Post image for Cutting “Subsidies” to Big Oil Is Political Sleight of Hand

Between the time this is written and the time you read it, gas prices will have undoubtedly risen again.  They have been on an upward spiral for months and not likely to drop long term without some bold, decisive action as was taken on July 14, 2008. Instead of encouraging the development of our own natural resources, politicians of both parties  are once again betting that we will not notice if they play the antibusiness card—but 2011 is not a year for politics as usual and the rules have changed. This is no longer a back-room game. It is the poker channel. People are watching.

With their cards close to the vest, Max Baucus (D-Mont.) and Harry Reid (D-Nev.) are bluffing. They want America’s citizens to believe their hand is filled with spending cuts—cut subsidies from big oil companies. Somehow we are supposed to think this will lower gas prices?

Part of their bluff is to use the term “subsidy”—which in the house-of-cards economy/debt crisis they’ve built translates to spending. Concerned Americans do not want more spending, they want cuts. We’ve anted up all we can. Politicians are betting we’ll fall for the deception.

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Post image for The President’s Wacky Oil Plan, Part 2

I’ve written before about Obama’s tortuous logic when it comes to rising gas prices, and, this week, he again laid out “solutions” that don’t make any sense. Consider,

  • Yesterday, the President implored Saudi Arabia to produce more oil. That is, he told the Saudis to “drill, baby, drill.” He did the same thing a month ago in Brazil. Meanwhile, U.S. production remains stunted by the Obama administration’s de facto moratorium on new oil and gas leases and permits. Why is “drill, baby, drill” appropriate for Saudi Arabia and Brazil, but not for the U.S.?
  • Last Saturday, the President called for an end to tax breaks for the oil industry. He said, “They’re making record profits and you’re paying near record prices at the pump. It has to stop.” So, the President wants to end oil “subsidies” in order to relieve Americans pain at the pump. This doesn’t make any sense, because the effect of oil industry “subsidies” is to lower the price of oil. It’s a market distortion meant to lower the cost of producing oil. By removing these “subsidies,” the price of oil would better reflect the forces of supply and demand, and it would increase.
    [N.B. To an extent, I agree with the President on this one—loopholes in the tax code are a form of corporate welfare that should be stopped. That said, these tax breaks aren’t unique to the oil industry, and singling it out only makes the tax code more complicated. A better way, as articulated by Rep. Paul Ryan, is eliminate ALL corporate welfare.]
  • The President wants to take away oil industry “subsidies,” and turn them into green energy giveaways, because, he says, this will “reduce our dependence on foreign oil.” For starters, it’s unclear how investments in unreliable, expensive electricity produced by wind and solar would “reduce our dependence on foreign oil.” Moreover, in the past, Obama’s has dismissed “drill, baby, drill” on the grounds that it would take years to impact the global oil market. The President claims that expanded oil production would take too long to have an effect on the price of gas, but that increased taxpayer handouts to wind and solar would somehow “reduce our dependence on foreign oil” in a more reasonable time frame.  This is nonsensical.
Post image for Energy Populism at the Justice Department

In case you haven’t checked recently, gas prices are high again. Fear not, because the DoJ is on the case: “High gasoline prices prompt Justice department to eye energy industry.” From the article:

Attorney General Eric Holder made no secret the move is a direct response to public angst, not to current evidence of any illegal conduct.

While promising official vigilance, the attorney general acknowledged regional differences in gasoline prices, and said, “It is also clear that there are lawful reasons for increases in gas prices, given supply and demand.”

At least give them credit for admitting that they’re wasting taxpayer dollars on a bunch of nonsense. If public conern is the only metric for a DoJ bureaucratic task-force, there are a number of other issues American’s are inappropriately worried about. I’d be shocked if the Department of Justice was interested in wasting its time on those issues.

There was a good piece in Forbes explaining the (lack of) evidence that speculators have been driving the price of oil by Jerry Taylor and Peter Van Doren.

Post image for Can Obama End Our “Addiction” to Foreign Oil?

In his speech earlier this week, President Obama took a brave and unprecedented stand against our nations reliance on foreign petroleum imports:

Now, here’s a source of concern, though. We’ve known about the dangers of our oil dependence for decades. Richard Nixon talked about freeing ourselves from dependence on foreign oil. And every President since that time has talked about freeing ourselves from dependence on foreign oil. Politicians of every stripe have promised energy independence, but that promise has so far gone unmet.

