Cheaper Gasoline Is No Reason to Hike Taxes  

Falling gasoline prices have led to heightened interest in jacking up gasoline taxes. As a CBS story put it: “If there ever was a perfect time to raise gas taxes, now would be it. Which is why it’s no surprise that federal and state lawmakers are showing new interest.” Yet there is no economic or environmental reason that gas taxes make more sense now, compared to six months ago.

The new push for a gas tax—especially those that are explicitly sold as setting a “floor” under the price of gas—show that none of this is really about correcting a “negative externality.” It’s about forcing Americans to change their lifestyle, and putting the new shackles on while the chain initially has some slack.

Legislators and pundits who support higher taxes on carbon-intensive fuels like to pretend that they are dutifully following textbook economics and the consensus scientific view on climate change. Some groups even go so far as to label a carbon tax as a “market solution” that corrects the problem of insufficiently defined property rights. Listening to this rhetoric, one would think they aren’t trying to centrally plan energy markets, picking winners and losers. Not at all! They assure us they merely want to augment the market price of oil and other energy sources to account for the environmental damages of extra carbon dioxide emissions.

But if that’s true—if the “social cost of carbon” is a scientifically determined number of $x per ton—then these values are not significantly affected by the world price of crude oil. When gas was $3.50 a gallon, someone who thought “climate change” justified a 50-cent gas tax, should still support only a 50-cent gas tax when it falls to $2 per gallon. Under no means should someone support a “floor” where the tax adjusts to keep gas from falling below a target price.

In summary, the recent plunge in gasoline prices—which are still high by historical standards—has revealed the phoniness of many who claim to want to merely correct a market mis-pricing. No, they want to impose a tax both to achieve a certain outcome and to raise revenue for the government, which is why they now are licking their lips at the opportunity.

 

Cuomo Forecloses on New York’s Economic Future

New York Governor Andrew Cuomo announced Wednesday that his administration will uphold its moratorium on hydraulic fracturing. The decision ends years of stalling and speculation as to whether the governor would allow New Yorkers to enjoy the benefits of affordable energy.

By banning hydraulic fracturing, Cuomo is squandering an opportunity for New York to join America’s energy boom. Parts of upstate New York sit atop the Marcellus shale formation, which contains vast supplies of natural gas. A study by the Manhattan Institute finds that shale gas drilling would offer New York enormous economic benefits, including:

  • $11.4 billion in economic output.
  • 15,000 to 18,000 jobs in the Southern Tier and Western New York from the Marcellus and another 75,000 to 90,000 jobs if exploration was expanded to include the Utica shale and southeastern New York, including the New York City watershed.
  • $1.4 billion in state and local tax revenues.

Cuomo’s pretext for banning hydraulic fracturing is the recent release of a long-awaited study from the state health commission. The study finds “significant public health risks” associated with hydraulic fracturing.

While no energy source is without risk, the benefits of hydraulic fracturing far outweigh the costs. A typical Marcellus shale gas well generates about $4 million in benefits, while economic damage resulting from environmental impacts amount to $14,000 per well, according to the Manhattan Institute.

Cuomo’s decision keeps the state’s enviable energy resources under lock and key. The Marcellus is by far America’s most productive shale gas play, with output topping 16 billion cubic feet (bcf) per day in December 2014. (The second biggest play, the Permian Basin, produced just over 6 bcf per day this month).

Instead of unlocking those resources, Cuomo caved under pressure from environmental groups bent on halting responsible energy development and foregoing economic growth. The message is clear: if you like affordable energy, look elsewhere—New York isn’t for you.

AEA Energy Analyst Alex Fitzsimmons authored this post

Hydraulic Fracturing is Bankrupting OPEC

The Energy Information Administration (EIA) is out with new numbers measuring the geopolitical impact of America’s domestic energy boom. As the following chart shows, revenues from net oil exports for the Organization of Petroleum Exporting Countries (OPEC) are expected to decline by 14 percent in 2014 and 46 percent next year compared to 2013 levels.

EIA OPEC

In 2015, OPEC countries (excluding Iran) will earn $375 billion less in net oil revenues than they did just two years ago, according to EIA. The dramatic change is due in large part to the plummeting price of crude oil. Brent crude, a key international benchmark, has fallen below $60 per gallon from more than $100 just a few months ago.

Oil prices are sliding largely as a result of booming production from U.S. shale plays. Domestic oil output eclipsed 9.1 million barrels per day this month—the most oil we’ve pumped in almost three decades and a 78 percent increase since January 2008. (The ability to extract oil and natural gas from dense shale rock formations is a recent phenomenon made possible by innovations in horizontal drilling and hydraulic fracturing occurring on state and private lands—energy production is actually down on federal lands).

