Gasoline prices are up since the start of the year, but the
summer of 2009 has thus far been a bargain at the pump compared to
a year ago when prices exceeded $4 a gallon. However, the respite
from sky-high prices is likely temporary.
A return to $4 a gallon gas--or higher--will be made even more
certain if Congress and the President succeed in enacting a host of
proposals to crack down on domestic energy supplies. Instead, the
federal government should support several pending pro-domestic
energy measures that would help meet the nation's growing demand in
the years ahead.
Proposals That Would Raise Gasoline
1. Pump price-boosting global warming legislation. The
American Clean Energy and Security Act of 2009 (H.R. 2454, commonly
known as Waxman-Markey after its two main sponsors) seeks to limit
how much gasoline and other fossil fuels Americans can use. The aim
is to cut America's emissions of carbon dioxide from energy use,
which proponents of the bill claim is warming the planet to
dangerous levels. As with electricity rates, gasoline prices would
have to rise high enough so the public would be forced to use less
and meet the bill's ever-tightening energy rationing targets. It is
literally a deliberate effort by the U.S. government to make
gasoline less affordable.
According to a Heritage Foundation analysis, the
bill would boost the price at the pump by 20 cents per gallon when
the provisions first take effect in 2012. The targets get tougher
each year, and by 2035 the increase would be an inflation-adjusted
$1.38 per gallon--and that is on top of any other price increases
that might occur.
2. Regulation of hydraulic fracturing. Bills have been
introduced authorizing the Environmental Protection Agency (EPA) to
regulate hydraulic fracturing under the Safe Drinking Water Act. This could greatly reduce future onshore
drilling for oil (and even more so for natural gas), thus lowering
domestic supplies and adversely impacting gasoline prices.
Hydraulic fracturing is a process by which pressurized water and
other substances are injected into wells to facilitate the flow of
oil and natural gas. It has been widely used for decades and is
necessary for the majority of new wells in the U.S. It is currently
regulated at the state level, and its environmental and public
safety track record is nearly spotless.
Nonetheless, proposed legislation seeks new federal regulation
by the EPA based on concerns about contamination of drinking water
supplies, even though such water contamination has never occurred
and is highly unlikely.
3. Increased red tape and costs on domestic drilling. A
draft bill from the House Natural Resources Committee seeks to
discourage domestic oil production by adding a host of new
regulatory requirements on top of those already in place. The result would be more paperwork, delays,
and litigation, but lower domestic supplies of oil.
The bill also creates new regional councils (above and beyond
the many existing opportunities for state and local participation)
with control over offshore oil and gas leasing. Though couched in
terms of allowing public input, these councils would be susceptible
to dominance by anti-energy activists not in step with the
pro-domestic energy sentiment of the American people.
The proposal would restore unnecessary and redundant
environmental reviews that had been eliminated by the Energy Policy
Act of 2005. This policy change has proven very helpful for new
domestic energy production since 2005, and its reversal would be a
serious blow to future oil and natural gas drilling.
The bill also raises many fees on oil production in areas with
existing leases. These increases would be particularly burdensome
for the smaller energy companies that account for most of the
domestic oil and gas activity. In some cases, these provisions
would be enough to make oil leases too costly to pursue. While
discouraging existing oil activities, the bill does nothing to open
up currently off-limits areas to new production.
4. Raising energy taxes. Although President Obama has
spoken frequently about the need to reduce imports of oil, his
first budget proposed a host of punitive taxes aimed at domestic
oil and natural gas production. For example, the budget eliminates
several deductions against income for energy producers, most
notably the manufacturer's deduction under the American Jobs
Creation Act of 2004. Under the budget proposal, this deduction,
which applies to all domestic industries, would specifically
exclude domestic exploration and production of oil and natural
Overall, the budget uses the domestic oil and natural gas
industry as a source of $31 billion over 10 years in additional
revenues. It should be noted that this industry already faces
effective tax rates that are higher than the manufacturing sector
as a whole.
These energy tax hikes, which of course do not apply to foreign
sources of oil, also put domestic production at a comparative
disadvantage. For example, the 1980 windfall profits tax on oil
companies (an excise tax that kicks in when the price of oil
exceeds a certain amount) was found by the Congressional Research
Service to have "reduced domestic oil production from between 3 and
6 percent, and increased oil imports from between 8 and 16
percent." The newly proposed tax changes would have
the same effect.
5. Administrative delays on drilling. Last year, in the
wake of public outrage over $4 gas, President Bush and Congress
repealed the restrictions on leasing in 85 percent of America's
territorial waters. However, Secretary of the Interior Ken Salazar
has already reversed the pro-energy momentum from last
year, stalling on opening any new areas to leasing and
even cancelling some existing leases. He has also blocked the
leasing program for oil shale, a promising source of oil trapped in
massive deposits of rock under parts of Colorado, Utah, and
Wyoming. If progress can be made on technologies to efficiently
extract the oil from the rock, oil shale could single-handedly
supply America's oil needs for many decades and possibly a century
What to Do Instead
Instead of clamping down on domestic energy supplies, American
energy policy should embrace these ideas:
- Expand offshore and onshore oil production into previously
restricted areas, including Alaska's Arctic National Wildlife
Refuge, where an estimated 10 billion barrels of oil--16 years of
current imports from Saudi Arabia--lie beneath a few thousand acres
that can be accessed with minimal environmental impact;
- Reduce the regulatory and legal delays that can slow and
sometimes stop production;
- Allow further progress on oil shale; and
- Prevent costly new anti-energy regulations from being imposed
in the name of addressing global warming.
These principles are contained in bills such as the American
Energy Innovation Act (H.R. 2828), the No Cost Stimulus Act (S. 570
and H.R. 1431), and the American Energy Act (H.R. 2846).
Smart Energy Policy Should Be
It should be obvious, but in Washington it is often not:
Discouraging domestic oil supplies with access restrictions,
regulations, fees, and taxes will add to the future price at the
pump, while streamlining these impediments to increased production
will do the opposite. Congress and the President should be enacting
measures that allow oil and gasoline to be as plentiful and
affordable as possible to meet the nation's energy needs. Instead,
they are doing the opposite.
Lieberman is Senior Policy Analyst in Energy and the
Environment in the Thomas A. Roe Institute for Economic Policy
Studies at The Heritage Foundation.