I talked about reducing America’s dependence on oil when I was running for President, and I’m proud of the historic progress that we’ve made over the last two years towards that goal, and we’ll talk about that a little bit. But I’ve got to be honest. We’ve run into the same political gridlock, the same inertia that has held us back for decades.

That has to change. That has to change. We cannot keep going from shock when gas prices go up to trance when they go back down — we go back to doing the same things we’ve been doing until the next time there’s a price spike, and then we’re shocked again. We can’t rush to propose action when gas prices are high and then hit the snooze button when they fall again. We can’t keep on doing that.

The United States of America cannot afford to bet our long-term prosperity, our long-term security on a resource that will eventually run out, and even before it runs out will get more and more expensive to extract from the ground. We can’t afford it when the costs to our economy, our country, and our planet are so high. Not when your generation needs us to get this right. It’s time to do what we can to secure our energy future.

Richard Nixon wasn’t the only one. As Jon Stewart pointed out last summer, the last eight administrations have warned against the alleged dangers of importing petroleum and provided a number of solutions to massively restructure the economy, none of which were successful. Stewart comments, “Fool me once, shame on you. Fool me twice, shame on me. Fool me eight times, am I a ****ing idiot?”

And yet we appear to be idiots, and more money will  be spent chasing pipe dreams with taxpayer money. The New York Times, today, congratulated Obama’s willingness to take on such a tough challenge and blamed the lack of progress on, wait for it, Republicans:

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Post image for The President’s Wacky Oil Plan

I’m still trying to wrap my head around the President’s energy speech yesterday. I get the goal: Reduce oil imports 30 percent in a decade. But what I don’t get, at all, is the plan to achieve that goal. The President’s “Blueprint for a Secure Energy Future” doesn’t make any sense.

Consider, for example, his “Blueprint” for oil. It’s all over the place.

In the beginning of the speech, the President mocked the idea of “drill, baby, drill.” He said,

“We’ve been down this road before. Remember, it was just three years ago that gas prices topped $4 a gallon…It hit a lot of people pretty hard. But it was at the height of the political season, so you had a lot of slogans and gimmicks and outraged politicians waving three point plans for two dollar gas—you remember ‘drill, baby, drill?’—when none of it would really do anything to solve the problem. Imagine that in Washington.”

So, the President believes that “drill, baby, drill” would not “do anything to solve the problem.” Yet only moments later, he seemed to change his mind. He told the audience,

“Meeting this new goal of cutting our oil dependence depends largely on two things: finding and producing more oil at home, and reducing our dependence on oil with cleaner alternative fuels and greater efficiency.”

So, the President believes that “meeting this new goal…depends largely on…finding more oil at home.” But “finding more oil” necessarily requires more drilling. How is this different from “drill, baby, drill,” which the President only moments before had denigrated?

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Post image for Obama Decries Gimmicks and Slogans with “Win the Future” in Background

Let’s acknowledge the irony here. From a copy of Obama’s prepared remarks today at Georgetown University discussing his administration’s energy plan:


But here’s the thing – we’ve been down this road before.  Remember, it was just three years ago that gas prices topped $4 a gallon.  Working folks haven’t forgotten that.  It hit a lot of people pretty hard.  But it was also the height of political season, so you had a lot of slogans and gimmicks and outraged politicians waving three-point-plans for two-dollar gas – when none of it would really do anything to solve the problem.  Imagine that in Washington.

The truth is, of course, was that all these gimmicks didn’t make a bit of difference.  When gas prices finally fell, it was mostly because the global recession led to less demand for oil.  Now that the economy is recovering, demand is back up.  Add the turmoil in the Middle East, and it’s not surprising oil prices are higher.  And every time the price of a barrel of oil on the world market rises by $10, a gallon of gas goes up by about 25 cents.

President Obama is decrying gimmicks and slogans (as he should be), noting their inability to achieve anything, with his newest slogan “Win the Future” in the background.

“WTF” indeed.

Post image for Washington Post Chides Obama Over Energy

In an editorial cleverly titled, “Drill, Brazil, Drill says the U.S.The Washington Post joined in the growing public displeasure over President Obama’s public support for the Brazilian oil industry, which seems to be rising at the expense of administration support for the oil industry in the United States.

As CEI’s Myron Ebell pointed out last week:

This is the same President who has spent the last two years doing everything he can to reduce oil production in the United States.  Cancelled and delayed exploration leases on federal lands in the Rocky Mountains; the re-institution of the executive moratorium on offshore exploration in the Atlantic, the Pacific, most Alaskan waters, and the eastern Gulf of Mexico; the deepwater permitting moratorium and the de facto moratorium in the western Gulf.  The result is that domestic oil production is about to start a steep decline.

