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ATR’s Energy Points for 111th Congress
November 17, 2008
This past Congressional Session, the 110th Congress saw a variety of energy legislation attempting to respond to the increased oil prices and an ever-growing demand for natural resources. With their response came a national out-cry and backlash over protectionist policies that increased taxes on energy producers and limited domestic access to energy.
Luckily, many of the ill-conceived policies and compromises never came to fruition. By Congress simply stepping out of the way, we celebrated the first ever Energy Freedom Day which marked the expiration of twenty-five years of moratoria on access to domestic energy.
In every effort to avoid raising taxes (for the first time in thirteen years) and to provide comprehensive solutions to our energy needs, Americans for Tax Reform would like to offer the following fiscally responsible energy principles for this new 111th Congress:
Congress should oppose all efforts to reinstate a moratorium on OCS or shale oil. President Bush lifted the executive order banning offshore drilling and Congress allowed its natural expiration. The U.S. consumes approximately 7.5 billion barrels of oil every year. These previously untouchable reserves contain over 900 billion barrels of oil. This new access will create over 600,000 jobs and provide increased supply to reduce energy costs.
Congress should oppose the repeal and freezing of the Sec 199, the domestic manufacturers’ deduction. This deduction is made available to all business that engage in domestic manufacturing; in laymen’s terms, creating jobs. Recently, legislation was passed that specifically freezes this deduction at 6 percent only for energy companies, while all others will move up to nine percent in 2010. By specifically targeting energy producers, they are then less incentivized to create jobs in America and capitalize on domestic supplies.
Congress should support full expensing for all assets. As America becomes more and more productive, our need for energy increases. Allowing for the full expensing of all assets provides oil and energy producers with the incentive to produce more energy to meet our ever-expanding needs. Increased American supply to fill our growing demand will result in lower prices at the pump for all citizens.
Congress should continue to oppose legislation seeking to limit futures trading. Prices are determined by supply and demand – this is also true of the futures market. Companies hedge to guard against substantial losses during price contractions. If hedging is made illegal, the incentive to invest in crude will be greatly diminished. This will do nothing except lower supply and leave fewer companies in competition, driving prices higher and furthering market instability.
Congress should pass expedited leasing legislation and further restrain from interfering in the leasing of land for energy exploration. Leading economists estimate the U.S. will be reliant on oil and gas for at least the next 30 years. The federal governments continued interference in the leasing of land for exploratory purposes will ensure our dependence on foreign oil and gas over that time period. Instead, Congress must pass expedited leasing legislation that allows the Mineral Management Service to begin leasing immediately. In doing so, access to domestic energy can occur as early as late 2009.
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Congress must offer 50-50 profit sharing for the states. The leasing and profits from the leasing of land for energy exploration off the states should occur in a joint-venture matter involving both the federal and state government. Congress should pass a 50/50 royalty sharing plan so that states will be allowed to keep and invest fifty percent of the revenue generated by energy exploration off their state shorelines. The Dept. of Interior estimated $1.4 trillion of revenue just from offshore drilling alone.
Congress must safeguard against legal malfeasance and abuse. In Feb. 2008, there were 487 leases issued in Alaska’s Chukchi Sea (holding an estimated 15 billion barrels of oil.) However, due to frivolous lawsuits all 487 leases have been legally challenged and delayed. Currently, there are 748 leases between two major seas in Alaska, the Chukchi and Beaufort, and exploration in every single lease was legally challenged in May of this year.
Congress should prioritize efficiency over protectionism by removing the subsidies on domestic ethanol and the tariffs on foreign ethanol. Congress currently mandates the use of expensive, inefficient corn ethanol (and promotes a generous ethanol tax credit) while taxing the importation of more efficient ethanol made from sugar cane. This both harms the consumer seeking to purchase ethanol and has the unintended consequence of increasing corn prices.
Congress should oppose using the alarmist rhetoric known as “price-gouging” which simply does not exist in a rational market. When a product, like gasoline, becomes scarce the price is raised by the producer as a warning to the consumer to curtail consumption. As a result, the consumer will respond to this scarcity by reducing their demand to meet the expected supply. Price gouging legislation, by introducing price controls, directly interferes with optimal market forces that, if left untouched, are perfectly able to appropriately regulate supply and demand imbalances.
Congress should oppose raising the average Corporate Average Fuel Economy (CAFE) standard, which impedes corporate production models and limits consumer choice. Historically, fuel economy programs failed and the ensuing price distortion and regulation resulted in supply shortages and consumer restrictions across America. Energy efficient standards have reached the point where the higher cost of the appliance outweigh the benefits from the electricity saved. Raising efficiency requirements forces the supplier to restrict production options and pigeonholes the consumer by limiting selection.
Congress should oppose the federal renewable energy mandates such as renewable portfolio standards (RPS). Recent legislation has proposed that every utility in each state have 15% of its electricity come from a narrowly defined list of renewable energy sources. If a state cannot meet this requirement, the utility company will be forced to purchase credits from other states or the federal government. RPS is nothing more than a massive excise tax on rate paying consumers. These costs will not be absorbed by the utility company, but passed onto the consumer in the form of higher user fees and increased taxes.
Americans for Tax Reform (ATR), encourages you and your colleagues to use these and other free-market solutions to better serve consumers.
Grover G. Norquist
For more information, contact Federal Affairs Manager Brian M. Johnson at [email protected].