For decades, political commentators have been lamenting America’s lack of an energy policy. That’s no longer true. Under Barack Obama, the U.S. has adopted a very clear energy policy: obstruct and even vilify the coal, oil and natural gas industries while lavishing subsidies on unreliable and expensive sources like solar, biofuels and wind energy.
The events of the past few weeks provide plenty of examples. The most recent: the bankruptcy of solar-panel-maker Solyndra, which despite a $527 million loan guarantee from the Department of Energy could not compete with overseas producers.
Two weeks before Solyndra’s bankruptcy, the White House announced that the Departments of Agriculture, Energy and Navy will “invest up to $510 million during the next three years” to develop “advanced drop-in aviation and marine biofuels to power military and commercial transportation.”
Never mind that the entire notion of “advanced biofuels” has been a colossal failure. Despite decades of hype and tens of millions of dollars in subsidies, the U.S. still doesn’t have any substantive biofuel production other than the corn ethanol boondoggle, which is now consuming about 40% of all U.S. corn production, and soy-based diesel.
About the same time the White House unveiled the latest biofuel initiative, several news outlets reported on a lawsuit filed by Exxon Mobil Corp. against Obama’s Interior Department in which the energy giant claims it has been “singled out” for “unprecedented adverse treatment.” At issue: Exxon’s lease on offshore acreage that contains the Julia Field, a discovery that may hold 1 billion barrels of recoverable oil, making it one of the biggest finds ever made in the Gulf of Mexico.
Between 2006 and 2008, Exxon spent about $230 million drilling a pair of wells – each of them to depths exceeding 31,000 feet – that delineated the giant oil deposit. In late 2008, it applied for an extension of its lease, a process that had been routinely done many times before. But federal officials refused, saying the company hadn’t proved a “commitment to production.”
Unless the Interior Department changes its position, years of litigation will delay the production of millions of barrels of domestic oil and, with that delay, a postponement of what could be $11 billion in royalties payable to the federal government over the life of the field.
Obama regularly includes anti-oil-industry rhetoric in his speeches. Thursday night, during his speech on jobs, he nearly ignored the issue of energy policy altogether – no mention of “green jobs,” wind, solar or “clean energy” – but he did manage to squeeze in a condemnation of “tax loopholes for oil companies.” The president said the tax preferences for oil companies should be eliminated so that small business owners could get a tax credit for hiring workers.
Obama may not know it, but the domestic oil and gas industry is creating jobs, lots of them. Over the past 18 months or so, 48,000 people were hired in Pennsylvania by companies drilling in the Marcellus Shale. Last month, Halliburton announced that it would hire 11,000 workers this year, most of them to work on shale oil and shale gas projects in North America.
And this week, the American Petroleum Institute, perhaps the most powerful member of the oil lobby, sent a letter to Obama saying that if the industry were allowed to drill in more areas, it could create more than 1 million jobs.
In January, during his State of the Union speech, Obama called oil “yesterday’s energy.” Since then, he’s repeatedly said Congress should repeal the $4 billion worth of annual tax preferences used by the oil and gas industry because, as he said in May, the biggest oil companies are making “about $4 billion in profits each week.”
Never mind that during the second quarter, the average member of Big Oil had a profit margin of 7.9%. Last year, Exxon Mobil, the biggest U.S.-based member of Big Oil, had a profit margin of 8.6%. That’s only slightly higher than the average profit margin of 214 other sectors tracked by Yahoo Finance. By comparison, Apple’s profit margin was 21.5%.
While Obama vilifies the oil industry’s profits, his appointees at the EPA are pushing regulations that may force the shuttering of as much as 80,000 megawatts of coal-fired generation capacity because the companies who own those plants cannot comply with the proposed rules.
The closure of the coal-fired plants, which could begin in January, will probably mean even higher electricity costs for cash-strapped consumers. Since 2005, the average cost of residential electricity has increased by about 30% and now stands at 12 cents per kilowatt-hour.
While it hammers the coal sector, the Obama administration is showering the wind energy business with what can only be described as corporate welfare. Consider the Shepherds Flat wind project in Oregon. Not only is the Energy Department giving General Electric and its partners a $1.06 billion loan guarantee on the $1.9 billion project, but as soon as GE’s 338 wind turbines start turning at Shepherds Flat, the project owners will get a cash grant of $490 million from the federal government.
The deal has so much “green” for the project developers that last fall, some of Obama’s top advisers objected, saying that its backers had “little skin in the game” while the government would be providing “a significant subsidy (65+ percent).” The advisers’ memo points out that the subsidies could allow GE and its partners, which include Google and Japan’s Sumitomo Corp., to reap an “estimated return on equity of 30 percent.”
Over the past year, the average electric utility’s return on equity has been 7.2%. Thus, taxpayers’ money is helping GE and its partners earn more than four times the average return on equity in the electricity business, but Obama hasn’t uttered a negative word about GE, which paid little or no federal income taxes last year even though it generated $5.1 billion in profits from its U.S. operations.
While campaigning last month, Obama repeatedly decried America’s need for “foreign oil.” In Minnesota, he talked about the need to “win back energy independence,” and then, in nearly the same breath, he denounced the tax breaks that encourage domestic drilling for oil and gas. The solution in Obama’s math- and physics-free view of the world: more solar, more wind energy and yes, of course, more electric cars.
Never mind that in 2010, oil and natural gas provided nearly 200 times as much energy to the U.S. economy as all solar and wind energy production combined. Never mind that the Energy Information Administration recently estimated that wind-generated electricity costs about 50% more than that produced by natural gas-fired generators while solar-generated electricity costs at least 200% more.
The latest data from the Bureau of Labor Statistics show that 16.3% of U.S. workers are either unemployed or underemployed. In addition, about 14% of the US population, 45.1 million Americans, are now relying on federal food stamps. Given those numbers, the federal government should be doing all it can to keep energy as cheap, abundant and reliable as possible. Unfortunately, on nearly every front, the Obama administration is taking actions that will achieve the exact opposite. And with numerous analysts – as well as the Federal Reserve – predicting a prolonged recession, it is doing so at the worst possible time.
That’s not good energy policy, but it is, nonetheless, a policy.
Robert Bryce is a senior fellow at the Manhattan Institute. His latest book is “Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future.”
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