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All the Energy That’s Fit to Subsidize

September 21, 2021 by Leave a Comment

This past week House Democrats passed their budget reconciliation bills in the various Committees.  So far these bills are 100 percent partisan as no Republicans in any Committee has voted for them. Next, the House Budget Committee will take the various provisions and combine them into a reconciliation bill to send to the Senate. This is moving quickly because House Democrats, along with the Administration, does not want any real oversight of the trillions of dollars they want to spend.  Here are some of the bad ideas in these bills that are related just to energy:

Ways and Means Committee:

  • Reinstates a 16.4 cents-per-gallon tax on crude oil and imported petroleum products that had expired in 1995 to fund Superfund cleanups of hazardous sites. It also would double the tax rate on sales of certain chemicals. This had also expired in 1995;
  • Provides full PTC extension through 2031, with phasedowns for projects beginning construction in 2032 and 2033 and expansion of PTC for solar projects;
  • Extends ITC for projects beginning construction after 2021 and before 2032, with phasedowns for projects beginning construction in 2032 and 2033; projects that began construction in 2020 and 2021 would remain eligible for a 26% ITC;
  • Expands Section 45Q carbon capture tax credit;
  • Creates new tax credits for a variety of renewable energy projects, including energy storage technology, electric transmission property and zero emissions facilities; 
  • Extends and modifies tax credits for electric vehicles, including elimination of manufacture numerical limitations (currently limited to 200K vehicles per manufacturer);
  • Provides direct pay option for PTC, ITC, and 45Q which would be available tax-exempt entities and state and local governments;
  • Extends income and excise tax credits for biodiesel at $1 per gallon;
  • Creates a new sustainable aviation fuel tax credit;
  • Provides a production credit for hydrogen produced at a “clean hydrogen” facility;
  • Allows a 30 percent credit for cost of qualified energy efficient property expenditures; includes solar electric, solar water heating, fuel cell, small wind, battery storage, and geothermal heat pumps for the next 10 years;
  • Expands energy efficient commercial building deduction; 
  • Extends energy efficient home credit;
  • Creates a bicycle commuting benefit; 
  • Implements an electric bicycle credit.

There is a ton of tax provisions related to energy.  One to highlight is the wind production tax credit (PTC). The PTC has been a critical subsidy for the wind industry for decades.  For example, the chart below from the American Energy industry Association demonstrates how dependent the industry wase on small amounts of new wind turbines built when the PTC had expired.  As Warren Buffett said “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

Nine years ago, the wind industry agreed to a six-year phase out of the wind production tax credit. At the time, the wind industry told reporters that they needed 4-6 years to achieve subsidy-free competitiveness. The reality is that the tax credits generated by the wind PTC has been very lucrative for Wall Street financiers who have created “tax equity markets” to help reduce the tax liabilities of large corporations, which is part of the reason those pushing for more taxes on corporations cite low tax obligations on them.

We keep hearing renewables are the cheapest sources of electricity generation, yet these industries continue to lobby as if they are dependent on the American taxpayer.  If it walks like a duck and talks like a duck, it’s probably a duck. The fact is, they are still dependent on the federal dole. If they weren’t, then why would they be asking for more? 

House Energy and Commerce Committee:

  • $150 billion for the Clean Electricity Performance Program 
  • $27.5 billion for nonfederal financing of zero-emission technology deployment;
  • $18 billion for home energy efficiency and appliance electrification rebates;
  • $17.5 billion to decarbonize federal buildings and vehicle fleets;
  • $13.5 billion for electrical vehicle charging infrastructure; and
  • $9 billion to improve the reliability and resiliency of the electric grid.
  • $5 billion to EPA for grants to replace school buses, garbage trucks, and other heavy-duty vehicles with zero-emission vehicles.

One thing to highlight in the Energy and Commerce section is the Clean Energy Performance Program. This requires utilities, upon pain of stiff fines, to increase their use of zero-carbon dioxide emitting sources.  As the American Energy Alliance has explained, the subsidies in this plan could lead to some renewable producers getting paid $210 a MWh for electricity worth $25 a MWh. 

