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Capitol Comment
by Senator Kay Bailey Hutchison
Emphasis on Energies of Future Threatens the Supplies of Today
November 23, 2007
"The major obstacle to the development of new supplies is not geology but what happens above ground: international affairs, politics, investment and technology." —Daniel Yergin, Pulitzer Prize-winning author of "The Prize: The Epic Quest for Oil, Money, and Power."
With oil prices soaring to record highs, currently over $90 per barrel, and Americans increasingly feeling the impact, Congress can choose to magnify the problem or be part of the solution.
In response to skyrocketing energy prices, caused largely by greater worldwide demand and static supply, new energy legislation passed in each house of Congress is, in fact, bereft of real energy. It would jeopardize our national security, threaten our economic stability, and indeed raise the very obstacles to which Yergin alludes.
The only way to address our national crisis is to increase the supply of energy. However, legislation proposed in Congress would actually lead to reductions in energy supply and target the oil and gas industry with $16 billion in new taxes.
The assumption is that American consumers will not be affected by increased corporate taxes. In reality, punitive tax hikes will lower exploration and production and increase prices. Therefore, Congress' "solution" will lead us into a greater crisis.
This is particularly true in the case of refining capacity. Gas prices spiked in the wake of Hurricane Katrina primarily because we were not able to replace production of refineries that were taken off-line. Tax and energy policies had discouraged construction of new refineries in America for over 30 years.
Two years ago, Congress established incentives to spur investment in additional refining production, leading to major announcements of refining expansion.
Congress has now proposed repealing these incentives, delivering a tremendous and unexpected setback for companies investing billions of dollars in refinery expansion or new construction projects.
This is part of a larger problem that CEOs consistently bring to my attention — specifically, that Congress' constant meddling in the tax code puts America at a competitive disadvantage, encouraging companies to relocate assets to other countries, where the tax code and regulatory process is more predictable and stable.
Perhaps of greatest concern, this legislation will threaten our national security by increasing our dangerous dependence on foreign oil. Today, the U.S. imports nearly 60% of our oil from other countries — and many of those countries are hostile to our interests. Making strides toward an energy-independent America should be at the forefront of our legislative priorities.
The mistake of increasing taxes on oil would be a repeated one. The "windfall profits" tax of 1980 laid waste to the oil industry, detrimentally impacted consumers and imperiled our national security.
In the six years following the law's enactment, U.S. oil production fell 1.26 billion barrels and imports of foreign oil rose 13%. The windfall profits tax was a catastrophe — which is precisely why it was repealed. This is not a lesson we can afford to learn twice.
Yergin has observed: "The starting point for energy security today, as it has always been, is diversification of supplies and sources." As part of any rational plan, renewable energy — such as wind power, solar power and nuclear technology — will be a critical part of our portfolio.
In particular, biofuels are vital to making our nation more energy independent. However, Congress is threatening to make biofuels part of our energy problem — instead of part of our energy solution.
Some in Congress want to increase the renewable fuel standard, or RFS, from 7.5 billion gallons by 2012 to 36 billion gallons in 2022. Of this total, 15 billion gallons will be corn-based ethanol and 21 billion gallons will be advanced cellulosic ethanol.
Superficially this proposal is tempting, but a closer look reveals that it is impracticable without some flexibility.
Nearly all our domestic corn and grain supply would be needed to meet this mandate, effectively robbing the world of one of its most important sources of food. Any realistic solution must include a mechanism to reassess yearly requirements. Ultimately, such a policy would help ensure the annual increases are technologically achievable.
The repercussions of this bill on our economy and our national security are far-reaching and could impact Americans for years to come. The Department of Energy estimates that by 2030 the U.S. will consume 28% more oil than we do today. China and India also will increasingly strain supplies, with their combined energy use expected to increase by almost 150% by 2030.
We must prepare for that demand now. This will require us to produce more oil and natural gas within our own borders, while developing renewable sources of energy to increase supply. By taking measures such as these, we can help strengthen our economy, safeguard our environment and reduce our dangerous dependence on foreign oil.
Energy diversification is a noble goal, but Congress should not kill the energy sources available today while pursuing technology and innovation for the future.
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