In May 2009, four months into the Obama presidency, retail gasoline prices averaged $2.32 per gallon. Rep. Charles Boustany (R-LA) wrote Treasury Secretary Tim Geithner to express concern about the impact that the Administration's budgeted changes in tax policy would have on the oil and gas industry. Secretary Geithner clearly laid out the Administration position in his letter of response (pdf link).
That was then, this is now.
In just three years' time, retail gasoline prices are up 68%. $4.00+ gasoline prices loom as a key reelection vulnerability for the President; in response, the Administration's rhetoric has shifted to "energy friendly", but its original energy-hostile policies have not changed a whit.
From Secretary Geithner's May 2009 letter:
The Administration believes that oil and gas preferences distort markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the credit (sic) encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program. Moreover, the credit (sic) must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.
The President campaigned on the idea that, if we are to finally reduce our dependence on foreign oil, we need to set aside old political battles and instead make the investments in new clean energy technology that will create good jobs here at home.
So, to recap:
- Encouraging more investment (drilling) is a bad thing, because
- More drilling leads to too much production (!), which is
- ... detrimental to the nation's long-term energy security (!!)
- Cheaper hydrocarbon fuel would work against the Administration's goal of reducing carbon emissions.
- Carbon-based fuels were destined cost more (via taxation) under a cap-and-trade system anyway.
- We can raise the taxes on industry by taking away the deductions (not "credits") which have historically, and successfully, encouraged drilling, and
- Redirect that money, and then some, to our political friends who are invested in "green" technologies (read: Solyndra, Fisker, et al).
- As was pointed out in my blog at the time, we have a Treasury Secretary who doesn't know the difference between a tax deduction and a tax credit. Given his difficulties with TurboTax, perhaps this should not be surprising.
Ladies and gentlemen, this remains the Obama Administration's policy; only the rhetoric has shifted.
Nowadays, instead of worrying about "overproduction", the Adminstration crows about success in the oil patch. Success that owes little to government initiatives.
Interior Secretary Salazar bragged this week about bringing “ 'the sweet spot of America, and that’s the Gulf of Mexico,' safely back to 'robust' production", despite the fact that production levels in the Gulf are about 30% less than the government's pre-Macondo forecasts.
On the White House blog,
Energy Czar Deputy Assistant to the President for Energy and Climate Change Heather Zichal says: "When it comes to domestic production, the President has made clear he wants us to continue to produce more oil and natural gas. "
Ms. Zichal cites figures from a recent report by the U.S. Energy Information Agency: crude oil production on Federal lands was up 13% for the first three years of the Obama Administration, as compared with the last three years of the Bush Administration . Drilling down (pun intended), we find that nearly all of the increase was in the deepwater offshore, and thus was a result of pre-Obama decisions. Beyond that, the peak year of production was 2010, the year of the BP spill. Offshore production actually declined an alarming 20% from 2010 to 2011; can you say moratorium?
Citing this set of facts as evidence of the success of Obama's policies is really kind of pathetic. It shows just how sensitive the Administration is to criticism of its energy policies.
Administration rhetoric has changed in other ways. "Cap-and-trade" has been deep-sixed; "all of the above" has been co-opted from the Republicans. Out: "green energy" and "green jobs". In: "clean energy" (i.e., renewables plus natural gas; "clean energy" was invoked ten times during the 2012 State of the Union address, green energy not at all.) Out: cellulosic ethanol. In: algae!
Along the way, the rationale for implementing punitive tax policies that single out oil and gas have changed. In May 2009, it's clear that the intent was to curtail oil drilling. Now, in 2012 with the identical tax changes on the table: "Have you seen those oil company profits?"
The electoral heat is on because of gasoline prices. Increased oil production is now perceived (publicly) to be a good thing, but the Administration's line has morphed into "More oil production will not bring gasoline prices down." That logic makes sense only to people who slept through Econ 101. Imagine how high prices would be without the production surge led by the private sector. Oil prices are set in a global market, but relatively small changes in supply can have a disproportionate impact on price. As the world's #3 crude oil producer, U.S. energy policy can certainly affect supply in increments that could move price.
In the real world, a call for higher taxes is a call for less drilling. Even discounting the impact on price, more domestic drilling would mean more American jobs. More domestic drilling also means more domestic supply, which will enhance the nation's energy security.
Cross-posted at stevemaley.com.