House Natural Resource Committee:  

  • Increase leasing fees and royalty rates for onshore and offshore oil and gas production;
  • Require royalties to be paid for methane that is vented or flared (which in many cases is due to lack of permitted pipelines across federal lands);
  • Impose a leasing moratorium on oil and gas exploration and production in the Atlantic and Pacific coasts as well as the eastern Gulf of Mexico;
  • Repeal the authorization for drilling in the coastal plain of the Arctic National Wildlife Refuge and void nine leases the federal government has already awarded legally;
  • Increase the royalty rate on mining revenue; and
  • Withdraw more than 1 million acres around the Grand Canyon from mineral leasing.

These provisions continue to make it obvious that President Biden and his allies are not serious about “Made in America.” The White House has begged OPEC+ to produce more oil and at the same time makes it more difficult to produce oil and natural gas in the United States.  

There are massive mineral requirements for wind, solar, batteries and other zero-carbon dioxide emission technologies. As Mark Mills wrote in the Wall Street Journal, “The IEA finds that with a global energy transition like the one President Biden envisions, demand for key minerals such as lithium, graphite, nickel and rare-earth metals would explode, rising by 4,200%, 2,500%, 1,900% and 700%, respectively, by 2040.”  However, despite the need for massive amounts of minerals, this bill and other Administration policies is making it harder and more expensive to mine these critical minerals in the United States. Instead, the United States will be more dependent on China given that China is the world’s largest processor of copper, lithium, nickel, cobalt, and rare earths.   

Conclusion

Our energy system is changing. There is no doubt about that. For a host of reasons, only some of which are market related, we have seen large price decreases for wind, solar, and batteries over the past 10 years. But at what price? The American people should be choosing which energy sources best meet the requirements of their lives and not have legislators restricting the types of sources of energy people can use. This is especially true when House Democrats, without any votes from Republicans, are spending literally trillions of dollars with very little public oversight or input and creating a system which eerily resembles the one that has resulted in astronomical price increases in Europe for consumers.   

This reconciliation package will further drive up inflation. It is telling that even President Obama’s chief economist, Larry Summers, is warning about inflation.  

This reconciliation package will reduce our domestic production of energy while making us more dependent on foreign sources and particularly Chinese mineral imports.  

Internationally, we are seeing much higher electricity prices in Europe and yet House Democrats and the White House want us to have an electric grid and Rube Goldberg-like electrical production system more like Europe’s.

The reconciliation package is deeply flawed and will gravely injure the United States and our standing in the world, while enhancing the position of China as the leading manufacturer of the new energy equipment that would force Americans to buy.  

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Pelosi’s Plan To Pick Your Pocket Via Reconciliation

September 17, 2021 by Leave a Comment

A significant part of the reconciliation bill is the “Clean Electricity Performance Plan” that is intended to increase the amount of “clean power” produced. The provision was in part drafted by outside interests including a professor from University of California, Santa Barbara. The House is considering a target of 80 percent “clean power” by 2030, which would be a significant increase from the current 40 percent “clean energy” output from renewable and nuclear energy, but short of President Biden’s 2035 goal of net zero carbon emissions from the generating sector.

To hit the target, the bill would provide $150 billion in subsidies for “clean energy” that the bill defines as anything producing less than 0.1 metric tons of carbon dioxide equivalent, which would effectively eliminate natural gas from the mix—the fuel that was primarily responsible for the historical reductions in carbon dioxide emissions in that sector over the past 15 years. To qualify for the incentives, power producers would have to increase their supply of clean energy by 4 percent annually. If they do not, they will be fined $40 for every megawatt hour that they fall short. The grant payment will be $150 for each megawatt-hour above 1.5 percent of the previous year’s clean energy generation.

The “Clean Electricity Performance Plan” is effectively a national renewable-energy mandate because utilities would have to buy or generate a certain amount of renewable energy each year. If they do not meet their quotas, they will be fined while those that exceed targets would receive payments from the federal government that they must spend on increasing renewable energy or reducing electricity prices. The program is set up as a payment program because an outright national renewable mandate would not meet reconciliation rules. The authors of the bill claim that the Clean Electricity Payment Program “is a purely budgetary proposal (involving only spending and revenue) as opposed to a regulatory approach” and “the enforcement mechanism is simply payments and fees,” which they believe will dodge a Senate filibuster by being in the budget reconciliation package.

