Politics & Policy

Liquid Pork

Congress is back. If, upon reading those words, your hand shoots reflexively to your wallet or purse to make sure it’s still there, then you know what comes next: A Gang of 16 in the Senate is pushing an energy bill that would spend billions of dollars, raise taxes, and do nothing to lower the price of gasoline. And they’ve only been back for three days!

The bill would open up a tiny little smidgen of space on the Outer Continental Shelf for oil and gas exploration — just enough that Democrats who vote for it can claim to be pro-drilling, neutralizing one of the Republicans’ most energizing issues going into the November elections. But the benefits of the bill’s meager drilling provisions would be negated (and then some) by $30 billion in tax hikes on U.S. oil companies, placing our own domestic producers at an additional disadvantage compared to their overseas competitors. In exchange for very little new supply, these companies would pay higher taxes related to the crucial activities of exploration and refinery-capacity expansion. To nobody’s great surprise, the industry is not eager to accept this trade.

The money raised by taxing U.S. oil companies would go to pay for $84 billion in new spending on dodgy renewable energy projects — mostly tax credits for hybrid cars and research grants for biofuel production. If you want to know how much of an impact this multi-billion-dollar giveaway for special interests is likely to have on gasoline prices, consider this: Since 2005, Congress has passed two energy bills chock full of subsidies for renewable energy, and gas prices have increased nearly $1.50 per gallon.

The government is simply no good at picking winners and losers in the energy market (or any market, for that matter). Renewable energy works when it comes from consumer-driven innovation, not from politics. The government has been subsidizing inefficient forms of renewable energy for decades, and it has gotten us nowhere. Ethanol subsidies are a case in point: The 2005 energy bill mandated the use of ethanol in gasoline. As farmers shifted corn production from food to fuel, corn prices (and, consequently, meat and dairy prices) skyrocketed. Corn ethanol, inefficient as a gasoline additive, had a negative impact on gas mileage as refiners used more of it.

What did the government do in response to this failure? It increased the ethanol mandate five-fold in 2007. Now the Gang of 16 wants even more subsidies for biofuels, though the emphasis has shifted from corn-based ethanol to other, more experimental forms made from trees and grass. These biofuel subsidies explain why the gang has attracted Republicans like Saxby Chambliss, Johnny Isakson, John Thune, and Bob Corker, all of whom come from states that stand to reap tremendous financial benefits from biofuel handouts. We should call this what it is: A sop to a large and growing special-interest group.

Increasing taxes on the domestic oil industry — taxes that do not affect the state-owned oil companies that control 90 percent of the world’s oil supply — would pay for less than half of the gang’s new spending, and the gang has not explained how it would pay for the rest. It has turned that part over to the Democrat-controlled Senate Finance Committee. The Republicans in the gang have asked the committee to pay for the bill by cutting spending rather than raising taxes. As Thucydides might say, we bless their naiveté but do not envy their folly.

These Republicans seem to think that Senate Majority Leader Harry Reid is going to offer them a free and open debate when this bill reaches the floor. But nothing in Reid’s record indicates that he will give Republicans a chance to offer amendments that reduce spending or open additional offshore areas to drilling. In the worst-case scenario, Reid and Pelosi ram the gang’s bill through Congress and force President Bush to veto it, giving Democrats a fresh talking point heading into November. Get ready to hear, “We supported drilling, but Bush vetoed our bipartisan energy legislation to protect Big Oil”.

The gang’s proposal would actually leave most offshore areas off-limits in exchange for allowing four states — Georgia, Virginia, and the Carolinas — the option of approving new oil leases 50 miles off their shores. The bill would open a little new acreage in the Gulf of Mexico off Florida, but Florida’s eastern shores would remain off-limits, as would the oil-rich Pacific.

Republicans in the gang appear to have seriously underestimated their party’s strength on this issue. Two-thirds of the public supports opening the Outer Continental Shelf to new drilling. The gang is undermining Republicans in a fight they are winning politically and policy-wise. The congressional ban on offshore drilling expires October 1. President Bush has made it clear that he will not sign any bill that renews the ban. All Republicans have to do is stand with the president and let the ban expire. No new taxes. No new spending. Just a new supply of domestically produced energy.

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