The No. 1 U.S. growth industry in this century is just “oh so 20th century.”
President Obama’s proposed changes to tax law are rich with irony. An initial section lists tax incentives to encourage manufacturing, research, clean energy, bringing jobs back to America and creating new jobs. Listed later are tax-law repeals to discourage American oil and gas production—thus, discouraging manufacturing, research, clean energy, bringing jobs home and creating new jobs.
Ultimately, according to the Treasury Department report, Obama wishes to end the American oil and gas industry because it is, well, just oh-so-20th-century. And, as current tax law encourages drilling for U.S. oil and gas, then this must be stopped.
“The President agreed at the G-20 Summit in Pittsburgh to phase out subsidies for fossil fuels so
that the United States can transition to a 21st-century energy economy,” the Treasury Department reports in “General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals.” Concerning the repeal of tax credits for trying to make an old oil well continue to make oil (the enhanced-oil-recovery or EOR tax credit), the department reports, “the credit, like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system.
“This market distortion is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of supporting a clean-energy economy, reducing our reliance on oil and cutting carbon pollution. Moreover, the credit must ultimately be financed with taxes that result in other distortions, e.g., in reductions in investment in other, potentially more productive, areas of the economy.”
It is ironic in that, in his 2014 tax-related proposals, most of the business activity Obama wishes to encourage with incentives are ones in which the American oil and gas industry has been vigorously engaged in the past decade, particularly as a result of new, horizontal drilling and fracture-stimulation completions in ever-tighter rock:
–Bringing jobs back to the U.S. and basing new jobs in the U.S.
–New manufacturing in communities affected by economic disruption.
–Research and experimentation.
–Production of enhanced-technology vehicles.
Activities he wishes to discourage—via repealing existing credits—have been critical to advancement of U.S. oil and gas production:
–The EOR credit for enhanced efforts to recover further oil and gas from existing fields and wells.
–New drilling for oil and gas resources (intangible drilling credits or IDCs).
–Spending on studying America’s subsurface via development of geological and geophysical data.
In short, Obama believes that encouraging American oil and gas production begets yet more American oil and gas production. And, it does. Incongruous is why this is a bad thing. Meanwhile, subsidies for solar and biomass fuels, laws and regulations requiring poor-energy-quality ethanol use, and other non-fossil-fuel incentives don’t make the marketplace neutral.
Instead, the marketplace is working just fine—and largely due to growing American oil and gas production. Obama and Treasury could consult the Labor Department and Department of Energy for facts:
–New U.S. natural gas production and its use in electricity generation, transportation and other formats have resulted in the past several years in a reduction of U.S. greenhouse-gas (GHG) emissions by more than the Kyoto Protocol would have required, if the U.S. had participated in it. (EIA)
–In March, North Dakota—the home of the giant new Bakken oil play—had the lowest unemployment rate in the U.S., 3.3%. (Labor Department, March 2013). In a Labor Department study of 17 counties in North Dakota and Montana that consist of the Bakken oil play, jobs grew to 105,891 in 2011 from 77,937 in 2007. Total wages grew to $5.4 billion from $2.6 billion. Average annual pay grew to $50,553 from $33,040.
–U.S. oil production had fallen to an average of 5.0 million barrels a day in 2008, despite oil prices peaking at some $148 a barrel that summer. Meanwhile, production this past March was an estimated 7.16 million barrels a day. (EIA, April 2013)
–Imports from OPEC members were 3.85 million barrels a day in January, down from a peak of 5.98 million a day in 2007. (EIA, April 2013)
–Imports from non-OPEC members peaked in 2006 at 8.19 million a day. In January, these imports were 6.12 million (EIA, April 2013)
–Energy imports of all types, including coal, have declined from a peak of 34.7 quadrillion Btu in 2005 to 26.6 quadrillion in 2012. (EIA, April 2013)
–Natural gas use in power generation, replacing coal, thus less carbon emission, grew to 9.137 trillion cubic feet (Tcf) in 2012 from between 6 and 7 Tcf a year in the prior six years. (EIA, April 2013)
–Natural gas use as a vehicle fuel was an estimated 33 Bcf in 2012, up from 29 Bcf in 2010. (EIA, April 2013) Natural gas use in transportation overall was 763 trillion Btu in 2012, up from some 602 quadrillion in 2004. (EIA, April 2013)
–Petroleum use in transportation was 24.7 quadrillion Btu in 2012, down from a peak of 27.8 in 2007. (EIA, April 2013)
New American oil and gas production is clearly brilliant for the American energy consumer, trade deficit, employment rate and national security. Yet, for Obama, it is a nuisance.