The program resembles the Obama EPA’s Clean Power Plan, which required states to reduce carbon dioxide emissions in the generating sector by shuttering coal plants and using more renewables. The Supreme Court blocked the EPA rule in 2016 after states argued it violated the Clean Air Act. This “budget” plan would require the two dozen or so states that do not have renewable mandates to adopt them. It would also force states to prematurely shut down fossil-fuel plants that provide reliable baseload power with consumers paying for the costs of building new plants to replace them. In many respects, it manipulates the existing system to approximate the outcomes currently being experienced in Europe where electricity prices have skyrocketed, renewables have grown in share, and carbon trading schemes have been implemented, resulting in a shortage of reliable baseload generation.

While the program allows utilities to use hydropower, nuclear, carbon capture and “clean hydrogen” as “clean technologies” toward their renewable quotas, these options are not currently feasible due to their costs (e.g. Southern Company’s Vogtle nuclear facilities in Georgia) or their commercial availability. Further, nuclear and hydropower plants cannot be built in the timeframe allowed because the budget covers a 10 year time frame. Carbon capture and clean hydrogen also will not be commercially available in that time period.

The bill authors indicate that government payments to utilities will offset the cost of renewables, i.e. that they will raise taxes to finance the new generating technologies and then give certain companies tax credits for investing in renewable energy. The idea is to subsidize the politically favored behavior of those producers that meet the mandates. The bill also gives the electric grid $9 billion for updates that include improved interconnections between the Eastern and Western portions of the grid—the two major North American grids—and the Electric Reliability Council of Texas. The bill writers believe that a modernized (but more complicated) grid is necessary to accommodate increasing contributions from renewable energy and be more reliable when faced with extreme weather events.

But, in reality, the plan would raise energy costs and make the U.S. electric grid less reliable. The more utilities rely on renewable energy, the more backup power they need from fossil fuels to keep the grid stable. California, for example, recently had to approve five new natural-gas plants to avoid rolling blackouts. Last summer, portions of the state suffered from blackouts as the state was unable to import electricity from neighboring states that were also under intense heat. California has mandated 100 percent zero-carbon electricity by 2045 and an economy-wide goal of carbon neutrality by 2045.

Between 2011 and 2020, electricity prices “rose seven times more in California than they did in the rest of the country.” Furthermore, according to the Energy Information Administration, the price of electricity in California increased by 7.5 percent last year, which was the largest price increase of any state in 2020 and almost seven times the national price increase. In 2020, the price of electricity in California rose to 18.15 cents per kilowatt-hour—70 percent more than the U.S. average price of 10.66 cents per kilowatt hour. Those prices are a regressive tax on the poor and the middle class in California—a state that has the highest poverty rate in America.

This year, Europe has endured skyrocketing electricity prices as wind is not pulling its share, natural gas is facing a shortage of supply, and coal’s prices have increased as that fuel was the only reliable source left to fill the gap and keep the lights on. Europe’s anti-carbon policies created a fossil-fuel shortage and their carbon trading scheme made using such sources artificially expensive. They have heavily subsidized renewables like wind and solar and shut down coal plants to meet their commitments under the Paris climate accord. As wind energy did not pull its weight this summer, countries had to import fossil fuels to power their electric grids. Electricity prices in the U.K. jumped to a record £354 ($490) per megawatt hour—a 700 percent increase from the 2010 to 2020 average. Germany’s electricity benchmark doubled this year—a country whose residential electricity prices were three times that of the United States pre-coronavirus.

Conclusion

If this feature of the reconciliation bill becomes law, it will force more wind and solar into the U.S. electric grid, which will have major impacts on electricity affordability, reliability, and resilience. As seen in Europe and California, electricity prices will increase for consumers, blackouts are likely to occur, and taxpayers will provide subsidies for utilities to comply with their quotas. Further, the feasibility of this working as stated is so low that it will bring back memories of Obama’s failed “clean” endeavors that cost taxpayers billions. Europe’s example of attempting to comply with its Paris climate commitments only show that President Trump was right in withdrawing from the accord, particularly as China, the world’s largest emitter, has no intentions of meeting its obligations as can be seen by the coal plants it is building.

*This article was adapted from content originally published by the Institute for Energy Research.

