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Congress gets it wrong on energy! Again



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Congress seems intent to pass a regressive energy bill — despite the pleas of their constituents for releif at the pump. The truth is that, short of a moratorium on federal gas taxes, there is very little Congress can do to provide short-term releif at the pump but they could help ensure plentifiul supplies of oil and gas — and thus lower prices — in the future, but instead they seem intent to make our situation worse.

The National Petroleum Council recently released a report http://www.npc.org/7-18_Press_rls-post.pdf painting a fairly bleak picture for the world’s energy supply and demand equation. One way Congress could help would be to remove hurdles to domestic oil production on public lands like ANWR and on the OCS and from non-traditional sources like oil shale and coal to oil. Despite what industry proponents argue, these sources don’t need subsidies or a price floor to get going (but who doesn’t want guaranteed profit if they can get Congress to give it to them), but they do need the government to reduce hurdles to development on public lands — and more importantly, not make the situation worse with new legislative roadblocks or make the investment situation worse by rescinding reasonable standards for the depreciation of new equipment.

In light of high prices and declining domestic production, in the 2005 energy bill Congress sought to encourage new production by expediting the leasing of new oil and gas wells on public lands and off-shore by giving new funding and fast-track authority to the Bureau of Land Management and the Minerals Management Service, while reducing the bureaucratic paperwork requirements in order to ensure that proposals for new production were assessed, and contracts written, in a timely fashion – a statutory deadline for approval was built into the law. In addition, in order to encourage companies to build expensive, new platforms in high risk areas in the hurricane prone gulf of mexico, where dry wells are not uncommon, the government decided to treat oil and gas companies on the same par as renewable energy firms, allowing them to write off or accelerate the depreciation on capital equipment for new investments in production in the Gulf of Mexico.

The new Democratic Congress wants to take all that away. In order to increase revenues to the government to fund their green priorities – none of which will bring much energy online and so help consumers – they wish to end the accelerated depreciation, extend the time federal agencies have to consider new leases and increase the paperwork hurdles. Each of these steps will discourage or slow the development of new oil and gas projects and thus slow (or even halt in some cases) the delivery of new oil and gas resources to the marketplace – high prices will remain high or rise as we become even more dependent on foreign energy supplies. In addition, they want to impose higher fees on new production and, not allow energy companies unwilling to renegotiate leases drawn up under the Clinton Administration to bid on new leases.

When energy prices were low and new domestic production cost more than companies could make, the Clinton administration, in order to encourage continued exploration, wrote off-shore leases that that did not require companies to pay royalties. Now, when prices are high, the government wants to force companies to break their contract, and pay royalties on oil produced in the past. This does nothing to produce new oil, shows government to be an unreliable partner thus giving companies less assurance when dealing with the government that the deals written will be kept, and will likely keep well qualified companies from bidding on new leases. Under this deal, unless qualified companies accede to extortion, they will not be able to get new leases, which means there will be less competition and less production (or higher priced production). Only Congress could think this will help our energy situation. Worst of all, these policies will be most damaging to the poorest of the poor. They amount to a hidden tax on the most vulnerable among us. Families earning more than $50,000 per year spend just 4 percent of their income to cover all energy costs. By comparison, households earning between $10,000 and $25,000 per year spend 13 percent on their income on energy overall, and families earning below $10,000 per year spend as much as 29 percent of their incomes on energy. While the relatively wealthy can afford higher gas prices with little impact on their lifestyles – they will still take vacations, and don’t have to decide between food, medication and fuel – poorer households are beginning to make that trade-off every day. This bill will do nothing to reduce energy prices or produce more energy and it will impose unconscionable new costs on the poorest among us.


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