October 2022
Columns

Oil and Gas in The Capitals: For the U.S. oil and gas industry, has “everything really changed?”

In February, Russia initiated its unwarranted invasion of Ukraine and ignited an international energy crisis. Immediately thereafter, it appeared that the world and the U.S. would realize the mistakes made in relying on Russian O&G and on unreliable, expensive renewable energy.
Dr. Roger Bezdek / Contributing Editor

In February, Russia initiated its unwarranted invasion of Ukraine and ignited an international energy crisis. Immediately thereafter, it appeared that the world and the U.S. would realize the mistakes made in relying on Russian O&G and on unreliable, expensive renewable energy. Certainly, the thinking went, the February-March shocks would impress on the Biden Administration the critical role played by O&G in the nation’s economy. Surely, the administration would cease its war on fossil fuels and do everything to encourage O&G production. Unfortunately, the optimism (naiveté?) was misplaced, and the administration continues to hamstring the industry.  

Return of WPT? Some bad ideas never die. As the EU introduces an O&G windfall profits tax, it is pressuring the U.S. to do the same. The UK introduced a WPT on O&G companies, although Prime Minister Liz Truss said she now opposes it.  

Pressure on President Biden is mounting, especially from congressional Democrats, such as Sen. Ron Wyden (D-Ore.), chair of the Senate Finance Committee and the Joint Committee on Taxation. A Federal WPT existed during 1980-1988. However, it was not a tax on profits but an excise tax on the difference between the market price of oil and a 1979 inflation-adjusted base price. A WPT would not reduce gasoline prices. In reality, higher taxes would have no near-term effect on gasoline prices and would increase long-term prices, because they would reduce O&G production. 

The Congressional Research Service found that the 1980s WPT led to reduced domestic oil production and increased imports. By making domestic production more expensive, the U.S. encouraged cheaper imports and undermined energy security efforts following the 1970s oil crises. This tax left the U.S. more vulnerable to petro-states like Russia. It was a bad idea then, and it is a bad idea now. Nevertheless, with Democrats in control, this bad idea may not be dead. 

White House turnover. Radical environmentalist Gina McCarthy has resigned as U.S. National Climate Advisor. However, she was replaced by Ali Zaidi, whose focus is to “clamp down on emissions from the O&G industry.” Further bad news arrived with the appointment of John Podesta to head the newly created White House Office on Clean Energy Innovation and Implementation to implement recent climate legislation. Podesta previously served as chief of staff to President Clinton and counselor to President Obama, and he founded the left-wing Center for American Progress. His mandate is to facilitate the president’s goal of reducing U.S. 2030 GHG emissions by half. He personifies the officious elite that seek to compel ordinary Americans to live austere lives and reduce their carbon footprints, while the elite enjoy their mansions, private jets, and other fossil fuel perks. 

State governments are no less misguided. New York is implementing a 2035 ban on new sales of internal combustion engine vehicles. NYS will require a growing percentage of new vehicle sales to be EVs—35% in 2026, increasing to 68% by 2030. NYS is following California’s lead, which has adopted similar rules. The Clean Air Act allows California to set its own vehicle emission standards, and other states can follow suit. NYS is doubling down on a disastrous policy:  California has the highest cost, least reliable electricity, EVs will double the load on its grid, and the state cannot even keep the lights on. 

Supreme issue. The Supreme Court is considering whether to hear a lawsuit that could have significant adverse implications for O&G. The case was filed by several Colorado local governments, which want to make O&G companies liable for climate change by asking their state’s courts to make the companies pay for bridges and other infrastructure. Last year, the Supreme Court heard a nearly identical lawsuit from the City of Baltimore. The court sided with the companies and required the Courts of Appeals to more fully consider whether climate-related claims can be heard in state or federal court. Now, companies are asking the court to determine if claims alleging damages from climate change arise under federal law and, if so, whether they must be heard in federal court. 

How the court answers these questions will impact O&G companies. The lawsuit is part of a coordinated national litigation campaign by state and local governments and is packaged as state claims, in an effort to sidestep a Supreme Court 2011 decision deciding that climate change is not a liability question for the courts. The current lawsuits attempt to circumvent this and convince state courts to award money to local jurisdictions. The architects of this litigation contend that imposing costs on O&G companies will allow jurisdictions to circumvent Congress’s unwillingness to increase energy prices, so climate change impacts will “get priced into” O&G. However, families and businesses can hardly afford to pay more for gasoline or electricity, due to these lawsuits. 

IRA. The recently enacted (misnamed) Inflation Reduction Act will have no effect on inflation, but according to the Penn Wharton Budget Model will reduce U.S. GDP over the coming decade. While the U.S. has become the world’s top O&G producer, the IRA concedes American energy supremacy by incentivizing the green-energy transition with $370 billion in subsidies.  As the U.S. demonizes fossil fuels and ends up with the world’s most expensive, unreliable renewable energy, voters will realize that the IRA was a huge mistake.    

Thus, despite early optimism, nothing has really changed in the U.S. for the O&G industry, as federal and state governments continue to double down on misguided policies.

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Dr. Roger Bezdek is an internationally recognized energy analyst and president of MISI, in Washington, D.C. He has over 30 years’ experience in the energy, utility, and environmental areas, serving in industry, academia, and government.  He has served as senior adviser in the U.S. Treasury Department, U.S. energy delegate to the EU and NATO, and as a consultant to the White House, the UN, government agencies, and numerous corporations and organizations.  

About the Authors
Dr. Roger Bezdek
Contributing Editor
Dr. Roger Bezdek is an internationally recognized energy analyst and president of MISI, in Washington, D.C. He has 30 years’ experience in the energy, utility, environmental, and regulatory areas, serving in private industry, academia, and government. He has served as senior adviser in the U.S. Treasury Department, as U.S. energy delegate to the EU and NATO, and as a consultant to the White House, governmental agencies, and various corporations and organizations. His most recent book is The Impending World Energy Mess.
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