Politics & Policy

Let Them Eat Windmills

Obama’s heartless energy policy

The White House recently announced a “jobs plan” that will cost American taxpayers about $500 billion starting in 2013 for a government spending spree today. We knew what to expect: green-energy subsidies, tax breaks for people who already pay no income tax, further stimulus for non-shovel-ready projects, increased taxes on the wealthy — in short, most anything except what would actually create jobs, namely lifting the prohibitive regulatory and tax burdens on the nation’s job creators. Obama’s policies — particularly his heartless energy policies — promise to eliminate many more jobs than they create.

In times of economic hardship, high energy prices cut particularly deep. Nobody has said it better than the empathizer-in-chief:

One area of particular concern has been the cost and security of our energy. In an economy that relies on oil, rising prices at the pump affect everybody — workers and farmers, truck drivers and restaurant owners. Businesses see it hurt their bottom line. Families feel the pinch when they fill up their tank. For Americans already struggling to get by, it makes life that much harder.

Talk like that (from his big energy speech last March) is meant to convey empathy, understanding, and common cause. The trouble is, he’s got other things to consider. If we can’t save the planet from global warming, what’s the point of worrying about the cost of living today? Do you remember when Obama locked up the Democratic nomination back in 2008? That was “the moment when the rise of the oceans began to slow and our planet began to heal,” as he put it that night.

I’m not much for this sort of oratory. I prefer when people get to the point, as when incoming Secretary of Energy Steven Chu said, before one congressional committee, “Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe.” That exclamation was wonderful not just because it was simple, and clear as a mountain stream. It was also an accurate description of the administration’s energy policy.

The “alternative energy” movement has an enormous obstacle to contend with, namely that none of the alternative energy sources produce nearly as much energy, nearly as reliably, nearly as cheaply, as fossil fuels. Sources such as wind and solar are inherently intermittent and unpredictable, even when they are found in high enough density that it is economical to use them, which is virtually never. As long as fossil fuels are cheap, the subsidies to alternative sources have to be huge, and therefore politically painful. But even if oil prices reach a point at which renewables can compete on price (which would plunge the world into an incalculably deep economic crisis), there simply isn’t enough marketable renewable energy to replace the vast bounty of fossil fuels.

The president likes to target the “special subsidies” we give oil companies. What he’s talking about is manufacturing tax deductions, expensing for intangible business costs, and depletion tax allowances. These tax-related provisions, which the president misleadingly characterizes as special perks for oil and gas companies, are generally available to all American manufacturers. Eliminating them would in fact single out the energy industry for punitive tax treatment — and it already pays out a higher proportion of its income in taxes than virtually any other industry. In his 2012 budget, Obama proposed eliminating twelve such tax-related provisions, generating $46 billion over ten years, all of which would go to his proposed $148 billion in subsidies for green and renewable energy.

If adopted, this confiscatory scheme would transfer more than $4 billion a year from the oil-and-gas sector to alternative energy — and the administration is proud of it! Mark this, from the White House website:

The energy industry objects that drillers will have to cut back the money they spend on development by about a third, eliminating or deferring hundreds and potentially thousands of jobs. No doubt the thought of all those job losses keeps the president up at night — but we have to start shutting down the fossil-fuel industry in order to make sure the oceans begin to recede and the planet begins to heal.

That was the real purpose of Obama’s moratorium on offshore drilling after the Gulf spill. The president explained at the time that the moratorium was needed to protect the Gulf from another spill until we could make sure the drilling could be done safely, but he doesn’t seem to have expected anyone to believe that. From a technical point of view, the explanation didn’t make any sense at all. It was quickly repudiated by the experts whom the administration claimed to have consulted, not to mention tossed out of federal court along with the moratorium itself multiple times.

An accident like what happened in April 2010 cannot occur until the very final days of drilling and preparing a well for production — in particular, the few days when you’re cementing the well and need to counteract the pressure in the reservoir, without knowing exactly what that pressure is. In the months of drilling before the pipe reaches the reservoir, you’re drilling into sheer rock the whole time (virtually no risk of a spill). So why halt all drilling activity?

Well, just look at the results: As of June, 10 of the 33 drilling rigs present in the Gulf before the spill had left to other countries, and another 8 that were destined for the Gulf had been detoured. According to one recent study, 60,000 jobs were lost along the Gulf coast in 2010 alone as a result of Obama’s deepwater-drilling moratorium and slow-walking of shallow-water permits. Gov. Bobby Jindal justly called Obama’s policies a “second Katrina.”

