables by 2020 is too modest, and that legislators should be more ambitious with their target goals. Overall, there is a clear understanding that without drastic energy efficiency gains, the economy will not be viable in the mid to long-term. The Paris Climate negotiations can yet prove to be the action-forcing event to nudge Ukraine to revisit its strategy and reach a final internal agreement on its Greenhouse Gas Emissions targets and energy efficiency goals. On Sept. 30, Ukraine submitted its so called Intended Nationally Determined Contributions, or INDC, which commits it to reduce greenhouse emissions by 2030 to under 60% of 1990 GHG emissions levels.
For Ukraine’s economy, energy efficiency is so essential that it is part of the International Monetary Fund’s (IMF) review in offering the country a financial lifeline. Last month, IMF produced its first review of Ukraine’s Extended Arrangement under the Extended Fund Facility (EFF), and is now working on its second review. The Government of Ukraine confirmed its commitment to meeting the policies and objectives of the EFF, which include a variety of anti-corruption, transparency strengthening, and energy efficiency measures. On Oct. 1, one of the most important commitments, the “Gas Market Law” was supposed to take effect, and separate the state-owned Naftogaz from its transportation subsidiary Ukrtransgaz. This arrangement could theoretically produce an investment opportunity for U.S. companies with experience in energy transmission systems. Unfortunately, the deadline for the Gas Market Law has been missed, which prompts investors to question the validity and future of Ukraine’s gas distribution reform.
Ukraine’s antiquated power grid leaves businesses and consumers susceptible to rolling blackouts. This is a result of underinvestment and poor management. Businesses have to compensate for an unreliable national grid by investing more in their own energy supply systems. The World Bank is currently addressing this problem with a commitment of over $300 million to improve the reliability of power transmission systems, while supporting the implementation of a wholesale electricity market for Ukraine. This project could be the start of improved quality of electricity supply for consumers and businesses, but more investment and initiative must occur to address this issue.
Lastly, Ukraine must communicate to investors her vision for future patterns of energy consumption, and particularly heating sources. On April 1, the government increased heating prices for consumers by 285 percent in accordance with its IMF agreement. Still, these prices remain under 75 percent of real market value, and government subsidies, which should be allocated as social assistance for vulnerable households, reportedly enrich corrupt officials and oligarchs. According to a study published by VoxUkraine that analyzes the pros and cons of increased tariffs on the population, gas hikes can incentivize households to pursue energy savings and overall efficiency through structural investments to their property which increase insulation. Nevertheless, given the difficult economic environment and limited work opportunities in Ukraine, some households simply cannot afford to insulate their homes and have relied on subsidies for heating. For the time being, it should be in the interest of officials to offer low-income subsidies for these households, while simultaneously curbing tariff arbitrage.
It is time for international donors, politicians, and businesses to coordinate their plans to address Ukraine’s immediate energy problems, while developing a synthesized vision for the future. This plan must be comprehensive enough to include Ukraine’s own resources, its domestic transmission and distributions systems, and trade links with partner nations and companies. Finally, Ukrainian officials have to prove to international investors that an improved political environment will be sustained for the duration of this transition from status quo business practices to a next generation national energy model.