Obama on Energy: Inconsistent, Incoherent
President Barack Obama”s policies toward energy in general, and oil in particular, are inconsistent and incoherent. And that approach is costing US consumers dearly.
The president’s confused approach to energy was laid bare last month, when the president sent a letter to Congressional leaders asking them to “eliminate unwarranted tax breaks for the oil and gas industry, and to use those dollars to invest in clean energy to reduce our dependence on foreign oil.”
The bogeyman of “foreign oil” appears three times in Obama’s two-page letter. And he insists that his approach, which aims to cut $4.4 billion in tax preferences for the oil and gas sector will create an “energy policy that creates jobs and makes our country more secure.”
On its face, the president’s position is incoherent. The subsidies given to the upstream sector help encourage the production of oil and gas in the United States. Eliminating those tax preferences will have the obvious effect of increasing the cost of doing business for domestic oil and gas producers, which, obviously, should result in lower levels of production. It’s beggars common sense to believe that a measure which increases the cost of doing business for domestic producers will reduce America’s dependence on foreign oil.
The inconsistency of Obama’s energy policy is equally apparent. In 2005, while Obama was in the Senate, he voted for a bill that extended subsidies and tax breaks for the oil and gas sector.
Now fast forward to January of this year. During his State of the Union speech, Obama called oil “yesterday”s energy” and said the US should eliminate all tax preferences for the oil and gas sector.
But in March, the president reversed course during his much-ballyhooed speech on energy policy at Georgetown University. He said his administration wanted to accelerate the production of oil here in the US. He said his new Blueprint for a Secure Energy Future would “provide new and better incentives that promote rapid, responsible development” of oil and gas. Those incentives could include changes in the royalty structure to, in his words, “encourage more rapid production.”
Then, in late April during his weekly radio address, Obama reversed course again saying we need to stop “subsidizing yesterday”s energy sources.” And he repeated his claim that the US should eliminate all tax preferences for the oil industry. He went on to bash the oil industry, saying that energy companies are “making record profits and you”re paying near record prices at the pump…It has to stop.”
Did I mention incoherent? Or maybe this example is inconsistent. You decide. Read the text of Obama’s letter to Congressional leaders, where he says that the US should be “investing in everything from wind and solar to biofuels and natural gas.”
Obama insists that Congress should eliminate all subsidies for oil and gas drilling but at the same time, the US should be investing more in natural gas! The president opposes tax policies that encourage natural gas production, but his blueprint for a secure energy future says we should be investing more in natural gas.
More inconsistence can be found by examining Obama’s favorite new trope: “clean energy.” The president, in his letter to Congressional leaders, uses that phrase three times. What qualifies as “clean”? In Obama’s view, coal and natural gas can fit under that heading. Oil cannot. Therefore, to support Obama’s warped view of the energy sector, one must accept the notion that oil is dirty and natural gas is clean even though, in many cases, both of those commodities are being produced from the same well bore.
Back to incoherence: Obama continues to support the longest running robbery of taxpayers in modern history: the corn ethanol scam. Obama’s letter to Congressional leaders focuses solely on the tax benefits going to the oil and gas sector. Compare that sum to the scandalous amounts of money being diverted into the pockets of Big Ag.
Last year, the Congressional Budget Office reported that the cost to taxpayers of using corn ethanol to reduce gasoline consumption by one gallon is $1.78. This year, the corn ethanol sector will produce about 13.8 billion gallons of ethanol, the energy equivalent of about 9.1 billion gallons of gasoline. Using the CBO’s numbers, the total cost to taxpayers this year for the ethanol boondoggle will be about $16.2 billion. In short, ethanol subsidies are nearly four times as great as those provided for oil and gas, even though the domestic drilling sector provides about 36 times as much energy to the U.S. economy.
Put another way, per unit of energy produced, the tax preferences given to corn ethanol are 130 times as great as those given to oil and gas. And yet Obama dares not mention cutting the ethanol scammers out of the Congressional pork fest.
More incoherence: The president claims that he’s concerned about the plight of the middle class and the poor. And yet his policies toward corn ethanol are driving up food prices. Last month, right after the president’s speech at Georgetown, the White House released a document which declared that corn ethanol is “making a significant contribution to reducing our oil dependence.” That claim has no basis in fact. Between 1999 and 2009, US ethanol production increased seven-fold — to more than 700,000 barrels per day. Yet during that same time, America’s oil imports increased by more than 800,000 barrels per day.
Obama has done more to promote the corn ethanol scam than any president in US history. And he continues to — despite the fact that it is fueling an unprecedented rise in global grain prices. Today, about 40 percent of US corn — that’s 15 percent of all global corn production or 5 percent of all global grain — is being diverted to ethanol distilleries to produce the energy equivalent of 0.6 percent of global oil needs.
The amount of grain likely to be consumed this year for US ethanol production – 4.9 billion bushels – boggles the mind. That’s more than twice as much as all the corn produced in Brazil; more than six times as much as is grown in India. Put another way, it’s more corn than the output of the European Union, Mexico, Argentina and India combined.
At least 15 studies, including those from Purdue University, the World Bank and the Congressional Research Service, have exposed this link between increasing ethanol production and higher food prices. And yet just two months ago, Obama’s secretary of agriculture, Tom Vilsack, declared there was “no reason to take the foot off the gas” with regard to biofuels, because in his view, American farmers “can do it all.”
Obama’s energy incoherence was on abundant display last month during a speech in Reno when he announced that he has ordered the Justice Department to establish a team to “root out any cases of fraud or manipulation in the oil markets that might affect gas prices.”
The timing of the president’s announcement might amuse officials at the Federal Trade commission, who, just days before Obama announced his new effort on fraud and manipulation, completed a study on market manipulation which determined that prices in the oil markets are being forced up due to, wait for it…market forces. The FTC said its investigation of market manipulation “determined that none of the complaints involved conduct that violated” the commissions rules.
That’s just the latest investigation of the oil market. According to an estimate from the American Petroleum Institute, the oil industry has been investigated more than 30 times over the past few decades for price fixing or collusion. And there’s not been one proven case of that occurring in the gasoline market. If Obama wants to understand why fuel prices are rising, he might consider supply and demand.
His administration effectively stopped issuing permits for deepwater drilling in the Gulf of Mexico for nearly a year, which has resulted in a loss of about 400,000 barrels of oil per day in domestic production. That production loss is now being magnified by the civil war in Libya, which, during normal times, supplies about 2 percent of the world’s crude. The war has effectively stopped Libyan crude exports.
Meanwhile, despite the surge in fuel prices, and endless chatter about the hardship those prices are putting on the economy, US consumers show no sign of driving less. In fact, just the opposite is occurring. In March, US gasoline consumption increased by 6 percent over the levels recorded in March 2010, and low-sulfur diesel use was up by 21 percent.
Last month, during his speech at Georgetown, Obama condemned other politicians for using what he called “slogans and gimmicks” on energy policy. But Obama’s own tsunami of sloganeering leaves his fellow politicos in the dust. It’s difficult to imagine that any politician could be as inconsistent and incoherent as Obama has been on energy. But the 2012 electoral season is already upon us. Be prepared for more of the same.
Robert Bryce, a senior fellow at the Manhattan Institute. His fourth book, Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future, was recently issued in paperback.