A Spite-Based Energy Policy

I would be remiss if I didn’t mention the latest attempt to pass a windfall profits tax on oil companies. You know, it isn’t the windfall profits tax itself that bugs me. It is the fact that it wouldn’t be applied consistently across industries, some of which have much higher profit margins. These measures would single out the oil industry for punitive measures, which just reinforces the image that oil companies are manned by people who like kicking puppies and pushing old people down stairs.

I actually spent some time digging around in the legislation to understand how they were defining windfall profits, reasonable profits, and what exactly constitutes “gouging.” You might be surprised (and I explain below). One section actually amends a section on “alcohol, tobacco, and certain other excise taxes” and throws crude oil into that mix. Glad to see that our lawmakers have such regard for the fuel that allows them mobility.

But just about the time I was knee-deep in the legislation, I read that the measure had been blocked:

Senate GOP blocks windfall taxes on Big Oil

The Democratic energy package would have imposed a 25 percent tax on any “unreasonable” profits of the five largest U.S. oil companies, which together made $36 billion during the first three months of the year. It also would have given the government more power to address oil market speculation, opened the way for antitrust actions against countries belonging to the OPEC oil cartel, and made energy price gouging a federal crime.

“Americans are furious about what’s going on,” declared Sen. Byron Dorgan, D-N.D. He said they want Congress to do something about oil company profits and the “orgy of speculation” on oil markets.

So there you have it. Americans are angry. They are paying more than they like for gasoline. Oil companies are making more money than they think is fair. So let’s base our energy policy on spite. Throw in a provision to sue OPEC and force them to abide by U.S. law, mandate a few alternative energy technologies that aren’t commercially viable, tap into our Strategic Petroleum Reserves in a short-sighted attempt to bring prices down – and you begin to understand why U.S. energy policy is dysfunctional. U.S. energy policy can be summed up as “Cheap energy for everyone, and if it isn’t cheap someone shall be punished.”

Other noteworthy comments:

โ€œThe oil companies need to know that there is a limit on how much profit they can take in this economy,โ€ said Sen. Richard Durbin of Illinois, the Senate’s No. 2 Democrat, warning that if energy prices are not reined in โ€œwe’re going to find ourselves in a deep recession.โ€

So, Durbin obviously believes that a windfall profits tax is going to bring down oil prices. Maybe we should do that with the solar industry. Prices are still too high at $4.82/watt for solar PV to be competitive with coal. I had never considered that we might pull prices down to

26 thoughts on “A Spite-Based Energy Policy”

  1. Incidentally, it didn’t really fit in with the story, but there was some bad (to me) news today:

    Separately, Democrats also failed to get Republican support for a proposal to extend tax breaks for wind, solar and other alternative energy development, and for the promotion of energy efficiency and conservation. The tax breaks have either expired or are scheduled to end this year.

    The tax provisions were included in a broader $50 billion tax measure blocked by a Republican filibuster threat. A vote to take up the measure was 50-44, short of the 60 votes needed.

    I don’t know what that was all about, but I certainly don’t want to see those tax credits expire.

    RR

  2. A windfall profit tax is like a tax on gasoline except the sheeple will blame the oil companies for the higher prices rather than the politicians.

  3. I have to agree that in principal, they should achieve the same thing. A gas tax would reduce demand, and drop profits. What I don’t like is the blame game.

    RR

  4. Sad, sad, sad. What we should be proposing is a system of taxes that will keep gasoline prices high to consumers going forward, so that pressure to limit consumption is permanent. The goal is energy indepedence, and a transfer of money to ourselves rather than oil-thug nation-states.
    And what is worse? Dems bashing Big Oil, or Repubs bashing Big Alternative Energy?
    Is everything about image? Does actual governance mean anything?

  5. Price gouging definitions sound familiar. There are those frequent price-gouging investigations that almost always end up proving there’s no price-gouging. One part’s easy. If there’s no declared emergency, then by definition, there is no price-gouging. But it helps make the representatives look like they’re doing something by passing these laws and launching investigations. Placebos.

    The 7-11 will have no trouble raising prices because of section (B) increased replacement costs outside the control of the supplier… just like after Hurricane Katrina, and there will be no gouging found, even if that law passed.

  6. Wouldn’t it be easier to shut Walmart down for a few months? That would put the brakes on China’s runaway economy,and bring all manner of commodity prices back down to earth.