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House Democrats Plan to Pay Wind Industry Nearly 10 Times Value of their Electricity

September 15, 2021 by 3 Comments

Nine years ago, the wind industry agreed to a six-year phase out of the wind production tax credit. At the time, the wind industry told reporters that they needed 4-6 years to achieve subsidy-free competitiveness. But now the wind industry, other renewable electricity generators, and their financial backers on Wall Street, are back supporting the House Democrats plan to transfer billions of dollars from hard-working taxpayers to Wall Street bankers by laundering it through renewable energy companies.

This is an aggressive interpretation of what is going on, but it fits the facts available. When you run the numbers, the House Democrats plan provides wind and other renewable producers with $210 of value for a megawatt hour (MWh) of wind worth $25 per MWh. The bulk of this is through massive grants to renewable producers and their financial backers in the House Democrats’ reconciliation bill. Here’s how the calculation works:

In PJM (the regional transmission organization that serves Virginia, Maryland, Washington, DC, West Virginia, New Jersey, Delaware, Ohio, and parts of Kentucky, Indiana, and Illinois), the market price for energy has been $22-27 per MWh over the last few couple years. Let’s round that to $25. [We are ignoring capacity for now, but we expect some wind resources clear the capacity market in PJM.]

To the value of the electricity, we add a payment for the wind production tax credit. To keep it simple, and not get into complicated calculations of pre-tax revenue, etc., we will use the face value of the Production Tax Credit (PTC)—$25 per MWh. 

As if doubling the average value of the electricity isn’t enough through the PTC, the House Democrats are proposing to add a grant of $150 per MWh if you’re in the sweet spot of that 2.5% of new generation that gets the subsidy. (See Sec. 224 of the Democrats’ Clean Energy Performance Program)  

To this amount, we add the value of renewable electricity credits (RECs). The price can be volatile and can vary by market, but according to researchers at Lawrence Berkeley National Laboratory in PJM, the price of RECs rose slowly in 2020 “reaching ~$10/MWh by end of the year.” So we will use $10 for the value of the RECs. 

Adding this up, under this bill, a PJM wind provider who provides 1 MWh of wind gets paid: 

  • Value of energy: $25
  • Wind Production Tax Credit: $25
  • House Democrats Grant Provision: $150
  • Renewable Electricity Credit Payment: $10

Value to Provider of 1 MWh of Wind: $210

The electricity provided from wind might be worth only $25 to the market, but under the House Democrat’s bill, the PJM wind producers and their financial backers get $210 of value. This is obscene and it encapsulates everything that’s wrong with Washington, DC. We have an inflation problem and this kind of reckless spending will only pour gasoline on those inflationary fires. Wall Street renewable energy financiers might do well posing as Greens under this plan, but as demonstrated, their real interest is in the green of the money taken from hard-working taxpayers who will be crushed under the inflationary pressure of these policies. And while it is understandable for Wall Street Bankers to want to cash in on free money by the truckload from taxpayers, it is remarkable that elected officials would go along. 

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Senate Democrats’ New Plan to Tax Our Leading Energy Resources

September 9, 2021 by Leave a Comment

Senate Democrats are proposing to institute a new tax on the use of our leading energy resources—oil, natural gas, and coal—according a leaked list of reconciliation bill pay-for options.

Before getting into the specifics of what the leaked list calls “carbon pricing,” let’s reiterate how central these fuels are to our productivity and well-being.

In terms of primary energy consumption, oil, natural gas, and coal contribute 35, 34, and 10 percent of U.S. energy on a Btu basis respectively. At a combined 79 percent of our mix, fossil energy is indispensable to our prosperity, as it is throughout the world. As it so happens, the U.S. uses fossil fuels at a slightly lower clip than the world as a whole, for which the fuels make up 85 percent of the mix. 

This reconciliation bill proposal would put a carbon tax on the use of these key energy resources to raise money for our seemingly endless array of new expenditures.

According to the Democrats’ Senate Finance Committee document floating around Washington, the “major options” for doing so are as follows:

1) a per-ton tax on carbon dioxide content of leading fossil fuels (e.g., coal, oil, natural gas) upon extraction, starting at $15 per ton and escalating over time, 

2) a tax per ton of carbon dioxide emissions assessed on major industrial emitters (e.g., steel, cement, chemicals), and 

3) a per-barrel tax on crude oil. 

