• Energy Tax Facts
  • 3 Sep 13

Patriot News (Op-Ed): Obama’s tax policies will hurt Pennsylvania’s energy industry

Under the presidency of Barack Obama, the energy policies of our nation are shaped largely by environmental groups who want to end the use of fossil fuels that power our economy and account for more than 15 million jobs.

The administration’s aims have been painfully evident from the beginning. Its first step was to ban offshore drilling in large parts of the outer continental shelf that the U.S. Geological Survey views as prime areas for oil and natural gas exploration.

Then the administration targeted the coal industry with stringent air-quality regulations that led to the shutdown of many coal plants.

Reducing greenhouse-gas emissions will make the consumption of fossil fuels far more expensive – and could lead to rejection of the Keystone XL pipeline project. Fossil fuels, mind you, account for 80 percent of the nation’s energy production.

And now for the fifth time in as many years, Obama is railing about the need to eliminate tax deductions for the oil and natural gas industry. His budget proposal for the 2014 fiscal year calls for an additional $90 billion in taxes on oil and gas companies.

Clamping higher taxes on companies that already shell out $84 million a day to the U.S. Treasury would have the opposite effect of the one intended. Companies would have no alternative but to make fewer investments, drill fewer wells, employ fewer Americans, and produce less of the energy that fuels our economy.

If tax exemptions for the oil and gas industry are eliminated, the cost in dollars and forfeited jobs would be enormous.

A study by Wood Mackenzie shows that an additional 190,000 Americans would be unemployed next year if one of the tax exemptions — intangible drilling costs, which are costs such as site preparation and labor that cannot be recovered — is repealed.

Higher taxes will leave the industry with less after-tax revenue to reinvest in new exploration and production. Imposing new controls or other obstacles will only make the situation worse. The capital costs of building and maintaining this country’s oil-and-gas infrastructure are huge. For example, it costs about $1 billion to build an offshore oil platform in deepwater areas of the Gulf of Mexico.

Expanding a large refinery or constructing a new coastal terminal for liquefied natural gas can cost hundreds of millions of dollars. Just to drill a single oil well in 10,000 feet of water takes an investment of as much as $200 million. And the cost to produce shale oil and natural gas from hydraulic fracturing and horizontal drilling is also high.

Another one of the tax changes is a proposal to modify rules for dual capacity taxpayers. This modification will subject only U.S. based companies to double taxation on income earned overseas, money which already incurs foreign taxes.

The change would put America’s oil and gas industry at a competitive disadvantage globally that would greatly impact both foreign and domestic investment. Studies show that U.S.-based oil and gas companies will be significantly restricted from growing and expanding in the world marketplace – costing U.S. revenue and jobs.

Who would benefit from the Administration’s tax bill? Certainly not motorists. The sheer magnitude of the proposed tax increase would dictate higher prices for gasoline and diesel oil. Raising taxes would do nothing to enhance the nation’s energy supply.

The likely result will be reduced oil and gas supplies and higher prices. And at a time when millions of Americans are out of work and millions more are under-employed, raising taxes will undermine efforts to increase employment.

So who would benefit from increasing the industry’s taxes? The answer is very simple – the environmentalists’ favorite energy programs like ethanol, solar and wind. But it is wishful thinking to imagine that renewable energy sources will be able to replace fossil fuels any time in the foreseeable future.

Currently solar and wind power account for less than 2 percent of the nation’s energy supply. And ethanol, especially fuel made from corn, is a bad deal for consumers who must pay more for food.

Tax proposals that will have the effect of reducing energy production while raising costs are exactly the wrong course of action. We would pay a huge price for such shortsightedness in higher prices for oil and gas, in closed industries, and in lost jobs.