Those job losses were not a collateral result of Obama’s policy — they were the policy’s objective. The moratorium was part of an overall strategy of constricting domestic oil production, the purpose of which (if the secretary of energy is to be believed) is to increase oil prices. Huge new finds in the deepest U.S. waters in the Gulf have drawn some of the remaining drilling rigs, but according to another recent report, the slowdown in permitting could drive most of the rest out of the Gulf in coming months. According to one expert, the current level of rigs is “unsustainable” at current rates of permitting.

The administration’s effort to constrict domestic oil production has been across-the-board. Obama has cancelled leases and made new ones more expensive; slowed permit approvals for exploration plans down by 85 percent; proposed to impose new taxes and take away deductions; and now sicced the EPA on the industry with a number of inordinately expensive new rules. More than 80 percent of the nation’s recoverable oil reserves are off limits. The U.S. Chamber of Commerce estimates that some 351 energy projects that are stalled for one regulatory reason or another would, if resumed, create 2 million jobs and add $1.1 trillion to GDP.

According to the Department of Energy, the oil production from Alaska and the waters of the Gulf of Mexico is expected to drop by almost 700,000 barrels per day by the end of 2012 — well over 10 percent of total national production of 5.5 million barrels. Increased production on land, chiefly from North Dakota and Texas, is making up the shortfall, but any increase in domestic demand will have to be filled largely by foreign sources of oil. Meanwhile, the data-analysis firm IHS Global Insight estimates that because of the slowdown in permit approvals for drilling in the Gulf, along with onerous new regulations, the U.S. will defer the creation of 230,000 jobs in 2012 and more than $44 billion in economic activity.

Leases to drill on federal land (mostly in the western United States) have also been severely constricted. In Utah alone, the Bureau of Land Management arbitrarily withdrew 77 leases sold to private investors in 2008. BLM has also made that approval process more complicated, imposing year-plus delays on leases where companies (most of them small independents) have already invested millions in exploration.

Then there is that terrifying job killer with the serene-sounding name: the U.S. Fish and Wildlife Service, which implements the Endangered Species Act. In order to protect the habitat of the spotted owl, the Clinton administration put an end to most of the large-scale logging in the Pacific Northwest, killing nearly 20,000 jobs in the industry alone and many more in the now-blighted surrounding communities. A similar number of agricultural jobs were sacrificed to protect the habitat of the California delta smelt.

A similar fate could soon befall large swathes of Texas. The U.S. Fish and Wildlife Service wants to make the three-inch-long dunes sagebrush lizard an endangered species. In the affected counties, among the most productive oil-and-gas regions in Texas, significant new costs would be imposed on drilling activity, road construction, and even the new electrical lines necessary for transporting electricity from the subsidized wind farms in west Texas to the cities in the east. A spot-tailed earless lizard could impose similar costs on producers in the Eagle Ford shale in south Texas. In both cases, the regulatory uncertainty alone is likely to keep prospective developers at bay. And on the horizon looms the deadline for federal compliance with a recent consent decree requiring the Fish and Wildlife Service either to list 50 new species as endangered or to designate “critical habitats” for them, imposing further costs on industry.

And all this for what? So the oceans begin to recede and the planet begins to heal? How many times are we going to use this?

We’ll see about that. In the meantime, the cumulative costs of Obama’s energy-constriction policies are devastating — and fall primarily on the poor and middle class. Low-income families have to spend a much larger share of household income on gasoline, electricity, and food — the major variable price component of which is energy. For a family with an income of $50,000 per year, the percentage of income spent on gasoline has averaged around 5.7 percent in the last decade. So far this year, the percentage is up to nearly 8 percent. Only twice before have Americans spent this much of their income on gas. In 1981, after the last oil crisis, Americans spent 8.8 percent of household income on gas. In July 2008, when oil price spiked, they spent 10.2 percent.

Even before he got elected, Obama warned that saving the planet was going to hit American families hard. “Under my plan . . . electricity rates would necessarily skyrocket.” So have gasoline prices, unemployment, and lost opportunity.

— Mario Loyola is an analyst at the Armstrong Center for Energy and the Environment, and director of the Center for Tenth Amendment Studies, at the Texas Public Policy Foundation. 

Mario Loyola is a senior fellow at the Competitive Enterprise Institute, the director of the Environmental Finance and Risk Management Program of Florida International University, and a visiting fellow at the National Security Institute of George Mason University. The opinions expressed in this column are his alone.


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