Each option would be paired with rebates or other direct relief for low-income taxpayers, as well as a border adjustment to ensure foreign companies also pay the tax.

At this stage the outline is sparce, but as is inherent to carbon tax implementation, every option above would result in higher energy costs for American families and businesses. A carbon tax will drive up costs for transportation, electricity, industry, commercial activity, and everything else that relies upon oil, natural gas, or coal to deliver goods or services. Again, those fuels contribute 79 percent of our energy.

To put this into everyday terms, a 15-dollar tax on oil translates loosely to a 15-cent increase in the price of gasoline per gallon.  

This would come at a time when Americans are already reeling from this summer’s price sting and, ironically, just after President Biden’s national security adviser pleaded with OPEC and Russia to put more oil onto the market. Of course, there’s nothing new about the Democratic Party bemoaning increases in the most visible consumer price in our economy while simultaneously seeking to drive it higher with coercive policies.

It should also be stressed that while some carbon tax plans are framed as revenue-neutral—for example, by pairing a carbon tax with a reduction in corporate taxes—each of these options is an explicit revenue-raiser that would contribute to new spending.

The document also contains an admission of the carbon tax’s biggest weakness from the perspective of progressive politics. Carbon taxes are what we in the policy world call regressive. They hurt those at the bottom of the household income charts the most as a percentage of their budgets, because certain energy expenses are simply unavoidable no matter how tight you pull the belt.

In an effort to counterbalance the carbon tax’s regressive nature, the document mentions “rebates.” This is a euphemism for checks sent from the government in order to offset the inevitable increase in energy expenditures. We do not know who would be included in the rebate plan or how much would be redistributed.

What we do know is that this approach to carbon tax revenue recycling is among the least efficient.

IER has published extensively on this matter, most notably with the 2018 paper The Carbon Tax: An Analysis of Six Potential Scenarios.

The paper found:

A tax swap that recycles 75% of gross revenue by returning it to taxpayers as a lump-sum rebate results in persistent economic underperformance over the entire 22-year forecast period. GDP is reduced by between as much as 1.07% and 1.67% relative to the reference case at the beginning of the forecast period, depending on the amount of tax, and gradual.

In January I covered this topic in an IER blog post, where I cited studies from both the Tax Foundation and EY.

Here’s what I wrote in January:

The Tax Foundation study finds that the rebate strategy reduces regressivity but is harmful to overall economic output and harmful to employment. A payroll tax cut strategy, meanwhile, yields output and employment boosts, while also making the tax code slightly less regressive.

The EY study, similarly, reports that both a permanent extension of select Tax Cuts and Jobs Act provisions and investment in public infrastructure would outperform household rebates as carbon tax revenue uses. In the rebate scenario the entirety of the long-run positive change in annual per-household GDP would be attributable to the removal of the existing regulatory approach. In the EY analysis (figure ES-1) the rebate itself would cause losses of 0.4 percent, but be offset by gains of 1.1 percent as a result of ditching regulations.

While it may be the case that some carbon tax revenue strategies could mitigate the tax’s regressivity, the literature does not support a lump-sum rebate strategy.

The rebate approach would put drag on our economic performance.

The document’s other admission is that we’d need to erect new trade barriers to prevent businesses from fleeing to lower-cost environments. The document calls this a border adjustment.

In July I analyzed carbon border taxes at the American Spectator, where I wrote:

Democrats will try to sell this new tax as a way to save American jobs, but as has long been understood, tariffs deliver concentrated economic benefits to the powerful incumbents who lobby for them while spreading new costs across the wider population. Far from being an economically just approach, the carbon border tax would further enrich existing companies while taxing American households.

IER economist David Kreutzer spoke on this topic recently as well. His interview with Forbes is worth listening to in full, but here’s what he had to say about carbon border taxes:

Yeah, that maybe is the most compelling sounding part of this thing. But it is, I think, the most dangerous.

It is a constant battle to keep people that want tariffs and other trade restrictions at bay. There are always special interests that want to protect whatever their industry is or whatever their product is. It’s an almost impossible task for economists to keep that as low as possible.