    I don’t think Obama has a chance of being elected. He’s way out there on abortion. He even opposed sparing the lives of babies that survive abortions. That’s pretty damned gruesome.

  7. The average wholesale ethanol price natonwide is $2.84 a gallon. Must feel good to have one of those E85 vehicles about now. Especially in Minnesota or South Dakota,where it’s $2.57 a gallon. It’s only a few cents more in Iowa and Illinois.

  8. Robert,this is a quote from April of ’06. Funny how things can change so quicky. Even with the .51 subsidy backed out,and considering the lower mpg,it looks like E85 has gained the advantage.

    “At no time in the past 23 years has the average annual rack price of ethanol been cheaper than that for mid-grade gasoline. The ethanol market did soften a bit last year due to some overcapacity, leading to a narrowing of the gap. But if we look at 2006, the gap has widened back out. There is no reason to believe at this point that grain ethanol as it is typically produced will ever compete with gasoline, even if gasoline becomes much more expensive.”

  9. I really must not be understanding the windfall profit definition, because it seems to me, if your company had $90m profit in 2002, $95m in 2003, $100m in 2004, $105m in 2005, and $110m in 2006, then your average income during the 2002-2006 period would be $100m. Then you could never earn more than $110m in any year without the excess over that being considered a windfall, even if your company lives for 100 years and $110m then is worth next to nothing after inflation. In year 2100, if you make more than $110, you have windfall profit.

    Someone, please tell me I’m wrong, and explain to me what it really means.

  10. My take on “windfall” is that it’s another word for “nationalization”. There doesn’t appear to be much difference between Chavez seizing COP infrastructure and the US government seizing oil profits.

    I won’t even discuss oil/gas prices with my friends in a city in Canada with a large refinery (that is planning a $4b expansion) sitting on the top of the Bakken play. There is no understanding that crude and gasoline are commodities exchanged on the free market, and the general consensus is that “Big Oil” is ripping everyone off. The local refinery is owned by Federated Cooperatives.

    I find it easier to just change the subject whenever anyone mentions high gas prices. On that note:

    How goes the Fake Plastic Trees business? ๐Ÿ™‚

  11. “And what is worse? Dems bashing Big Oil, or Repubs bashing Big Alternative Energy? “

    Dems bashing big oil. The footprint of oil is bigger; and the Republicans are acting out of principle, though perhaps they haven’t thought it through.

    The Democrats are just acting like thugs.

  12. ROBERT–

    the populace suffers from a rampant disease[ SOD ]–Stupidity Or Denial. until SOD is eraticated, they will act and react as demonsrated by the whining acceptance of status quo[including the pandring antics by yor “highlighted” POLS.

    unfortunately it has been my experience thru many years that the sole cure for SOD is a harsh, traumatic hit in the head. if the patient survives, recovery is possible,

    perhaps your blog incentives will help some victims to seek preventive aid and thus alleviate their pain, and perhaps help others.

    fran

  13. ROBERT–

    i didn’t see your comment on ALT ENERGY tax incentives. it will be passed, perhaps with provision for retro application. it is too important for too many BIG $$$ interests. it’s a victim of chicanary in Washinton political silly season.

    fran

  14. Whomever put up the SOD acronym I believe had the best handle on what is taking place. I hear the same dialog in napa valley, and, quite frankly, you would expect to hear more critical thinking here. I am still going to go with my theory that we will probably have to really bottom out in some fashion before we get off the pipe…
    National energy policy that makes sense, and puts us on a sustainable path? Ha! I don’t even see it here on a board where people come to discuss energy issues. I personally believe it is time to implement our own ‘solutions’, such as they are. I am driving up to Red Bluff today to buy a kilowatts worth of PV at a $1.50/ watt. I am going to distribute it to some of my neighbors that are interested, and technical enough, to understand how is works, and that it can scale easily. I will also hand out a few old AE GC 1000 110V grid-tie inverter that I found for cheap, and repaired. The combo allows people to offset part of their useage, and experience solar power, but what they usually do after that is to comb their house to find the things that suck the most power. I have found it do be a far more reliable way of helping people to help themselves. You don’t give them the solution, you give them part of the whole solution, and they usually see the benefit of implementing the rest. I doubt this would work on a national scale, as we seem to have different and confusing priorities across the country. Still worth a try though!

  15. Somebody’s got to pay for the “war”, which may or may not have filled my gasoline tank cheaply, it’s not my fault, I’m not responsible, I’m ignorant, Im Merican! This is unacceptable, I’m gonna sew this blog, it upsets me! -synicism is too much fun!

