NCPA - National Center for Policy Analysis

Environmental Policies And Taxes Affect Energy Supplies

July 19, 2000

Supplies of gasoline and other oil products have become tight because the U.S. petroleum industry and other energy producers are subjected to so many environmental rules and taxes say some analysts. They warn that the system is one pipeline breakdown or one refinery fire away from supply shortfalls and price spikes.

With refineries working at full bore to meet demand, the system has run out of reserve capacity.

  • Environmental rules alone cost the industry some $8.5 billion in 1998.
  • The gasoline price spikes which occurred in the Middle West stem from provisions of the Clean Air Act which require at least 10 kinds of gasoline to be refined -- exacerbating supply problems.
  • Federal excise taxes amount to 18.4 cents a gallon -- imposing a burden averaging 38 cents a gallon when state taxes are added in.
  • In Texas alone, producers must pay the state a severance tax of 4.6 percent per barrel of oil and 7.5 percent per million cubic feet of gas -- eventually imposing costs on the industry amounting to $3 billion last year.

In addition, producers that drill on federal land must not only pay royalties to the U.S. on the oil they pump on that land -- but they must also pay a special fee for the right to bid on the drilling rights.

Bob Slaughter, general counsel for the National Petrochemical & Refiners Association says "...over the last 10 or 15 years, our energy policy has been a product of out environmental policy... It's more or less the de facto result of what we decide we are going to do on environmental policy."

Source: Douglas Austin, "High Energy Prices, Shortages Loom; Are Government Policies to Blame?" Investor's Business Daily, July 19, 2000.


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