This carbon border adjustment would be very, very difficult to set up. I mean, you’d have to know, for instance, if you’re bringing in a car from Japan, how much of a carbon tax did they have in Japan? Did they import something from Korea where they had a different carbon tax? Did they use steel from some other country? What’s the carbon content that hasn’t been taxed and all of these products that are coming in?

There are going to be lobbyists who are going to go out and say, “Our competitors’ imports actually have more carbon than they claim.” There are going to be lawsuits. There’s going to be all sorts of rent-seeking and lobbying going on.

Once you get that in place, I think that would be the most difficult thing to unwind. It’s very, very difficult to get rid of tariffs because of what we call the special interests effect. The benefits are narrowly focused and the costs are spread out so there’s not much organized opposition to them. 

I think that the carbon border adjustment tax — that tariff — is the scariest of the proposals that they’ve put out.

The Senate Democrats’ leaked carbon tax plan bodes poorly for American energy affordability and economic productivity.

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The Unregulated Podcast #49: Tom and Mike Discuss Gavin Newsom’s Recall Election

September 7, 2021 by Leave a Comment

On the final episode for summer 2021 Tom and Mike discuss Gavin Newsom’s looming recall election in California.

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War On Coal Comes Back To Haunt Biden’s “Green” Agenda

September 3, 2021 by Leave a Comment

As the “war against coal” continues with Biden’s Paris climate commitment to decrease greenhouse gas emissions by 50 to 52 percent by 2030, skilled miners for his clean energy plan have become scarce. Biden’s clean energy program needs critical minerals, which are essential for technologies such as batteries and wind turbines. Mining and geological engineering employment is estimated to grow 4 percent between 2019 and 2029, according to the Bureau of Labor Statistics. But, as demand increases for these minerals, there are fewer skilled workers to fill job openings in the industry. Both the decline in coal mining jobs and the coronavirus pandemic have made mine workers reassess their careers—some moving to new professions, others retiring, and others being lured to places promising higher wages (e.g., Australia, Canada).

Critical minerals have become increasingly important in recent years because they are key components in high-tech personal devices, green technologies like solar panels and defense systems like jet fighter engines. The U.S. imports the majority of its critical minerals, and the United States has sought to boost domestic mining of these minerals. As in other jobs with labor shortages, employers are raising pay. But, it appears that the American public holds a negative perception of mining, thinking of old pictures of dirty coal miners working in dangerous conditions, making it difficult to attract skilled labor and students to be trained at universities. In fact, many of these jobs are highly skilled and require advanced technological capabilities.

There has been a steady decline in the number of mining and mineral engineering programs at U.S. colleges and universities from a high of 25 in 1982 to 14 in 2014 as well as a corresponding decline in U.S. faculty (~120 in 1984 to ~70 in 2014) and a shortage of qualified candidates to fill faculty vacancies. Federal funding of studies and research in mining has been drastically reduced. The former federal Bureau of Mines has been dissolved, removing all funding for mining schools under the Mining and Mineral Resource Institutes Act of 1984.

Jobs Needed for Mining Critical Minerals

Many of the most common jobs in the mining, quarrying, and oil and gas extraction sectors are physically demanding. Mineworkers must be able to operate heavy machinery and deal with explosives in both surface and underground mines. Engineers, metallurgists, and mine managers design and coordinate mine operations. The average salary of an underground mining machine operator and extraction worker is $56,000, and mining and geological engineers make around $90,000, according to May 2020 figures from the Bureau of Labor Statistics (BLS).

According to the BLS, about 20 percent of workers in the mining, oil, and gas sector are over 55. In 2015, 43 percent of surveyed professionals in oil, gas, and mining firms said the loss of talent due to an aging workforce would become a problem in the next six to 10 years—a percentage that would be much higher now, 6 years later.

Conclusion

Critical minerals are essential to the transition to renewable energy technology and Biden’s goal with respect to his net-zero carbon economy. Despite the relatively high wages of mineworkers, the industry is having a hard time attracting workers due to the labor intensity of the jobs, the reduction in employment that occurred in the “war on coal” followed by additional retirements and job changes when the COVID pandemic hit, the difficulty of attracting students to the profession, and the lack of university programs in the field and faculty to teach them. Quite simply, the U.S. government has given mining and miners an undeserved bad name, at the very time when the demand for minerals mining required for “green energy” is expected to skyrocket. President Biden is going to have a difficult time attracting workers and obtaining the needed critical minerals in his attempt to reach his net-zero economy and to meet his commitment to the Paris climate accord.