  16. Paul-
    I dunno. The R-Party, even when it ran D.C. (House, Senate, White House, Supremes, 2000-2006) accomplished less than nothing on energy. We are wide open to what is happening now — a huge transfer of wealth to thug states, a radical decrease in our ability to make our own destiny, and a decline in living standards.
    You know what Pat Buchanan says? “Every political movement eventually becomes a business, and then that business becomes a racket.”
    Sounds like an apt description.
    That being said, I don’t support windfall taxes, or any party. But if you think the R-Party can lead us out of the energy wilderness, I fear you are deeply mistaken.

  17. What ever happened to Capitalism? Should the cheapest mode of energy not succeed? If we really want to fairly encourage energy progress, everybody should be involved. As an Merican, I truly feel as though my only vote is through my own personal consumption, my dollar, bottom line! Obama can’t tell me how little gasoline I want to buy. I think we should tax everyting sold, based on how far it was moved(Iraqi oil, fuel from Texas, food from Argentina, etc), and how much it weighs.(exempt postal service, they already do it) The economics will naturally and gradually favor the necessary and less energy/politically/ecologically intensive products. Over time everybody will have to blamelessly contribute to progress in infrastructure, waste reduction, energy policy, corporate decisions, foreign policy, etc.

  18. Here it is folks: Salem witch trials and wild west mob mentality: Get out the noose it’s linchin’ time!

    ‘Unethical behavior’ to blame for gas prices (cnn poll)

    RR: The sad thing is that what’s going to end up happening is that exploration budgets are going to end up going to pay windfall taxes. Jeff Vail had a couple of good pieces on feedback loops accelerating nationalization and perceived peak. I really thought we weren’t going to see much on peak oil in the MSM for a couple of years and I was off by an order of magnitude on the timeline. Things like SA announcing they were upping production 500k bbl/day didn’t even phase the market and it’s up $6/bbl based on what they thought was going to be on TWIP. crazy days.

    Like I said the other day, I just pulled everything we had in mutual funds and stuck it into hard Canadian assets that I can touch (or defend even). It’s a tough call to grasp timelines these days.

  19. What happens to a democracy when the majority figures out it can just take whatever it wants from the minority?

    Bo

  20. “Here it is folks: Salem witch trials and wild west mob mentality: Get out the noose it’s linchin’ time!

    ‘Unethical behavior’ to blame for gas prices (cnn poll)”

    Well, what can you say about a country that gets most of its news from People Magazine?

    I wonder if this, from Data360.org, is related. Only 40% of Americans believe in evolution. This puts us between Cyprus and Turkey in the league table. Most countries with advanced economies are in the 60% to 70% range; the leaders are well above 70%.

  21. We’ve become a bunch of whining babies full of envy and spite, and politicians pander to this to gain and keep power. The bottom line is people will vote to take money away from whoever’s succeeding and transfer it to themselves. Since you can’t include foreign oil states, it’s a zero-sum game within our own borders that only ends when people wake up to the fact that the pie they’re redividing is shrinking as a result of the disincentives created.

  22. doug,

    Right, and I would add that another problem is our national attention span of 14 seconds. It would be kind of useful if people, both politicians and the guy on the street, would take at least some time to think through the issues.

    Guess that would cause them to miss a few numbers on Dancing with the Stars though. ๐Ÿ™‚

  23. Having computer trouble today. This could be a double post.

    Avoiding the windfall profits tax would be relatively easy. The international oil companies receive most of their income from foreign E&P operations. Those with major refining operations are losing money refining crude oil. Look at Tesoro. The companies could avoid the tax by spinning off the foreign ventures into seperate companies or by never repatriating foreign profits.

    This is just pandering.

  24. Having computer trouble today. This could be a double post.

    Actually, your other post ended up in the “Americans Respond to $4 Gasoline” thread.

    Cheers, RR

  25. Robert,this is a quote from April of ’06. Funny how things can change so quicky. Even with the .51 subsidy backed out,and considering the lower mpg,it looks like E85 has gained the advantage.

    In 2007, they traded at parity on a volumetric basis, which means ethanol was still quite a bit more expensive on a BTU basis. On an energy equivalent basis, $4 gasoline is the same as $2.68 ethanol.

    The state of Nebraska tracks and graphs gasoline and ethanol:

    Ethanol and Unleaded Gasoline Average Rack Prices

    RR

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