EXPANDing to a Market Driven Energy Policy

Nicolas Loris / April 17, 2012

Typically, comprehensive pieces of energy legislation expand the government’s authority over the energy economy rather than minimize it. The 2005 and 2007 energy bills are good examples, and probably the most expansive was the failed cap-and-trade in 2009. And most recently the House-proposed water and energy appropriations bill continues to waste taxpayer dollars by spending on fossil fuel and nuclear energy programs that the private sector should undertake.

The current state of America’s energy policy is far from a market-driven one. Subsidies, loan guarantees, targeted tax credits, and mandates pick winners and losers. Government restrictions and regulations impede the market’s effectiveness, reduce access to energy sources, and artificially drive prices higher.

Congressman Jeff Duncan (R–SC) recently introduced the Energy Exploration and Production to Achieve National Demand (EXPAND) Act, which would introduce market forces into energy policy by increasing access, reducing onerous regulations, and removing targeted subsidies and mandates.

The bill would create a more competitive energy economy that would ultimately benefit Americans through lower prices and fewer tax handouts to politically preferred industries. Here are some highlights:

• Opens Areas Offshore and Onshore. The U.S. is the only country that places a majority of its territorial waters off-limits to exploration and drilling for oil and gas. Duncan’s bill opens more areas in the Gulf of Mexico as well as off the Atlantic and Pacific coasts. The legislation also opens up leasing, exploration, and production on the Alaskan Coastal Plain, which includes the Arctic National Wildlife Refuge, where an estimated 10.4 billion barrels of oil lie beneath a few thousand acres that can be accessed with minimal environmental impact.

• Approves the Keystone XL Pipeline. Had President Obama approved the permit for construction of the Keystone XL Pipeline, up to 830,000 barrels of oil per day would have come from Canada to the Gulf Coast refineries as soon as early 2013. But President Obama rejected the permit, claiming that the State Department did not have the necessary information to recommend an approval. The reality is that State has already conducted a thorough, three-year environmental review with multiple comment periods. It concluded that construction of the pipeline would pose minimal environmental risk. Duncan’s legislation gives Keystone XL the green light.

• Reforms the Permitting and Judicial Review Process. Receiving a permit for any energy project, not just fossil fuels, takes entirely too long. Duplicative and unnecessary regulations slow the process. Furthermore, environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. The EXPAND Act creates a manageable time frame for permitting and for groups or individuals to contest energy plans.

• Stops the Land Grab. The Department of Interior’s land grab (Secretarial Order No. 3310) to unilaterally and arbitrarily classify areas as “Wilderness” and “Wild Lands” will restrict access to not just energy production but many local economic activities. Once again, the Administration is ignoring the needs of regional and local economies and their ability to balance economic growth and environmental priorities. Duncan’s legislation would permanently block Secretarial Order No. 3310, and any proposed designation would require congressional approval.

• Repeals the Ethanol Mandate. The Energy Policy Act of 2005 contained the first-ever requirement that renewable fuels be mixed into the gasoline supply. The 2007 Energy Independence and Security Act increased the mandate substantially to 36 billion gallons by 2022. If biofuels or other transportation fuels are to succeed as a competitive fuel source, legislation should not be necessary to mandate their production or consumption. The EXPAND Act removes the ethanol mandate completely.

• Removes Targeted Tax Credits. Over the past decade, the number of tax preferences for the production and consumption of government-picked energy technologies has expanded considerably. By politically picking winners, these tax credits crowd out investment and make it difficult for new technologies that do not receive government handouts to enter the market. Furthermore, targeted tax credits move the decision-making process away from the consumers and producers and consolidate power with politicians and bureaucrats, who then determine who produces what products. Duncan’s legislation removes the targeted tax breaks for all energy sources, including oil, gas, coal and nuclear. The legislation could be improved by offsetting those repeals and expedited sunsets with a broad corporate income tax cut, like that proposed by the Energy Freedom and Economic Prosperity Act of 2011. While the EXPAND Act does make immediate expensing of investments to all energy sectors, immediate expensing should be made for every business permanently, irrespective of industry.

• Repeals Greenhouse Gas Regulations. In 2009, the Environmental Protection Agency (EPA) began its process of regulating carbon dioxide and other greenhouse gas emission under the Clean Air Act because of CO2’s contribution to global warming. The problem with the agency’s finding is that it relies on questionable science and ignores vigorous dissention among the scientific community. Even if we set aside the abundance of scientific dissention when it comes to the EPA’s endangerment findings or the supposed effects of CO2 on climate, the EPA’s regulations will not reduce CO2 enough to have any meaningful effect. But the regulation will dramatically increase the costs of electricity, gasoline, diesel fuel, and home heating oil. Thus, it will hurt the consumer directly and indirectly through increased costs to businesses. The EXPAND Act would remove this regulatory nightmare.

Duncan’s energy legislation would remove market distortions from the energy sector by removing subsidies and needless red tape and opening access for companies to pursue energy projects if they have an economic interest to do so.