America’s energy renaissance is upending world energy markets and freeing us from the yoke of OPEC. Producing more energy domestically allows us to import less from volatile regimes. It also means OPEC, a once-feared cartel, no longer wields the power to dictate international oil prices. That strengthens our energy security abroad and benefits American families at home.

Energy Policy Analyst Alex Fitzsimmons authored this post.

Let the Golden Age of Oil Continue

“No one would have predicted it. To the contrary, experts predicted the opposite. In 2008, the International Energy Agency was projecting U.S. production would decline or remain flat for decades. Prior to the recession, the price of oil peaked at nearly $150 a barrel, and with global demand rising, it looked like it would remain at an elevated level forevermore.”

-Rich Lowry, National Review

As Yogi Berra once said, “It’s tough to make predictions, especially about the future.” In the case of the well documented “peak oil” phenomenon, it would appear he was dead on.

Since June of this year, crude oil prices have fallen by about $40 per barrel – or more than 35 percent. Yet American oil production continues to rise.

IER-U.S.-Oil-Production-Growth copy

Domestic oil production has increased by 14% since July of last year – while rising by an unprecedented 71% since 2008. Over Labor Day weekend, American consumers on average enjoyed the lowest gasoline prices seen in four years. And they’re only getting lower.

America’s oil revolution has been met with considerable doubt, much like any improvements in American energy production that don’t rely on subsidies or green propaganda to succeed. These naysayers contend that falling oil and gas prices will make new production unprofitable, forcing companies to slow their operations.

Yet if the innovations responsible for America’s energy renaissance are any indication, improvements in efficiency will allow her golden age of oil to continue.

America’s energy boom can almost entirely be attributed to technological innovations in hydraulic fracturing and horizontal drilling. Fracking alone saved American consumers nearly $248 billion just last year. And while civil unrest and anti-American terrorists seem to dominate the headlines in some of the world’s largest oil-producing countries, American production has managed to keep the world’s crude oil prices in check.

With proved oil reserves continuing to rise in 2013 and efficiency improvements undoubtedly on the horizon, we can confidently look forward to a better future thanks to America’s traditional energy.

Christmas Comes Early for Big Wind

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement on the Senate approving an extension of the wind Production Tax Credit (PTC):

“Christmas came early for wind industry lobbyists courtesy of the United States Congress. By passing a retroactive extension of the wind Production Tax Credit, Congress is taking money out of the pockets of hardworking Americans to stuff the stockings of foreign corporations and wealthy investors. Moreover, the PTC is integral to President Obama’s climate agenda, which will stick American families with higher energy costs.

“We look forward to working with the new Congress to unwind this culture of cronyism that is embodied by handouts like the wind PTC. The new Congress should resist Big Wind’s enticements and reject any attempt to extend the wind PTC.”

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IER Co-Signs Free Market Coalition Comment on EPA’s Power Plant Rule

In addition to submitting our own formal comment on EPA’s proposed carbon dioxide emission rule for existing power plants, IER has co-signed a free market coalition comment written by Marlo Lewis of the Competitive Enterprise Institute (CEI). The CEI coalition comment finds EPA’s power plant rule to be, “illegitimate and unlawful.” The comment explains that the “implementation costs are likely much greater than EPA estimates. It will increase electricity prices and raises reliability concerns. Its putative climate benefits are illusory. This regulation should be withdrawn.” Here are the main points from the comment:

EPA’s Rule is Illegitimate

The EPA’s climate rule is an egregious example of executive overreach. Federal agencies are not allowed to make laws, only enforce them. But as the coalition comment explains, EPA’s rule “stretches CAA §111(d) beyond all recognition. The provision does not authorize EPA to restructure state electricity markets, revise state electricity policies, or establish statewide caps for CO2.” As such, the rule is unlawful and should be withdrawn.

The Rule is Unlawful

There are many reasons the plan is illegal under the Clean Air Act, including the following:

  • EPA’s Pollution Standard rule–the legal prerequisite for the climate rule–is unlawful because it requires Carbon Capture Storage technology which is too expensive for economical use and has not been “adequately demonstrated” as the law requires.
  • CAA section 111(d) (the section the climate rule is under) does not allow for double-regulation of sources that are regulated under another section of the CAA. For instance, many power plants are already subject to emission regulations under the Mercury Air Toxics Standard (MATS).
  • A state’s electric power sector is not a specific “source” of emissions and therefore a performance standard cannot be set for an entire state, as EPA has proposed.
  • The CAA calls for regulated entities to employ the “best system of emission reduction” (BSER). This requirement does not authorize EPA to dictate state policies regarding renewable energy, electricity dispatch, or demand management.
  • Section 111(d) was intended for “highly localized” pollutants, not widespread air pollutants that are typically covered under the NAAQS program. As CEI puts it, “Carbon dioxide emissions are the most ubiquitous byproduct of industrial civilization.”
  • Performance standards are intended to improve performance by reducing emissions per unit of output, not reduce emissions by limiting production like the climate rule does by shuttering coal plants.
  • This rule for existing sources is more stringent than the rule for new sources and regulated entities not covered in the rule for new sources, neither of which are permitted under the CAA.
  • EPA claims it has authority to enact state renewable mandates, fleet dispatch policies, or rebates for programmable thermostats if states to not come up with an “adequate” state implementation plan.
  • EPA’s top-down approach conflict’s with states’ local knowledge to propose standards they consider achievable.

