Oil's Role in Solving the Debt Solution

David Holt

7/21/2011 1:26:00 PM - David Holt

As Congress undergoes painful negotiations on whether or not to raise the debt ceiling, a lot of opinion has been offered about the government’s “discretionary” spending. One item on America’s credit card that typically prompts universal outrage is the amount of taxpayer money sent overseas for oil imports—and it’s easy to see why. According to data derived from the Energy Information Administration, Americans have already spent $200 billion – that’s billion with a “b” – on imported oil since the start of this year.

The fact that the U.S. has spent this much on imported oil in just over seven months is regrettable on many levels, especially because our own policies have left us unacceptably vulnerable to imported oil. Americans sit atop at least 150 billion barrels of untapped oil, enough to fuel our country's current consumption level for 24 years. Yet, the Administration and its allies in Congress have exploited every possible bureaucratic loophole to ensure that 97.6 percent of outer continental shelf lands -- territory that's ten times the size of Texas -- remain off limits to production.

Expanded access to and increased production of North America’s ample energy resources would largely offset the need for imports. For starters, granting permits to explore and produce in the Beaufort and Chukchi Seas in Alaska would allow us to fill the TransAlaska pipeline and bring more than 1.3 million barrels of American-produced oil to U.S. markets. The proposed expansion of TransCanada’s Keystone XL pipeline, presuming the State Department withstands an increasingly heated campaign to block it, would deliver 700,000 barrels of oil every day to U.S. refineries from Oklahoma, Kansas, the Dakotas, Montana, and the Canadian province of Alberta.

The fact that we’ve reached such an unfortunate milestone with imported oil is hardly surprising considering recent activity, or lack thereof, in the Gulf of Mexico. When a drilling moratorium was announced in the Gulf last year, the administration’s chief offshore drilling agency, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), assured skeptics that any decline in oil production stemming from the drilling ban would be substituted with OPEC imports. It is precisely this mentality that’s cost us $200 billion this year alone.

Though the Gulf drilling ban was nominally lifted last fall, a significant slowdown in drilling permits since has cost many domestic producers revenue and thousands of Americans their jobs. Administration officials have testified that shallow water drilling permits “have averaged 6 per month since October 2010, compared to an average of 8 per month in 2009,” but they neglect to mention that in 2008, shallow water permits averaged 16.8 per month. The Energy Information Administration estimates that this “de facto moratorium” could cost us 240,000 barrels of lost production per day by 2012, forcing us to make up the difference by – you guessed it – more imports. This is hardly money well spent considering that a few pen strokes from the White House could return offshore production in the Gulf to its pre-moratorium levels and add 130,000 barrels of domestic supply per day.

Increased domestic production is a vital component to achieving a broader, balanced energy policy that diversifies our supply to develop alternative and renewable energy over the long term, lowers energy costs for consumers (particularly gasoline and diesel prices), reduces the national debt, and finally puts Americans back to work. However, in what’s seemingly a rite of passage for any common sense policy, increased domestic production is jeopardized by a major sticking point in the debt ceiling negotiations: the President’s ongoing appeal to raise taxes on U.S. oil and gas companies.

A recent study by Louisiana State University economist Dr. Joseph Mason found that the President’s proposal to repeal $30 billion worth of tax deductions for American energy manufacturers would come at the expense of some $341 billion in economic output, more than 155,000 lost jobs, and a net fiscal loss of $53.5 billion in tax revenues. In other words, taxing American energy companies would actually increase the debt and deficit. It would also have the unintended consequence of forcing these companies to relocate to more hospitable tax climates overseas, taking American jobs with them.

Spending $200 billion from tax and royalty revenue collected on energy production here in the U.S., instead of shipping overseas, would have huge benefits in terms of job creation and economic growth. If Americans can get to work producing our own oil and gas resources, especially given that these two fossil fuels will still account for at least 57 percent of our energy supply in 2035, we’d send a strong message to the world that we’re serious about securing our energy future – and settling our debts, for that matter.

David Holt is President of the Consumer Energy Alliance.