Ben Lieberman

Fiscal Commission Should Support Increased Energy Production, Not Increased Energy Taxes

by Ben Lieberman on November 15, 2010

in Agenda for Congress, Deregulate to Stimulate, Energy, Natural Resources

Among the many suggestions in the Fiscal Commission’s draft report is a 15 cents-per-gallon increase in the federal gasoline tax. No doubt, this proposed tax hike would raise revenues and make a modest dent in the deficit, but it would do so at the expense of the driving public and would disproportionately burden low-income motorists. There’s a better way. If raising energy-related revenues is the goal, why not fill federal coffers in a manner that actually reduces the price at the pump? Washington can accomplish this by allowing more oil drilling.

The federal government controls all offshore areas beyond three miles from the coast as well as vast expanses of energy-rich western lands. Unfortunately, only a fraction of these areas have been opened to energy leasing, due to legislative and regulatory restrictions. For example, a 2008 Department of the Interior report notes that only 8 percent of the estimated 31 billion barrels of oil beneath federal lands is fully available for leasing, while 30 percent is subject to significant restrictions and 62 percent is entirely off-limits. America’s offshore areas hold even greater potential but are also constrained. No other energy-producing nation on earth has limited itself to this extent.

Even with these restrictions, revenues from new energy leases reached $10 billion dollars in 2008. However, the Obama administration has thus far cracked down on domestic energy leasing, which helps explain why leasing revenues dropped below $1 billion in 2009 and don’t look to be much higher in 2010.

The up-front money the highest bidders pay to win these leases for offshore or onshore drilling rights is only the first installment in the payoff to the federal treasury. The energy companies also pay annual rents on each lease, and unless they hit a dry hole they must pay royalties of up to 18.75 percent on every barrel of oil and cubic foot of natural gas produced. Royalty revenues vary with energy prices as well as production levels, but have exceeded $9 billion in several recent years. With more leasing, royalty revenues would go up in the years ahead as new wells come online and start producing oil and natural gas.

Even more significant than the leasing and royalty revenues are the potential tax revenues. Energy company profits are subject to the federal corporate income tax as well as other levies — and the more energy produced the higher the taxable income.

Overall, the extra federal revenues from a judicious expansion in domestic energy production could easily reach into the tens of billions annually, quite possibly eclipsing the $25 billion or so from the proposed 15 cent per gallon gasoline tax increase. But contrary to a tax hike, allowing additional supplies of domestic oil to come online would lower gasoline prices, as well as those for natural gas and heating oil.

It would be an understatement to call increased domestic drilling a win-win situation. Compared to the proposed gasoline tax, it would be win-win-win. While raising federal revenues in a way that reduces energy costs, it would deliver yet another benefit no tax increase could provide – job creation. One study estimates a potential gain of 270,000 energy industry jobs from expanded offshore leasing.

Bills like the No-Cost Stimulus Act (S. 570 and H.R. 1431), The American Energy Innovation Act (H.R. 2828), the American Energy Act (H.R. 2846), the American Conservation and Clean Energy Independence Act (H.R. 2227), and others seek to reap the multiple benefits from enhanced production of American energy. All would serve as a good blueprint as the next Congress continues the look for solutions to high deficits, high energy prices and high unemployment.

Photo credit: christiannealmcneil’s photostream on flickr.

An Election-Night Win For Domestic Energy Jobs

by Ben Lieberman on November 4, 2010

in Energy

Draw up a map of the U.S. and shade in the regions that rely on energy jobs — places like Appalachia, the Rockies, western Gulf states, Alaska — and that’s where we saw some of the strongest anti-Obama sentiment succeeding on election day.

With few exceptions, the only Democratic congressional candidates who won in these areas were those able to distance themselves from President Obama’s energy policies — or to be more accurate, his anti-energy policies. In its first two years, the Obama administration has tried to slam the door shut on domestic production of coal, oil, and natural gas.
But now, many of the administration’s congressional allies in this effort have gotten a pink slip from their constituents. Obama will soon have to contend with a Congress that sees increased supplies of affordable domestic energy — and the increased jobs that go with it — as things worth fighting for rather than against.