The Rule Infringes on States’ Rights and Citizen Choice

Competition among states gives citizens the option to vote with their feet and leave states with unpopular policies. According to CEI, “By penalizing excessive taxation and overregulation, interstate competition for the talents, assets, and allegiances of citizens may also restrain politicians in states with poorly performing economies…”

A 2014 report titled “Rich States, Poor States” found that “10 states with the cumulative net in-migration also have electricity prices at or below the national average, whereas seven of ten states with the greatest cumulative net out-migration have higher-than-average electricity rates.” This shows how important electricity prices are in promoting a competitive economic atmosphere.

EPA claims states are granted ample “flexibility” under the climate rule. However, the only “flexibility” the states are given is whether they want to get punched in the face or hit over the head. Furthermore, the climate rule guarantees that states choose more regulation over less regulation.

The Climate Rule will Increase the Price of Electricity and Decrease Reliability

The proposed rule will raise the price of electricity by forcing states to replace economical coal capacity with more costly and less reliable renewable generation. Still, EPA states that even though electricity rates will rise, electricity bills will go down due to improvements in energy efficiency. The comment cites the Virginia State Corporation Commission (SCC) staff, which is in charge of regulating utility prices in Virginia, because they believe that this is a highly unrealistic scenario. Specifically SCC staff said:

Contrary to the claim that ‘rates will go up, but bills will go down,’ experience and costs in Virginia make it extremely unlikely that either electric rates or bills in Virginia will go down as a result of the Proposed Regulation.

Finally, by prioritizing intermittent renewable sources of energy above reliable ones, the proposed rule will make it more difficult to balance the amount of electricity demanded by consumers with the amount of electricity generated–a difficult task that must be performed in real time. In short, it decreases the reliability of our grid.

The Climate Rule’s Benefits Are Illusory

The Climate rule does not have a sizable impact on climate change–the very problem it is supposed to mitigate. EPA’s own model shows that the rule will produce less than a 0.02 degree Celsius change in global temperature by 2100. This is “…too small to have any discernible impact on sea-level rise, weather patterns, polar bear populations, or any climate-related variable people care about.”

EPA Should Withdraw the Rule

This rule is illegal. It lacks the support of the American people. It imposes excessive costs and only produces illusory benefits. The rule artificially increases the cost of energy from energy sources in hopes that that will finally make renewables more competitive, and it leaves Americans with the enormous price tag. Given this evidence, the EPA should withdraw the rule.

EPA Torture Report

EPA torture 600 AEA

Whether it’s the costliest regulation in history or the coal-killing power plant rules (that Obama’s law professor says raise “constitutional questions”), it’s clear that the CIA isn’t the only government agency engaged in torture. At least the CIA isn’t torturing Americans.

United Nations: Earth ‘Has a Fever,’ Reliable Energy is the Virus

Does the UN think humans are a disease infecting the Earth? As Bloomberg reports:

UN Secretary-General Ban Ki-moon stepped up his call for all nations rich and poor alike to fight global warming, seeking to break a dispute over which should move first to rein in fossil-fuel pollution.

Speaking as senior ministers arrived at a United Nations gathering of envoys from 190 countries, Ban expressed alarm that the world isn’t moving quickly enough on the issue.

Our planet has a fever and it is getting hotter every day,” Ban said at a press conference in Lima today. “We can no longer afford to burn our way to prosperity. We must take action now. The more we delay, the more we will have to pay.” [emphasis mine]

His admonition is revealing. As any parent knows, fever is the body’s natural defense mechanism against infection. It is our immune system’s response to invading bacteria and viruses that would do us harm.

By Ban’s logic, reliable energy is a virus triggering Earth’s “fever.” He is arguing that most of the energy we use—natural gas, oil, and coal—emits carbon dioxide and raises the planet’s temperature. That makes mankind’s energy use deleterious to Mother Nature, in the same way a virus makes us sick.

What would it take to abate Earth’s “fever”? Ban’s solution is to decrease carbon dioxide emissions by increasing energy efficiency standards (use less energy) and replace inexpensive and reliable energy (natural gas, oil, and coal) with expensive and unreliable sources (wind and solar).

