The President's 'Unserious' Tax Threat

Mark Green
Posted November 2, 2022

The Biden administration’s 21-month record on energy is best described as short-sighted, ineffective and a series of distractions from the goal of producing more American oil and natural gas that would benefit this country and U.S. allies abroad.

President Biden followed the same script on Monday, threatening American oil and natural gas producers with a new tax on earnings – a pre-Election Day bid to divert attention from his administration’s policy approach, which has failed to help struggling American families and businesses in the ongoing energy crisis.

Instead of advancing increased American oil production – which would offer material, foundational solutions to the global imbalance between demand and supply – Mr. Biden has focused on a laundry list of bad ideas. These include the well-worn, discredited accusation of fuel pump price gouging, asking foreign suppliers to produce more oil and now a punitive new tax on U.S. producers. API President and CEO Mike Sommers:

“[H]e repeated the same debunked assertions he’s made in the past and again arrived at a policy proposal that will do the exact opposite of what would actually help families and businesses in this country. This has become a trend. The administration takes credit for every cent in decreases in gasoline prices, but when prices go the other way, the finger pointing begins.”

Sommers zeroed in on Biden’s tax threat:

“Increasing taxes on American energy discourages investment in new production, which is the exact opposite of what we need to do. Oil companies do not set prices, global commodity markets do. Policies matter, and canceling pipelines, increasing duplicative regulations, asking foreign producers to increase oil production, or more baseless accusations of price gouging – all send the wrong signal to the markets and to the American energy producers working every day to provide the fuels we all need. American families and businesses are feeling the impact and are looking to policymakers for solutions, not campaign rhetoric.”

Instead of distractions, Washington should provide unequivocal support for American oil and natural gas, the country’s leading energy sources today and projected to lead for decades to come. A new analysis by Rystad Energy of API’s 10-point action plan, found that under the plan Americans could see:

• Direct Investment – Nearly $200 billion in direct investment from 2023 to 2035, helping to support an additional $17 billion of U.S. GDP in 2025 and $27 billion in 2035.
• Increased Production – Pipeline investments and support for federal leasing that could lead to increased natural gas and oil production, including 4.6 billion cubic feet per day (Bcf/d) of new natural gas production in Appalachia by 2025. The plan also could boost carbon capture, utilization and storage capacity by 250 million tons per annum (Mtpa) and support 30 Mtpa in new hydrogen capacity through 2035.
• Job Creation – Support for 226,000 new jobs in 2035.
• More Federal Revenues – Additional federal royalties, taxes and bid revenue totaling $4.8 billion from natural gas and oil development on federal lands and waters from 2023 through 2035.

Sommers:

“We know that energy use will be on the minds of voters as they head to the polls next week, to address the growing [energy] crisis we face. Congress and the president must support energy investment, create new access and keep regulations from unnecessarily restricting energy growth.”

API’s action plan also highlights the country’s infrastructure needs, and Rystad’s analysis notes that 10 major infrastructure projects, representing more than $34 billion in capital expenditures, have been canceled or were at risk of cancellation because of protracted or uncertain permitting processes.

Frank Macchiarola, API senior vice president of Policy, Economics and Regulatory Affairs, said that four projects – the Atlantic Coast, Constitution and Penn East pipelines and the delayed Mountain Valley Pipeline – would have added 4.6 bcf/d of incremental natural gas supply to the Middle Atlantic region. The plan’s call for the designation of critical energy infrastructure would support $53 billion in new investment over the next decade.

Meanwhile, API’s action plan calls for accelerating U.S. energy exports and approving pending export project applications, which would help stimulate domestic production and economic benefits while helping allies abroad. Rystad’s analysis found that non-Free Trade Agreement (FTA) export permits take five to 25 times longer than FTA permits. A total of 22 bcf/d of non-FTA export applications are awaiting government approval. Non-FTA countries account for 87% of 2030 liquefied natural gas (LNG) demands, including the United Kingdom, Germany and Japan.

Unfortunately, the administration is stuck in partisan approaches that are not working for everyday Americans. A year ago, the president said gasoline prices would start coming down in early 2022, Macchiarola said. At that time the national average price for gasoline was $3.39 per gallon and the U.S. Strategic Petroleum Reserve (SPR) had an inventory of approximately 615,000 barrels. A year later, the SPR has been lowered to about 400,000 barrels and the average price of gasoline is $3.76 per gallon, 47 cents per gallon higher, he said. Macchiarola:

“The Biden administration has made unfounded claims of price gouging and emptied one-third of the supplies in the Strategic Petroleum Reserve, unsuccessfully asked OPEC to increase supplies two years in a row, and now is proposing to tax U.S. companies competing globally. That's not a plan for American energy security.”

As Sommers said above, instead of a serious energy plan, Americans have gotten political talking points from Washington. Let’s briefly rebut a couple of things in the president’s remarks this week:

Proposed windfall profits tax – Lawrence Summers, U.S. Treasury secretary under President Clinton and President Obama’s National Economic Council director, said the type of tax threatened by President Biden would be counterproductive:

“I’m not sure [I] understand the argument for a windfall profits tax on energy companies. If you reduce profitability, you will discourage investment, which is the opposite of our objective.”

Such a tax was tried before and harmed American energy security. Nonpartisan Congressional Research Service analysis of a tax imposed in 1980 found that it decreased U.S. energy production and increased reliance on imported oil.

Summers pointed out that ExxonMobil, one of the energy companies President Biden called out in remarks alleging industry “war profiteering,” has “underperformed the overall market over the past five years” even with the recent quarterly earnings Mr. Biden cites. “If it is a fairness argument, I don't quite follow the logic,” Summers said.

Claimed price gouging – A number of thorough Federal Trade Commission investigations over the years have shown that increases in gasoline prices are based on market factors – including supply and demand fundamentals – and are not due to illegal behavior.

Forbes energy contributor Robert Rapier has a couple of recent pieces, one explaining the way commodity markets work – oil, as well as wheat, copper and other commodities – and another showing that gasoline prices are set by the global market, not oil companies.

Again, these are distractions from the fundamental need for more American oil and natural gas production, which the White House is not advancing. API’s Sommers called President Biden’s statements this week “outrageous” and “unserious” while noting that American oil and natural gas producers have always stepped up in times of crisis – during the world wars and more recently, dramatically increasing LNG exports to energy-starved Europe.

It's time for serious solutions, not continued posturing. Sommers:

“It’s time for policymakers to stop the finger pointing and embrace a new era of American energy leadership that recognizes our nation’s abundant resources, supports energy investment, creates new access and keeps regulation from unnecessarily restricting energy growth.”