Most notably, costly global warming legislation proved to be political poison. Many Senate incumbents can only be grateful that the administration-endorsed cap-and-trade bill never came to a vote in the upper chamber, as the House-passed version was a major factor in defeating more than two dozen of its supporters. This includes longtime Democratic incumbent Rick Boucher whose rural Virginia district has a number of coal mines.

Voters throughout Appalachia correctly saw cap-and-trade as an energy tax designed to raise the cost of coal and other fossil fuels in order to drive them out of the marketplace. They didn’t like the implications for their electric bills, and they certainly didn’t like the implications for coal mining jobs. In addition to cap-and-trade, attempts by the Environmental Protection Agency to deny new coal mine permits added to the voter outrage throughout coal country. And on top of concerns about coal mining jobs, voters in states like Ohio, Pennsylvania, and Michigan that need affordable coal to maintain manufacturing jobs sent home incumbents who voted for cap and trade.

Cap-and-trade was every bit as unpopular in other energy producing regions, including the West where Rep. Harry Teague of New Mexico suffered the same fate as Boucher. The administration’s efforts to reduce oil and natural gas production on federal lands were also a factor. Obama’s Secretary of the Interior Ken Salazar quickly earned a reputation as Secretary No on oil and gas drilling throughout the Rocky Mountain region, blocking many already-approved leases and issuing a record-low number of new ones. The region has the highest unemployment in the nation, and killing high-paying oil and gas industry jobs there was not well received on election day. Another November 2nd victim was Obama supporter John Salazar, incumbent congressman from an energy-rich but job poor Colorado district — and Ken Salazar’s brother.

It is also worth noting that the BP oil spill in the Gulf of Mexico, hyped by President Obama in a nationwide address as “the worst environmental disaster America has ever faced,” had little impact on the elections. If anything, it was the administration’s attempt to parlay the spill into a deepwater drilling moratorium that sparked anger amongst voters in the Gulf region. Obama’s overreach has already killed jobs in Louisiana and neighboring states. The only reason the moratorium did not play a bigger role in the elections there was that it was denounced by candidates of both parties.

The same is true in Alaska. Nowhere is the energy industry more important to a state economy than in Alaska. And there, the Obama administration has reached a dubious milestone –for the first time in decades, virtually all energy exploration activities in the state have come to a halt. As with Louisiana, the only reason energy wasn’t a bigger issue was that every major candidate had strongly disagreed with the administration and vowed to fight it on issues like opening portions of the Arctic National Wildlife Refuge and National Petroleum Reserve and allowing exploration in the Beaufort and Chukchi seas.

In sum, just about every place in America where there is energy below the ground there were angry voters above it on November 2. The mandate is clear and now it is up to the incoming Congress to bring to Washington something that has been missing for the past two years – a policy that favors American energy production and jobs.

Moratorium Lifted, But Drilling Still Blocked

by Ben Lieberman on October 13, 2010

in Economy, Energy, Environment, Global Warming, Natural Resources

With much fanfare, the Obama administration has lifted its moratorium on deepwater drilling in the Gulf of Mexico. But don’t expect much actual drilling any time soon, thanks to all of the administration’s other red tape strangling domestic oil and natural gas production.

Even before the April 20th Deepwater Horizon spill, the Obama administration had clamped down on new leasing on federally controlled offshore and onshore areas. In fact, 2009 saw less oil and gas leasing than in any year under Bush or Clinton, and 2010 was on track to be no better.

Nonetheless, the Obama administration Department of the Interior used the spill as an excuse to crack down further by imposing a six-month moratorium, until November 30th, on issuing any new deepwater drilling permits in the Gulf of Mexico. For all practical purposes, the administration also put an end to nearly all shallow water drilling in the Gulf, as well as exploration activities off Alaska.

