Democratic Consumer-First Energy Act is a Joke

The Democrats are going after Big Oil again. Here is my opinion on their plan point by point:

Roll Back Tax Breaks for Oil Companies and Invest in Renewable Energy – In 2004 and 2005, the Big Oil companies received tax breaks worth $17 billion over 10 years. The Consumer-First Energy Act will roll back $17 billion in tax breaks for oil and gas companies and instead invest those taxpayer dollars to improve consumer price protection, renewable energy development and energy efficiency technology through a designated Energy Independence and Security Trust Fund.

I think this may be a good idea as long as those tax breaks go back in if the price of oil drops back to $40 a barrel like it was a few years ago. Of course the Dems are going to stick the money in some Trust Fund that will probably be raided for an earmark or for some Senators pet project. However, $17 billion in tax breaks for Solar companies or fuel cells or other renewable energy would be a good idea (and boost their stocks.)

Force Big Oil to Pay Their Fair Share through a Windfall Profits Tax – Since the Bush Administration came into office, the five biggest oil companies have made over half a trillion dollars in profit. The Consumer-First Energy Act creates a 25 percent windfall profits tax on companies that fail to invest in increased capacity and renewable energy sources. This provision would not apply to the profits those companies reinvested in clean, affordable, domestically produced renewable fuels, expanding refinery capacity and utilization, or renewable electricity production. The proceeds of the tax will be invested in consumer price protection, renewable energy development and energy efficiency technologies through a designated Energy Independence and Security Trust Fund.

This is an absolutely dumb idea that I guarantee would have unintended consequences. The Dems are purposing a 25% tax on top of the 43.41% tax rate that Exxon is already paying? This Windfall Tax would have resulted in $10 billion extra that would be taken from Exxon, $4.5 billion taken from Chevron, and $3.6 billion taken from ConocoPhillips in 2007. Of course these companies would either cut production or slow their exploration to make up for this sudden shortfall. Cutting production would raise the price of oil since it would crimp supply and slowing exploration would make oil prices even higher in the future once oil starts to run down. So this bill would actually raise the price of oil while insuring there will be higher prices for the next decade. Good work Dems!

Also what do they mean by "5 biggest oil companies?" Would this be only US oil companies because the 5 biggest Integrated Oil Companies by by Market Cap includes PetroChina, Royal Dutch Shell, and BP? After all PetroChina made $21 billion, Royal Dutch Shell made $31 billion, and BP made $22 billion in 2007. Why do these foreign oil companies get out of paying an extra 25% tax on their earnings? I mean BP for instance is only paying 34% taxes compared to the 43% taxes that Exxon is paying. So the Dems actually think that Exxon would just grin and bear it and pay nearly 68% of their income in taxes while their competitor pays only 34%? Is that any way to stay globally competitive?

Halt Government Purchases of Oil for the Strategic Petroleum Reserve – The Administration continues to place between 70,000 and 80,000 barrels of oil a day underground in the Strategic Petroleum Reserve (SPR), which is 97 percent full. The Consumer-First Energy Act calls for suspending through December 2008 oil purchases for the SPR. Filling could resume when the 90 day average price of crude oil recedes to $75 or less. Energy officials have stated that by halting purchases for the SPR, the price of gasoline can be reduced 2 to 5 cents per gallon.

Wow, this is one smart thing in this whole mess. The SPR should not be filled with $123 oil by any stretch of the imagination. This past week it looks like they are slowing down the purchasing since it went from 701,339,000 barrels to 701,331,000 barrels. At least some bean counter in Washington is waiting a few weeks for prices to drop before they commence buying again.

Protect Consumers from Price Gouging – The Federal government’s authority and enforcement actions are inadequate to protect consumers from artificially created spikes in retail gas prices are inadequate. The Consumer-First Energy Act would give the President the authority to declare an energy emergency should there be a shortage, disruption or significant pricing anomalies in the oil market. Once an emergency is declared, setting an “unconscionably excessive price” during such an emergency would be deemed unlawful and subject to civil penalties.

This sounds unconstitutional for some reason. It would effectively give the President pricing power over gasoline. For instance if gas hits $4.00 a gallon he can declare an energy emergency due to pricing anomalies in oil markets (whatever the hell that means) and then immediately drop the price of gas to $2.00 a gallon since anything higher would be "unconscionably excessive." It just sounds like the kind of power that the Politburo would have and not the President of the United States. Also aren't there laws on the books already dealing with price gouging?

The Administration’s failure to regulate the oil futures market has lead to exorbitant speculation. The Consumer-First Energy Act establishes two key limitations on speculation. First, the bill prevents traders of U.S. crude oil from routing transactions through off-shore markets to evade speculative limits and sets forth reporting requirements. The bill also requires the Commodities Futures Trading Commission to set a substantial increase in the margin requirement for all oil futures trades, contracts or transactions. Recently, one oil company executive indicated crude oil prices could be inflated due to speculation in the futures market.

I wonder if Congress knows that crude oil futures are an international business and is only denominated in US dollars? Setting limits on US traders and not international traders again puts our country at a disadvantage. Also making traders have larger margin requirements is like putting a tax on those traders. They also need to know that forcing the biggest oil company in the world, Exxon, to cut their production to avoid paying 68% in taxes would really be something the long side speculators would love. I mean after all these speculators spun nonsense like fog in the Gulf of Mexico into a supply reduction that justifies $123 a barrel oil.

Stand Up to OPEC – OPEC’s near-monopolistic control over oil prices has lead to record oil prices which have driven up the cost Americans pay at the pump. The Consumer-First Energy Act allows the U.S. Attorney General to bring an enforcement action against any country or company that is colluding to set the price of oil, natural gas, or any other petroleum product. Enacting this provision will make it clear to nations that participate in the oil cartel that engaging in conduct designed to fix the price of oil is illegal under U.S. law. As such, nations concerned with maintaining good diplomatic relations with the U.S. will likely be reluctant to blatantly act in a way that is counter to U.S. law.

So the Dems want to sue OPEC? That is idiotic. What happens if they retaliate and cut production due to "pipeline improvements" or something like that. We might see some $300 a barrel oil if we get into a shouting match with OPEC. I guess there are some Dems that are nostalgic for those Carter oil shock years.

Also are the Dems really thinking of souring relations with Saudi Arabia or Nigeria simply because they want cheaper oil? I thought the GOP were supposed to be the avaricious oil grabbers. The Congress does know that protecting the price was exactly what OPEC was formed to do right? OPEC controls the supply spigot and thus as a result of their cutting and raising production they control the price lever as well. I think the Dems need to go back and take Economics 101.