The People of America's Oil and Natural Gas Indusry

Incentive + Disincentive = Bad Policy

John Felmy
Posted May 5, 2011

The National Journal reports this morning that Senate Republicans and House Democrats "both released comprehensive plans for job creation this week," managing to agree on quite a bit including "incentivizing deployment of natural gas, the fuel attracting the most support from both parties as an alternative to oil." Let's ignore the fact that natural gas is not an alternative to oil - they are used differently, and we will need both for years to come-- and look at the first part, which is, in a word, odd. Odd because House Democrats are renewing their call for higher taxes on domestic energy development this week. And odd because, as Steve Maley explains:

All of the tax provisions that apply to oil also apply to natural gas.; Because 80% or more of domestic drilling activity targets natural gas, most of the special treatment in the tax code has actually benefitted gas, a clean, abundant, and nearly 100% domestic fuel. The President touted natural gas in his State of the Union address as one of the cornerstone fuels of the clean energy future, but his tax policy, if enacted, would cripple its development.

So basically House Democrats want to incentivize the domestic demand for natural gas, while discouraging the domestic supply of natural gas. This is neither a jobs plan nor a plan for energy security, so what exactly are House Democrats trying to do? Answer here:

the votes would put Republicans "in a bind" a House Democratic aide said.

Actually, higher energy taxes put the American people "in a bind," and it is time to cut ourselves loose from politics as usual and take the path less travelled. Back to Mr. Maley:

Another path would be to realize that energy security is an achievable goal, thanks to recent advances in oil and natural gas extraction technology. Achieving that goal would take a national commitment to support our domestic energy industry, no longer using it as a cash cow but as an engine of growth. Ironically, Obama is the first President since Nixon to have a path to real energy security so clearly defined.

ABOUT THE AUTHOR

John Felmy is API’s Chief Economist. He is responsible for overseeing economic, statistical and policy analysis and has over twenty-five years experience in energy, economic and environmental analysis. John is a Pennsylvania native and received Bachelors and Masters in Economics from Pennsylvania State University and a Ph.D. in Economics from the University of Maryland. He is a member of several professional associations including the American Economic Association and the International Association for Energy Economics.