NCPA - National Center for Policy Analysis


April 27, 2010

Higher rates of energy efficiency from the use of new technology and a stunning turnabout in domestic natural gas production have revitalized a critical sector of the economy, increasing supplies of clean energy at ever more affordable prices, says Mark J. Perry, a visiting scholar at the American Enterprise Institute. 

The most important question now is not "how much can domestic oil and natural gas production be increased" but rather "will President Obama's call for an $80 billion increase in oil industry taxes stall the recovery?" 

  • The administration is seeking to raise $36.5 billion in new tax revenue between fiscal years 2011 and 2020 by ending certain tax credits and deductions for domestic oil and gas production.
  • Another $8.5 billion would be raised by eliminating the foreign tax credit for taxes paid by oil and gas companies overseas.
  • The balance would be an increase in estimated taxes under the House-passed Waxman-Markey energy and climate change legislation. 

Yet what has happened to the oil industry in recent years is the very definition of improved energy productivity, says Perry: 

  • Since 1985, U.S. refining capacity has increased by 13 percent even though there are 73 fewer refineries.
  • In addition, U.S. refineries are a lot more energy efficient than refineries were years ago.
  • During the past 20 years, U.S. refineries invested almost $100 billion to generate the cleanest burning fuels in the world.
  • Fittingly, Americans today use less than half as much energy for every real dollar of gross domestic product as they did in 1973. 

Although significant progress has been made with the use of renewable energy sources as well as improved efficiency, the Energy Information Administration forecasts that half of the energy demand 25 years from now will be met by oil and natural gas.  By 2035, demand for energy is projected to grow by 14 percent, so the oil and gas industry is making substantial investments to provide the fuels we will need, says Perry. 

However, the Obama administration's proposed increase in oil industry taxes and fees would divert funds away from energy investment.  Instead, we should be doing everything we reasonably can to stimulate the production and use of America's energy resources, says Perry. 

Source: Mark J. Perry, "Taxing Oil Will Stall Progress," American Enterprise Institute, April 22, 2010. 

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