Unfortunately, Ban’s cure is worse than the disease. Access to reliable energy is strongly correlated with human health and prosperity. As we explain here, energy access is consistent with higher life expectancy, lower infant mortality rates, and improved access to sanitation facilities.

It should come as little surprise, then, that developing nations like China and India are reluctant to take Ban’s medicine. Global energy demand is projected to increase 37 percent by 2040, according to the International Energy Agency, driven largely by developing countries. IEA expects affordable and reliable supplies of natural gas, oil, and coal—not Ban’s preferred sources—to meet most of that demand. Those fuels will save lives and lift millions of people out of poverty.

World leaders should reject the notion that reliable energy is tantamount to a virus. Affordable and reliable energy makes people’s lives better by providing a critical building block to escape poverty and lead better, cleaner, and more prosperous lives.

AEA Energy Analyst Alex Fitzsimmons authored this post. 

ThinkProgress Makes the Case for Coal

In a recent ThinkProgress blog post, Joe Romm makes a stunning admission—he believes that zero carbon sources such as wind and solar will never be “significantly cheaper than existing coal power” in “a timescale that could matter to humanity.” That’s why the point is to increase the cost of using coal, natural gas, and other carbon dioxide-emitting sources through taxes or regulation.

Romm’s comments come as a critique of Google engineers who figured out that their RE<C project (a project to make renewable energy less expensive than coal) “simply won’t work.” Here’s an excerpt from Romm’s piece:

Google’s goal was aimed at developing renewable sources that were simultaneously cheaper than existing coal-fired power plants — and dispatchable, too! Although Google’s RE<C website and 2007 news release don’t clarify the matter, the Google engineers say they were focused on research into “how a new energy technology could perform … a lot more cheaply than an existing coal-fired power plant already does.”

I point this out mainly because the goal of getting a new carbon-free energy technology to market at a price significantly cheaper than existing coal power … is widely believed to be impossible in a timescale that would matter to humanity. [Romm’s emphasis] Back in the mid-1990s, I helped run what was then the largest R&D program in the world for developing carbon-free energy technology at the Department of Energy. I never met anyone there or in the past two decades with any actual R&D experience who ever thought such a goal was either plausible — or necessary.

After all, if you have already bought and paid for a coal plant (or indeed any fossil fuel plant), the cost of operation is mostly the cost of extracting and delivering fossil fuels. How precisely could some new carbon-free power plant built entirely from scratch possibly be as cheap as that, let alone be “vastly lower” in cost (let alone be both cheaper and dispatchable)? Answer: It probably couldn’t — certainly not in the short 4-year window Google gave the effort.

That is why pretty much every serious technology and policy analyst in the world has written that if your goal is to avoid catastrophic warming, you need some price on carbon or some regulatory policy that helps speed the shut down of coal plants before the end of their theoretical lifetime. [emphasis added]

In other words, the goal of promoting and subsidizing green energy is not to make it cost-effective–Romm believes it will not be cost effective in any timescale that matters. Instead, Romm and his travelers want to increase the cost of the cost-effective and reliable energy that we use.

The problem is that energy is the lifeblood of modern society. It gives us light, heat, and the ability to do work in ways that were unimaginable in generations past. Driving up the cost of this energy will harm all Americans, especially lower income Americans.

Travis Fisher and Alex Fitzsimmons authored this post.

Hydraulic Fracturing Moratorium Is Holding New York Back

The Energy Information Administration recently announced that U.S. proven natural gas reserves were at the highest point of all time. This is great news, but there is one glaring problem—New York.

From 2012 to 2013, proved natural gas reserves increased by 10 percent, even as U.S. natural gas production broke records.

Pennsylvania led the way with an increase of 13,535 billion cubic feet of new proven natural gas reserves. This is because of the Marcellus and the Utica shales, which underlie Pennsylvania, West Virginia, Ohio, and New York.

Natural Gas Proved Reserves Map

This is all great new, except one thing—New York’s proved natural gas reserves fell even as Pennsylvania, West Virginia, and Ohio’s natural gas reserves dramatically increased. The reason has nothing do to with the geology or the actual resources in the ground, but everything to do with politics. New York has a moratorium on large scale hydraulic fracturing—the technology that is driving these large increases. As a result, New York’s proved natural gas reserves are falling while their neighbors are increasing. That’s too bad for New York’s consumers and underemployed, who could be enjoying the economic benefits of energy production from shale deposits if politics could stop keeping them from going to work and paying less for their energy.

Marcellus Shale Play

New York’s falling proved natural gas reserves shows that geology is important, but geology is meaningless when politicians prevent people from looking what is underneath their own lands. It’s a shame when anti-energy politics hurts real people, like it does in New York.