Studies estimating thousands of lost jobs as a consequence of the moratorium — not to mention strong bipartisan opposition from Louisiana’s Congressional delegation — made for bad politics as well as bad policy. Whether or not influenced by the upcoming elections, the Department of the Interior announced that the moratorium is being lifted more than a month ahead of time.

The moratorium is gone, but all the pre-spill hurdles are still in force. In addition, Secretary of the Interior Salazar announced several tough new provisions and stated that only those operators who “clear the higher bar can be allowed to resume.” Interior concedes that these new requirements “may delay development of some OCS oil and gas resources.” Additional delays piled onto a policy that had already ground drilling to a near halt is not good news for American energy production.

Notwithstanding the official end to the moratorium, the real test is whether and to what extent drilling activity resumes. The American people need more energy, not to mention the thousands of high paying jobs an expanded domestic oil and gas sector would bring. If 2010 goes into the books as the second year in a row of sharply curtailed domestic energy production, the new Congress should take a close look at reversing this worrisome trend.

Washington’s New War on the West

by Ben Lieberman on October 4, 2010 · 1 comment

in Global Warming, Odds & Ends

The economic track record of the current administration and Congress is not a good one. Unemployment remains stubbornly high at nearly 10 percent, and many believe federal missteps prolonged the recession and are weakening the recovery. While things like ill-advised spending, Obamacare, and looming tax hikes are doing damage nationwide, a number of other federal measures have particularly burdened the American West, the region suffering with the highest unemployment rate in the country. The Senate and House Western Caucuses’ recent study, “The War on Western Jobs,” documents the host of environmental policies that have targeted the sectors crucial to the economies of Western states — especially energy production but also mining, logging, farming, and ranching.

It is important to note that the federal government controls the economic fate of western states to a greater extent than any other part of the country. The lands comprising 12 western states (Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Idaho, Washington, Oregon, California, and Alaska) are nearly half owned by the federal government. More so than other regions, job losses in the West can be traced to federal policies.

The Obama administration’s attack on Western energy jobs began within weeks of taking power when the Department of the Interior revoked 77 oil and gas leases in Utah and halted new oil shale projects in Colorado. By the end of 2009, the administration had issued fewer onshore energy leases than in any year under Bush or Clinton, and the pace thus far in 2010 is no better. Throughout the West, vast energy-containing federal lands are currently off-limits, and the administration and Congress have sought to restrict access to millions of additional acres. Even where energy leasing is not explicitly prohibited, Obama’s regulators have imposed red tape and bureaucratic delays that have substantially limited it.

Beyond oil and gas, the administration has all but declared war on coal mining, which is particularly vital to Wyoming and Montana. The Environmental Protection Agency’s global warming regulations as well as many other anti-coal measures (including Boiler MACT, combustion byproducts, new National Ambient Air Quality Standards, others) bode ill for the future of western coal.

The threat of new energy taxes has only added to the chilling effect on Western investment in energy projects.

In addition to the impact on energy production, the federal government’s excessive ownership of land — as well as intrusive measures like the Endangered Species Act that target private property — is posing growing problems for other industries. Despite the West’s mineral wealth, mining jobs continue to decline. The same is true of logging. Farmers and ranchers also face a host of costly hurdles.

Instead of providing regulatory relief that could turn the region’s economy around, Congress has proposed new constraints like the sweeping Clean Water Restoration Act. This bill would essentially federalize land-use decisions on any property containing wetlands, and compounds the threat by defining wetlands so expansively so as to include almost everywhere. And the Obama Department of the Interior and Department of Agriculture’s Forest Service have issued new agency guidance for federal lands, which under the name of addressing global warming would further restrict access.

Granted, Washington’s control over western lands and the misuse of that control to curtail economic activity is not a new phenomenon, but the current administration and Congress have taken it to a new level.

