The Obama-Pelosi Premium - Bad and Getting Worse

The Obama-Pelosi Premium: Bad and Getting Worse

MARCH 31, 2010

“From all indications, we’re going to see $3 gas again this summer.”
                                                     — John B. Townsend II, AAA Mid-Atlantic

BACKGROUND

In June 2008, gas prices stood at $4 per gallon on the watch of the Democrat Congress when President Bush lifted the presidential moratorium on expanded offshore drilling on the Outer Continental Shelf.  After intense pressure from House Republicans that summer, Speaker Pelosi allowed the congressional moratorium on drilling to expire on September 30, 2008, and gas prices fell more than $1 in a single month as the market anticipated increased energy exploration-showing the correlation between prices and policies pursued by the executive and legislative branches.

High gas prices impact more than just day-to-day commuting and vacation costs.  Any product that is carried by truck, for example, would be more expensive as gas prices rise.  80 percent of communities in the U.S. receive their goods exclusively by truck, so those communities would see prices of staples such as food and clothing rise especially. 

The U.S. economy is struggling to climb out of recession and higher gas prices will stunt any recovery.  It should also be noted that when the economy recovers, increasing demand for resources, prices will climb much higher without bold and immediate supply-side solutions.  The Administration and Congress needs to embrace serious energy exploration quickly as the American people cannot afford expensive and rising energy costs.

 

THE DEMOCRATS' HIGH GAS PRICE INITIATIVE

Despite today's announcement that the Obama Administration may allow some new OCS leases in 2012, it is clear that the Administration and Democrat Congress have and continue to promote public policies that restrict American energy exploration and raise gas prices. 

  • Obama Moratorium:  The Obama Administration plan would discard the 2010-2015 Outer Continental Shelf lease plan that had been set in motion by the previous Administration and delay the implementation of their new plan until 2012.  This new two-year "Obama Moratorium" (2010-2012) would almost certainly delay any new exploration in areas previously under moratoria until after the president's entire term.  The president's plan would then keep several areas off limits, including the Pacific coast from Mexico to Canada, the Atlantic coast north of Delaware, parts of Alaska, and the most promising areas of the Gulf of Mexico.

    Against the will of the American people and Congress, the Administration is essentially unilaterally reinstating the drilling ban for an additional two years, signaling to markets that supply will not expand, thus raising prices.  Earlier this month, Natural Resources Ranking Member Doc Hastings (R-WA) and 87 other House Republicans sent a letter to Interior Secretary Salazar urging the Administration to implement the 2010-2015 leasing plan.  The letter also outlined the cost of inaction-these years of delay will leave Americans unemployed, lose billions of dollars in revenues and create a greater dependence on unstable foreign sources of oil and gas that puts U.S. national security at risk. 

    Stalling and blockading of new energy production endangers tens of thousands of existing jobs and prevents the creation of new jobs that would help lower the unemployment rate.  Opening new areas to drilling would be a no-cost stimulus for the U.S. economy. 
  •  New Gas Tax:  Making matters worse, the Democrat Congress is unfathomably considering a new gas tax.  Press reports suggest that the Kerry-Lieberman-Graham climate bill under construction in the Senate may impose a "carbon tax" on motor fuels such as gasoline.  This gas tax would target all consumers (especially rural Americans who travel further for work) and result in an increase in air travel, cargo costs, and significantly impact fuel-dependent industries such as trucking.

    In the House, Transportation and Infrastructure Chairman Jim Oberstar (D-MN) recently suggested raising the current fuel tax to make up for an anticipated shortfall in tax receipts and the amount of funds he would like to spend on highway projects.  Under his plan, the Treasury Department would issue $130 billion in bonds and the proceeds would be shifted to the Highway Trust Fund (HTF).  The HTF would later reimburse the Treasury for the costs of the bonds through a higher gas tax.  Oberstar says that when the time for the gas tax increase comes, it will be too late to stop it, predicting, "But by that time we'll have made the investments, have the projects under way, we'll be creating a million jobs a year, and the economy will be in recovery.  And that would certainly be a time to increase the user fee."

 

REPUBLICANS' BETTER SOLUTION

House Republicans have an "all-of-the-above" plan-H.R. 2846, the American Energy Act-which includes provisions to increase American oil and gas production.  This legislation would lower gas prices and home utility bills, and in doing so, ease the hardship families face under the Democrats' misguided economic policies.  The bill would ultimately increase the supply of American-made energy in an environmentally-safe manner-lowering prices and creating jobs in the U.S.

  • Outer Continental Shelf: The Interior Department estimates that the OCS holds up to 86 billion barrels of oil and 420 trillion cubic feet of natural gas.  Significant portions of the OCS remain unavailable due to the Administration's actions.  The bill increases the energy supply by ending presidential delay and immediately moving forward with a leasing program on the OCS.  The bill also simplifies and harmonizes OCS mileage restrictions and gives coastal states a share of the receipts from energy exploration.  A portion of the revenues created by OCS exploration would go to a renewable energy trust fund to pay for a variety of renewable, alternative and advanced energy programs.
  • Arctic Coastal Plain:  The bill increases American energy by opening the Arctic Coastal Plain to exploration in an environmentally-sound manner, which could provide an additional 1 million barrels of oil per day.  The bill requires timely lease sales, provides for revenue sharing with the state, designates a fund to mitigate the effects of exploration and development, and devotes a portion of the revenues for a renewable energy trust fund to pay for renewable, alternative and advanced energy programs.
  • Oil Shale:  More than 70 percent of American oil shale is estimated to lie on federal lands which contain an estimated 1.23 trillion barrels of oil, more than 50 times the nation's proven conventional oil reserves.  The bill would restore leasing activities that were already underway prior to being halted in February 2009, by the Obama Administration.

The Obama Administration and Democrats in Congress should scrap their moratorium on OCS exploration and gas tax proposals and instead work with Republicans on policies that will increase American energy supplies, lower prices, and preserve and create good jobs in the U.S.  Bipartisan cooperation on pro-energy policies will lower costs for struggling families and businesses-and accelerate economic recovery.