We Can’t Tax Our Way to Energy Security

Mar 1, 2012

The President delivered another energy speech today, and populism trumped sound economics. Along with taking undeserved credit for expanding oil and gas production (more on that in a bit), the President told Congress they should vote “in the next few weeks” to raise taxes on oil and gas companies.

Raising taxes will improve energy security? Economic analysis doesn’t say so.

Last year, consulting firm Woods Mackenzie analyzed the effects of raising taxes on the oil and gas industry. They concluded it would:

  1. Cost 170,000 jobs through 2014.
  2. Result in up to $128 Billion in lost government revenue through 2025.
  3. Cause a 14% decrease in energy production on federal lands that would have to be replaced with imported energy.

In the same study, Woods Mackenzie also analyzed what would happen if oil and gas development were increased in five key areas—an actual “All-of-the-Above” energy strategy. Saying it would be better than higher energy taxes is putting it mildly. Wood Mackenzie concluded:

  1. 500,000 new jobs would be created by 2025.
  2. $480 billion in additional government revenue would fill federal coffers.

History also tells us higher energy taxes is bad policy. In 1980, a windfall profits tax was slapped on domestic oil production. As noted in an Institute for 21st Century Energy report, the Congressional Research Service estimated that the tax reduced domestic production by 8% and increased imports by as much as 13%.

These studies affirm the common sense claim that when you raise taxes on energy companies you end up with less domestic energy and jobs, but when you reduce their burdens you get more energy and jobs.

Now back to the President continuing to push the farce that his administration should be praised for increased domestic oil and gas production.  On stage in New Hampshire, he stood beside a chart touting the reduction in oil imports while he has been President. But the federal government can only take credit (or blame) for any change in energy production on land it controls--federal lands. They can’t take credit for increases in energy development from state and private lands. It’d be like a potato farmer taking credit for more potatoes grown in total even though all the increase is from his neighbor’s farm.

The Institute for Energy Research pieced together Department of Interior data and found that oil and gas production on federal lands decreased from 2010-2011, while oil and gas production on state and private lands increased. [See the chart above.] Also, Mark Green at Energy Tomorrow notes, “According to EIA [Energy Information Administration], Gulf production was down from 1.55 million barrels per day in 2010 to 1.32 mb/d in 2011 and is estimated to fall to 1.23 mb/d in 2012 – the 21 percent decline.” This is what the administration should claim as their own.

Despite what the President says on the stump, the facts are that higher energy taxes will reduce domestic production and cost jobs, and oil and gas development is decreasing under his administration. Last time I checked an “All-of-the-Above” energy strategy would include all kinds of energy—renewables, nuclear, and oil and gas. The President should actually mean what he says instead of pushing policies that run counter to his rhetoric.

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