*This article was adapted from content originally published by the Institute for Energy Research.

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The Unregulated Podcast #48: Tom and Mike Discuss the Withdrawal From Afghanistan

August 23, 2021 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna go over everything that’s gone wrong with America’s withdraw from Afghanistan and what it means for the future of Joe Biden’s administration.

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The Unregulated Podcast #47: Tom and Mike Unpack Infrastructure Votes

August 12, 2021 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the recent votes to advance Biden’s “infrastructure” package out of the Senate.

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Biden Begs America’s Enemies For Oil While Attacking Domestic Producers

August 12, 2021 by 1 Comment

At every turn, President Biden has instituted policies to hurt the North American oil and gas industry, resulting in decreasing U.S. energy independence earned during the Trump Administration and benefiting oil-producing countries. Russia, for example, has become the number two oil importer to the United States, second only to Canada. Biden has also canceled the Keystone XL pipeline while removing sanctions that the Trump Administration implemented so that Russia’s Nord Stream 2 pipeline could supply Germany with natural gas later this year without going through Ukraine. Through Biden’s actions, Russia will be able to increase its energy revenues and improve its economy.

Russian Heavy Oil Imports to U.S. Markets

U.S. imports of oil and refined petroleum products from Russia increased 23 percent in May to 844,000 barrels a day from the prior month, according to the Energy Information Administration. Mexico lost its number 2 ranking because its shipments to the United States increased by less than 3 percent. Russia has become a favored source for U.S. refiners largely because it produces semi-refined oils such as Mazut 100, which is a feedstock for American refineries that are accustomed to processing heavy crude from Venezuela and the Middle East—sources that have dried up due to sanctions on Venezuela and OPEC output limits.

Source: Bloomberg News

Federal Customs Service records show that the United States is the single largest buyer of Russia’s heavy-oil products. U.S. refiners bought almost one-fifth of Russian heavy-oil exports during the first five months of this year. Most of the U.S.-bound Russian crude has docked along the West Coast to feed refineries like Phillips 66’s plant 100 miles north of Seattle and California refineries owned by Chevron Corp. and Valero Energy Corp. Refiners in Texas and Louisiana also have been buying Russian oil products. Recently, 1.5 million barrels from the Black and Baltic seas landed in the Gulf region. The quantity was substantial enough to cut prices at the Houston Ship Channel by 3 percent.

Canada remains the largest foreign oil supplier to the United States, accounting for about half of U.S. imports.

Keystone XL vs. Nord Stream 2

On his first day in office, President Joe Biden canceled a presidential permit for the construction of the Keystone XL pipeline from Canada to the United States. Mineral fuels are Canada’s largest export to the United States totaling over $89 billion in 2019 — two-thirds more important than auto vehicles and parts. Almost 3,000 direct jobs and another 14,000 indirect jobs were lost to Canada, as well as thousands of direct and indirect jobs in the United States, due to the cancellation of Keystone XL. Because of reduced pipeline capacity, Canadian heavy oil will sell at a discount, resulting in billions of dollars in lost GDP and federal and provincial tax revenues for Canada.

It is well-known that pipelines are the safest form of shipment for oil, which will still be produced in Canada and travel by rail—a less safe method, producing more emissions than pipelines. The cancelation of the Keystone XL also means that the United States will need to import more heavy oil from other countries, such as Russia. Instead of benefiting Russia, Keystone XL would have benefited the United States and our closest ally. Keystone XL would have not only supplied Gulf refineries with 830,000 barrels per day (730,000 Canada, 100,000 North Dakota Bakken) but also would have lifted prices paid to Canadian producers, encouraging new investments (and further pipelines) to tap Canada’s second-largest in the world proven reserves.

