NCPA - National Center for Policy Analysis


July 9, 2009

A cap-and-trade bill passed by the House aims to "create energy jobs" and "achieve energy independence."  Additionally, Democrats are calling to eliminate drilling subsidies that have encouraged advances in technology and have opened vast new U.S. energy sources, says Robert Bryce, managing editor of Energy Tribune.

In May, President Obama called the tax breaks for the oil and gas industry "unjustifiable loopholes" that do "little to incentivize production or reduce energy prices."  That's flat not true.  Subsidies encourage energy companies to plow huge amounts of capital into more drilling.  And that drilling has resulted in unprecedented increases in natural gas production and potential, says Bryce.

An April Department of Energy report estimated that the newly available shale resources total 649 trillion cubic feet of gas.  That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq, says Bryce.

President Obama's 2010 budget calls for the elimination of two tax breaks:

  • One permits energy companies to deduct the bulk of their expenses for drilling new wells;
  • The other allows well owners a tax break based on the value of production from their wells.

Removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas, says Bryce.  Meanwhile:

  • Ethanol and biofuels are getting subsidies of $5.72 per million British Thermal Units (BTUs); that equals about $33.25 in government subsidies for the energy contained in one barrel of oil.
  • Natural gas and petroleum liquids, by comparison, only get $0.03 per million BTUs (about $0.17 for the energy contained in one barrel of oil).

Growth Energy, an ethanol industry front-group, is pushing the Environmental Protection Agency (EPA) to adopt a proposal that would increase the amount of ethanol blended into gasoline from the current maximum of 10 percent to as much as 15 percent.  However, there is plenty of evidence to suggest that gasoline with 10 percent ethanol is already doing real harm, says Bryce.  There have been numerous media reports that ethanol-blended gasoline is fouling engines in lawn mowers, weed whackers and boats.

Lawyers in Florida have already sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol fuel.  They are claiming that consumers should be warned about the risk of using the fuel in their boats, says Bryce.

Source: Robert Bryce, "So Much for 'Energy Independence,'" Wall Street Journal, July 7, 2009.

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