The editorial also mentions the tariff on ethanol. Trade restrictions are bad policy. However, the case for Brazilian ethanol is slightly more complicated than that. If Brazilian ethanol were imported to the U.S., it might displace some ethanol production that is occurring in the U.S. as historically Brazilian ethanol has been cheaper. This would be fine.

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Obama’s Offshore Flip-Flop

by Myron Ebell on December 4, 2010

in Blog

The Department of the Interior this week announced that its 2012-17 five-year plan for leasing tracts for offshore oil and gas exploration would place the Pacific, Atlantic, and eastern Gulf coasts off limits. In addition, Interior announced that the go-slow policy for Alaska offshore leasing would continue.

Secretary of the Interior Ken Salazar used BP’s Gulf oil leak as justification for reversing the policy that President Obama announced in March.  Here is what CEI said in its press release responding to Interior’s announcement: “Obama Offshore Oil Moratorium Breaks Promise, Hurts Economy, Kills Jobs.” Tom Pyle of the Institute for Energy Research made similar comments.  Even Senator Jeff Bingaman (D-NM), Chairman of the Energy and Natural Resources Committee, was critical.

Humor me for a moment and imagine that I am a superhero who is part of a Super Friends team at the Competitive Enterprise Institute. We have sworn to use our superpowers only to combat a particular form of evil: rent-seeking. Naturally, we’d need a nemesis. This caricature of evil would represent everything we stand against; it would be the ultimate political panhandler.

Without a doubt, our nemesis would be King Corn.

Fantasies aside, the corn lobby, a.k.a King Corn, is unbeatable inside the beltway. In the 1980s, it secured federal giveaways to NOT grow corn. The lobby has since moved on to the ultimate boondoggle: corn fuels. By playing up jingoistic fears of “energy dependence,” King Corn has convinced the Congress that ethanol, a motor fuel distilled from corn, is a national security imperative, despite the fact that it increases gas prices, it’s awful for the environment, it contributes to asthma, and it makes food costlier.

So, in 2007, the Congress passed a Soviet-style ethanol production quota that forces Americans to use corn-fuel in their gas. Thanks to this mandate, American farmers devoted a third of this year’s corn crop to ethanol. Thus corn, soy, and cotton (the three crops grown on corn-hospitable soil in the U.S.) have become recession-resistant.

You’d think that a production quota, along with generous subsidies (to the tune of 51 cents a gallon), would be enough, but there can never be “enough” for King Corn. Now it has its eyes on an even higher production quota. There was, however, an intermediate step to this higher goal-the EPA had capped the percentage of ethanol that could be included in regular gasoline at 10%, due to concerns about engine harm beyond that point. For years, the corn lobby has been trying to lift that cap to 15%. Yesterday, the EPA relented.

Raising the ethanol cap was opposed by the oil industry, the environmental lobby, and the public health lobby. These are K-street titans, and they were vanquished by King Corn.

Behold, the power of King Corn.

Post image for Regarding the Gulf, What Is Obama Thinking?

Here’s something I didn’t expect: Quite a few “green” journalists on the energy policy beat have concluded that President Barack Obama’s moratorium on new drilling in the Gulf is seriously flawed. To be sure, the LA Times editorial board has come out in favor of an extended drilling ban, but among reporters who have spent time in Louisiana, there’s an acknowledgment that the moratorium is hurting livelihoods.

I was recently in Dallas, and there I had the opportunity to speak with a broadcast news journalist who had been reporting from the Gulf. He said the people of Louisiana hate BP, but they really hate the moratorium, and they are vocal about it. This is the same sense you get from the aforementioned liberal coverage. Evidently, it’s tough to be on location, and not come away with a sense that the moratorium is unjust.

With local reaction so strong, I wonder what’s going through Obama’s head. He’s been given two opportunities to back down-federal judges have nixed the moratorium twice. Yet the President plows ahead. The Interior Department is trying to re craft the drilling ban to pass legal muster.

He lost Louisiana by a wide margin, so maybe he doesn’t care. Perhaps this is part of a master plan to get a critical mass of oil rigs out of the Gulf, and force a demand response turn to a fuel efficient Ford Fiestas and GM Volts. That’s wacky, and mildly tongue in cheek, but still…