President Biden is treating a European pipeline, the Nord Stream 2, very differently than the Keystone XL. Nord Stream 2 is a natural gas pipeline from Russia to Germany, on whose construction the United States had placed sanctions. Despite bipartisan support for the sanctions on Russia against Nord Stream 2, President Biden weakened those sanctions, which will secure the pipeline’s completion. The Biden administration waived sanctions on the corporate entity (Nord Stream 2 AG) and its CEO (Putin friend and former East German intelligence officer Matthias Warnig) overseeing the construction of Russia’s Nord Stream 2 pipeline into Germany.

Germans want the less expensive natural gas coming from the Nord Stream 2 rather than the more expensive LNG. Countries like Poland are willing to pay a premium for LNG to avoid Russian gas, even if they are significantly less wealthy than Germany. While Nord Stream 2 will provide cheaper energy, it will deepen European dependence on Russian gas, forcing buying countries to be beholden to Putin for gas that is currently piped via Ukraine. In the past, Russia has cut off natural gas supplies to Ukraine as retribution in disputes. Bypassing Ukraine with a direct pipeline to Germany helps Russia advance its goal of isolating its former client state, now a struggling democracy, from Western Europe. It also equates to enormous sums of revenue for Russia.

Biden’s Other Anti-U.S. Oil and Gas Actions

President Biden released an executive order in January to halt drilling on non-tribal federal lands pending a review of the federal oil and gas leasing program. Biden also set a goal of protecting 30 percent of federal land and water from future drilling by 2030, which equates to 738 million acres of the total 2.46 billion acres owned by the public. He ordered federal agencies to eliminate fossil fuel subsidies “and identify new opportunities to spur innovation.” Removing the tax deductions that fossil fuel companies receive, which are not subsidies, will purportedly help pay for Mr. Biden’s climate change agenda.

Biden also put a moratorium on oil and gas leasing in Alaska’s Arctic National Wildlife Refuge, reversing Congressional action taken in 2017 to begin leasing in the area. Biden signed an executive order placing a temporary moratorium on oil and gas activity in the refuge on January 20, 2021, one day after the Trump administration issued nine oil and gas leases in its coastal plain. ANWR is estimated to contain 10.4 billion barrels of oil, according to U.S. Geological Survey, and could help the state’s revenues as oil production is the largest contributor to the state’s economy. Alaska’s oil production is now at its lowest level in 40 years, which threatens the operation of the Trans-Alaskan Pipeline System (TAPS) that transports crude oil from the North Slope of Alaska to Valdez on Alaska’s southern coast. TAPS at one time delivered 2 million barrels per day to the West Coast and is now transporting about 20 percent of its capacity.

Conclusion

President Biden appears to have a more positive view of OPEC and Russian energy enterprises than of North American energy enterprises. On August 11, Biden’s National Security Advisor Jake Sullivan wrote in an open statement, “Competitive energy markets will ensure reliable and stable energy supplies, and OPEC+ must do more to support the recovery.”

Biden’s treatment of Nord Stream 2 and his endorsement of OPEC+ production increases are very different from his treatment of the Keystone XL pipeline and of U.S. producers. Biden is treating a pipeline that increases Russian influence and revenues better than one that would enhance America’s energy security, jobs and revenues and that of its northern neighbor.

Russia is also benefiting from supplying U.S. refiners with heavy oil, becoming the second-largest supplier of oil and petroleum products to the United States, behind Canada. Russian feedstock is functioning as a substitute for the heavy oil that was once supplied by Venezuela or the Middle East and could be supplied by Canada. The United States should promote North American energy sources rather than depend on less reliable foreign imports, and particularly those from Russia.

*This article was adapted from content originally published by the Institute for Energy Research.

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Key Vote YES on Amendments 3104 and 3105

August 10, 2021 by Leave a Comment

The American Energy Alliance urges all Senators to support amendments 3104 and 3105 to S.Con.Res. 14.

The Biden administration’s oil and gas leasing ban on federal lands has already been ruled illegal. Leasing must be reinstated immediately according to existing law and long-standing practice.

The EPA, state regulators and independent researchers have repeatedly over the years studied the environmental effect of hydraulic fracturing. The clear conclusion from all these studies is that the process is not dangerous. It should be made clear that EPA has no jurisdiction to attempt a ban or limitation on this process.

The AEA urges all members to support free markets and affordable energy by voting YES on Amendments 3104 and 3105.  AEA will include these votes in its American Energy Scorecard.

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