The West’s economic pain has not been justified by environmental gain. Quite the contrary, Uncle Sam turns out to be a lousy landlord. For example, the forest fires that have become common in Western lands in recent years have mostly originated on federal lands, and not on privately-held forests which tend to be better managed against such risks. A less-intrusive federal approach could deliver both economic and environmental benefits.

The next Congress should have a long list of reforms on its agenda. The Western Caucuses’ report spells out what needs to be addressed to get the American West back on the path to prosperity.

The Failed Stimulus Package Reveals What Economy Really Needs

by Ben Lieberman on September 29, 2010

in Economy, Energy, Regulation, Stimulus to Nowhere

A failure can make for a valuable learning experience, and the stimulus package is no exception. Clearly the stimulus has not worked, and from its inception many economists doubted the wisdom of the federal government trying to spend our way into prosperity. But putting aside questions about the merits of spending as means of sparking an economic recovery, it appears that the feds were not even able to dole out the money in a timely manner. The culprit — regulatory red tape.

Several studies conducted by the Department of Energy’s Office of the Inspector General (here , here , and here) have concluded that many of the stimulus-funded projects related to energy were very slow to get off the ground. For example, DOE’s investigation of one program dealing with block grants for energy conservation projects concluded that “as of August 2010, more than one year after the Recovery Act was passed, grant recipients had expended only about 8.4 percent of the $3.2 billion authorized for the Program.” Not exactly the “shovel ready” boost to the economy we were promised.

Regulatory delays were the reason. In its most recent report, DOE’s Inspector General concluded that “various regulatory requirements had slowed spending,” including “the Davis-Bacon Act, National Historic Preservation Act, Buy American provisions of the Recovery Act, and National Environmental Policy Act (NEPA).”

Granted, the programs funded by the stimulus are a big waste of taxpayer dollars, and it is a good thing that the feds can’t squander our money more quickly. But the point is that even the big government proponents of the stimulus package are finding out what it is like to get tripped up by — big government. Whilst hoisted on their own petard, one can hope that the legislators who supported the stimulus might figure this out.

Perhaps they will learn the critical lesson that can lead to real economic growth. Just as stimulus spending faces a regulatory gauntlet, so does private investment. Efforts by large and small businesses to expand — the real source of an economic recovery and job growth — are hampered by the regulatory state at least as much as are the government projects highlighted in the DOE reports. Streamlining or eliminating these regulatory hurdles would do far more to help the economy than all the stimulus spending in the world.

An Annoying Regulation for Every Room in the House

by Ben Lieberman on September 24, 2010 · 11 comments

in Energy, Regulation

The Obama administration isn’t satisfied giving the American people several big things we don’t want — the stimulus package, expanded bailouts, Obamacare — but it is also hitting us with a multitude of bothersome regulations. Perhaps most annoying of all is Washington’s attempt to redesign home appliances. Just weeks after taking office, the president announced an accelerated process to create stringent new energy efficiency standards for nearly everything around the house that uses energy. The Department of Energy is well on its way towards accomplishing this goal, boasting of more than 20 such regulations since President Obama came to office.

If past experience is any guide, these regulations will raise the purchase price of appliances — in some cases more than is ever likely to be earned back in the form of energy savings. Worse, several may adversely impact product performance and reliability. There are potentially problematic regulations on the way for virtually every room in the house.

The Basement — new standards are in the works for water heaters and furnaces. In the case of water heaters, the Department of Energy estimates price increases ranging from $67 to $974 depending on size and type.

The Bathroom — the same 1992 law that gave us those awful low-flush toilets also restricted the amount of water showerheads could use to 2.5 gallons per minute. Some consumers thought the flow from these showers too weak, and opted for models with two or more showerheads, each of which contributed 2.5 gallons per minute. But the Department of Energy recently eliminated this option by reinterpreting the law to require that the total flow must comply with the limit. It is good to know that regulators are hard at work ensuring that Americans can’t get what they want.

