On Wednesday, March 4th, Treasury Secretary Timothy Geithner testified before the Senate Finance Committee at a hearing on the White House’s proposed budget for fiscal year 2010. The American public has been awaiting a signal from the Obama administration about how they intend to move forward on what has so far been an energy plan that lacks details. Secretary Geithner offered some of the first concrete evidence of where America is heading. If Geithner is to be taken at his word, the American people can expect higher consumer costs, fewer jobs, and greater dependency on foreign sources of natural gas and oil.
In what were some of the most uninspiring and discouraging comments made by a top Obama administration official in regard to an energy plan, Mr. Geithner displayed a glaring lack of understanding of who America’s independent producers of natural gas and oil are, and what they do.
It is true that investments must be made in alternative sources of energy in order for them to be successful. However, the Obama administration’s proposal is not only the wrong way to achieve this goal, it is also full of dangerous contradictions. By taking capital away from American independent producers, a domino effect is started: less capital → less investment in projects → fewer wells drilled → less production of natural gas → less supply of natural gas → greater need for natural gas from other resources → higher level of imports from foreign nations → higher costs to consumers. And this is only one path the dominos will take.
Along with the direct loss of industry and service jobs (something thousands of Americans and their families will simply have to “absorb” as a fallout), fewer American wells being drilled also means less revenue for state and federal treasuries dependent on natural gas and oil production and the potential for greater commodity market volatility- another cost that will be passed to consumers. These results are not based on best or worst case scenarios but logic, something that unfortunately seems to have been checked at the White House door. Though rightly compelled to pursue new sources of energy, the Obama administration has again abandoned reason for the sake of rhetoric. The following is a closer look at the Secretary’s remarks.
In his prepared statement, Secretary Geithner said, “Without the President’s new investments, the nation will remain dependent on uncertain supplies of foreign oil and carbon-intensive energy – a dependence that threatens our economy, our environment and our national security.” Rhetoric. By taxing independent producers of natural gas, in reference to the above domino effect, the Obama “investments” would actually discourage investment in American production of clean burning natural gas. Which, by the way, is abundant and affordable here in America and has been favored by both President Obama and Congressional leadership as an environmentally friendly transitional fuel to develop alternatives. A clean-burning source of energy, that would provide jobs and revenue, and is abundant within our country… that’s economy, environment, and national security all rolled into one.
“The President’s energy investments reflect our efforts to use broad-based market incentives to move us as efficiently and as quickly as possible towards a clean energy economy, while also providing relief to those who may bear a temporary increase in expenses during that transition.” Rhetoric. The more appropriate term for these efforts would be “reckless.” By promoting alternatives alone and tearing down existing energy sources, the Obama team is taking wild and irresponsible leaps to reach in the immediate future what can and should be a goal reached through a step-by-step process. The American industrial and manufacturing companies cannot be switched overnight to alternative energy. Our need for natural gas and oil will continue for decades. Having put all of his rhetorical eggs in the alternative energy basket, the Secretary glosses over “those who may bear a temporary increase in expenses” and fails to explain that statement. The simple explanation is that the people who will bear that burden are the American public. Again, the domino effect that starts with the tax increases will result in higher prices to consumers and end-users. And this assumes the plan will work; if it does not, without American natural gas and oil production, what is touted as a “temporary increase in expense” could rise to no end and destroy the economy.
During the hearing, Senator John Cornyn (R, TX) addressed the tax increases on natural gas and oil production and relayed his concerns as to the effects they would have. Senator Cornyn said, “My view is that higher taxes on small and independent producers here in America will make us more dependent on imported oil and gas while we transition to cleaner energy alternatives, a goal we all share. And it will also hurt job retention and job creation in the energy sector, which provides an awful lot of jobs in this country.” The following is a look at the Secretary’s response to Senator Cornyn’s concerns.
Secretary Geithner said, “We don’t believe it makes sense to significantly subsidize the production and use of sources of energy that are dramatically going to add to our climate change (problem). We don’t think that’s good economic policy and we think changing those incentives is good for the country.” Rhetoric. Where are the taxes for other carbon-intensive sources of energy? Natural gas is not carbon-intensive and even policy proposals from the Obama team call for greater use of natural gas. These policies are counter-intuitive: propose policy that will call for greater use of natural gas, but at the same time propose taxes that will severely curtail natural gas production and supply. This proposal does not make sense.
“The impact of these subsidies are very small relative to revenues produced by U.S. oil and gas producers,” and they “can be absorbed” by the companies, because of the billions of dollars they have earned from higher energy prices. Rhetoric. And sadly mistaken. Independents – the very U.S. producers that the Secretary refers to – depend greatly on these incentives. In fact, because of the current low prices of energy, there have already been bankruptcies of some of these small companies. The average size of an independent producer company is approximately 12 employees. These are American small businesses. The level of taxes that are being proposed in this budget are far from able to be simply “absorbed.” In reality, the average independent producer faces a much tougher environment than what Mr. Geithner outlines. With the combination of lower energy prices, an economic downturn, shortage of available credit, and a potential spike in future taxes, many independents would be forced to lay off employees, or shut down production altogether. Keep in mind that independents produce 82 percent of America’s natural gas.
Mr. Geithner’s comments reflect either a vast disconnect from reality, or a serious lack of knowledge about the American natural gas industry.