The Kitchen — there are pending regulations for refrigerators, dishwashers, conventional ovens, and microwaves. With refrigerators, it’s a clear case of regulatory overkill. They have already been subject to multiple rounds of increasingly tighter standards, with each new rule saving less energy than the last while adding to performance and reliability issues. One more regulation may well go beyond the point of diminishing marginal returns and be downright harmful.

The Laundry Room — New standards are on the way for both clothes washers and dryers. The last clothes washer regulation managed to both raise the cost of many models by hundreds of dollars while compromising cleaning ability. Yet another round could make things worse.

The Bedroom, Living Room (or any air-conditioned room) — both central air-conditioners and window units are scheduled for new regulations. Even the Department of Energy conceded when rolling out its last round of central air-conditioner standards in January 2001 (one of those last-minute Clinton administration regulatory surprises) that many homeowners would never recoup the additional up-front cost of compliant models. The new standards could be an even lousier deal.

These new Obama administration regulations come on top of all the previous ones, including the worst of them all — the Bush-era requirement that will effectively ban incandescent light bulbs beginning in 2012.

In nearly every case, consumers who want more efficient appliances (or those compact fluorescent light bulbs) are free to buy them. Energy use labels provide all the information needed for consumers to make comparisons. The only thing federal regulations accomplish is to force the government’s preferred choice on everyone.

There are a lot of things coming from Washington that need to be revisited. These awful appliance efficiency standards should be high on that list.

Kiss Your Ash Goodbye — Regulating Coal Combustion Byproducts As Hazardous Is An Unnecessary Job Killer

by Ben Lieberman on September 8, 2010 · 3 comments

in Energy, Environment, Global Warming, Natural Resources

The Environmental Protection Agency’s effort to regulate carbon dioxide as an air pollutant is currently garnering most of the attention from the agency’s critics, but it is far from the only problematic EPA regulation in the works. Another proposal that also deserves strong opposition is the agency’s attempt to label coal combustion byproducts (CCBs) as hazardous waste. Doing so is not only environmentally unnecessary but downright counterproductive, and would raise energy costs and kill jobs to boot.

Like several other Obama administration regulations, this extreme proposal goes well beyond anything contemplated under Bush or under Clinton. In fact, it was the Clinton administration EPA that concluded in 2000 that CCBs, chiefly the fly ash from burning coal to produce electricity, should be categorized as non-hazardous and handled in a manner not unlike municipal solid waste. The Obama administration has offered no convincing evidence that this determination was wrong and that CCBs pose a public health threat. Nonetheless, it is moving forward with the hazardous proposal.

A hazardous designation would not only raise CCB handling and disposal costs, but would put an end to their beneficial uses. Large volumes of fly ash are added to concrete, both stretching the supply of this ubiquitous construction material as well as improving its quality. Another kind of CCBs can be used in wallboard, taking the place of mined gypsum. Fully 44 percent of the 136 million tons of CCBs produced annually are put to good use, and the percentage has been growing. No actual problems have emerged with the use of recycled CCBs in these materials.

However, if EPA slaps the hazardous label — and attached stigma — on CCBs, such uses would very likely come to an end due to liability concerns — imagine the field day tort lawyers would have over supposedly toxic sidewalks and poisonous walls.

Thus, a hazardous designation would almost certainly preclude any productive uses of CCBs. As a consequence, more virgin concrete would have to be made, and more gypsum mined. All the attendant energy and other resource inputs as well as emissions associated with these processes would increase — a clear negative for the environment.

From the coal-fired utility standpoint, a hazardous listing would transform CCBs from a valuable byproduct to a costly liability. Many new disposal sites would have to be created and maintained. Half the nation’s electricity is generated from coal, thus the higher electricity generation costs would impact tens of millions of homeowners and businesses. Some coal-fired power plants would have to shut down completely – indeed, a hazardous designation for CCBs fits in perfectly with the Obama administration’s larger anti-coal agenda.

Employment would face a painful double whammy from a hazardous designation. The National Association of Manufacturers estimates that 2,000 of its member manufacturing companies may be involved in using CCBs in the products they make. For the rest, the resultant higher energy costs would further hamper competitiveness and growth. Either way, the rule would reduce manufacturing jobs.

Back in 2000, the EPA wisely concluded that it did “not wish to place any unnecessary barriers on the beneficial uses of these wastes, because they conserve natural resources, reduce disposal costs, and reduce the total amount of waste destined for disposal.” Too bad this kind of common sense has all but disappeared at the Obama EPA.

Federal Regulators Making Laundry More Costly And More Dingy

by Ben Lieberman on August 27, 2010 · 2 comments

in Energy, Nanny State, Regulation

In a classic case of a government solution in search of a problem, Washington has for years set energy efficiency standards for home appliances. By now, refrigerators, air-conditioners, and many other appliances have been subjected to multiple rounds of successively tighter requirements from the Department of Energy (DOE). The Obama administration has taken this pre-existing regulatory blank check and run with it, finalizing standards for over 20 products. As might be expected, such arbitrary government mandates come at a cost — a higher purchase price for regulated appliances, but also compromised performance, features, and reliability. And the downside can easily swamp the often-modest energy savings. The regulations for clothes washers may be the worst of them all.

The clothes washer standards currently in force were promulgated in the final days of the Clinton administration. At the time, DOE estimated that they would raise the cost of a new washer by nearly $250, or 59 percent, and many questions about quality were left unanswered in the rush to regulate. In 2007, when the standard was fully phased in, Consumer Reports magazine noted that that some new models “left our stain-soaked swatches nearly as dirty as they were before washing,” and that “for best results, you’ll have to spend $900 or more.”

Washington’s response to its anti-consumer mistake? Even tougher standards. In 2007, President Bush signed a big energy bill that, among other things, required new clothes washer efficiency regulations by 2011. It also required DOE to consider revising them again — but only to make them more stringent. This has provided a perfect opening for the very aggressive Obama DOE — the same thinking that leads the administration to believe it can design better cars also extends to appliances. Yet another clothes washer rulemaking is in the early stages, this one to take effect in 2015.

Consumers benefit most not from government dictates but from freedom of choice. After all, anybody who really wants a super-efficient clothes washer is free to buy one, and federally-mandated energy use labels provide all the information needed to do so. Government standards simply force that choice on everyone, whether it makes sense or not. And it often doesn’t. For example, senior citizens, who do fewer loads of laundry than families, are even less likely to earn back the higher up-front cost in the form of energy savings.

Don’t expect appliance makers to fight back on behalf of their customers. Many manufacturers support these kinds of standards (while others seem resigned to their inevitability). After all, they skew the market towards more expensive models, and also give dissatisfied buyers little recourse, as non-compliant models are illegal to sell. Of the Clinton clothes washer rule, one appliance lobbyist said “selling it in the marketplace is easy, if there’s a standard in place. It’s not a matter, necessarily, of consumer acceptance.” Appliance makers are among those urging DOE regulators to set new standards for clothes washers, as well as many other appliances.

While some federal regulators are trying to reduce laundry-related energy use in this ham-fisted manner, other regulators may be stifling a better approach. Companies such as Proctor and Gamble, the makers of Tide, are making advances in detergents that work well in cold water. Since a good portion of the energy used in cleaning clothes is for heating the water, further progress that would allow most loads to be satisfactorily cleaned in cold water would likely save more energy — and at far less cost and hassle — than clothes washer efficiency standards. But new Environmental Protection Agency disclosure requirements may mean that the trade secrets behind these new detergents would have to be revealed — and thus could be copied by global competitors. This is a major disincentive to undertaking the cost of developing them in the first place.

Thus, we have one group of federal regulators reducing laundry-related energy use in a dumb way, while another group of regulators is working to thwart what could prove to be a smarter way — just more dirty laundry from Washington.