Proposed Tax Changes on US Oil and Gas Producers
Posted by nate hagens on May 21, 2009 - 9:35am
Last week, the government released a lengthy document, General Explanations of The Administrations 2010 Revenue Proposals, which includes a 12 page segment titled "Eliminate Oil and Gas Company Preferences". I've excerpted some of these below the fold. It strikes me that the authors of these rules do not grasp that oil has peaked, and we can't continue business as usual nor pay back our financial debts by importing 70%+ of our oil. My thoughts follow the excerpts.
Eliminate Oil and Gas Company Preferences
LEVY TAX ON CERTAIN OFFSHORE OIL AND GAS PRODUCTION
Current Law
No Federal tax is imposed on the production of oil and gas on the Outer Continental Shelf (OCS).Reasons for Change
According to the Government Accountability Office, the return to the taxpayer from OCS production is among the lowest in the world, despite other factors that make the United States a comparatively good place to invest in oil and gas development. An excise tax on OCS production would advance important policy objectives, such as providing a more level playing field among producers, raising the return to the taxpayer, and encouraging sustainable domestic oil and gas production.
Proposal
The Administration is developing a proposal to impose an excise tax on certain oil and gas produced offshore in the future. The Administration will work with Congress to develop the details of this proposal
REPEAL CREDIT FOR ENHANCED OIL RECOVERY (EOR) PROJECTS
Current Law
The general business credit includes a 15-percent credit for eligible costs attributable to EOR projects. If the credit is claimed with respect to eligible costs, the taxpayer’s deduction (or basis increase) with respect to those costs is reduced by the amount of the credit. Eligible costs include the cost of constructing a gas treatment plant to prepare Alaska natural gas for pipeline transportation and any of the following costs with respect to a qualified EOR project: (1) the cost of depreciable or amortizable tangible property that is an integral part of the project; (2) intangible drilling and development costs (IDCs) that the taxpayer can elect to deduct; and (3) deductible tertiary injectant costs. A qualified EOR project must be located in the United States and must involve the application of one or more of nine listed tertiary recovery methods that can reasonably be expected to result in more than an insignificant increase in the amount of crude oil which ultimately will be recovered. The allowable credit is phased out over a $6 range for a taxable year if the annual average unregulated wellhead price per barrel of domestic crude oil during the calendar year preceding the calendar year in which the taxable year begins (the reference price) exceeds an inflation adjusted threshold. The credit was completely phased out for taxable years beginning in 2008, because the reference price ($66.52) exceeded the inflation adjusted threshold ($41.06) by more than $6.
Reasons for Change
The credit, like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the credit encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program. Moreover, the credit must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.Proposal
The investment tax credit for enhanced oil recovery projects would be repealed for taxable years beginning after December 31, 2010.
REPEAL DOMESTIC MANUFACTURING DEDUCTION FOR OIL AND GAS PRODUCTION
Current Law
A deduction is allowed with respect to income attributable to domestic production activities (the manufacturing deduction). For taxable years beginning in 2009, the manufacturing deduction is equal to 6 percent of the lesser of qualified production activities income for the taxable year or taxable income for the taxable year, limited to 50-percent of the W-2 wages of the taxpayer for the taxable year. For taxable years beginning after 2009, the deduction is computed at a 9 percent rate, except that the deduction for income oil and gas production activities is computed at a 6 percent rate.
Qualified production activities income is generally calculated as a taxpayer’s domestic production gross receipts (i.e., the gross receipts derived from any lease, rental, license, sale, exchange, or other disposition of qualifying production property manufactured, produced, grown, or extracted by the taxpayer in whole or significant part within the U.S.; any qualified film produced by the taxpayer; or electricity, natural gas, or potable water produced by the taxpayer in the U.S.) minus the cost of goods sold and other expenses, losses, or deductions attributable to such receipts.
The manufacturing deduction generally is available to all taxpayers that generate qualified production activities income, which under current law includes income from the sale, exchange or disposition of oil, natural gas or primary products produced in the United States.
Reasons for Change
The manufacturing deduction effectively provides a lower rate of tax with respect to a favored source of income. The lower rate of tax, like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the lower tax rate encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program. Moreover, the tax subsidy for oil and gas must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.
Proposal
The proposal would exclude from the definition of domestic production gross receipts all gross receipts derived from the sale, exchange or other disposition of oil, natural gas or a primary product thereof for taxable years beginning after December 31, 2010.
US Oil production peaked 39 years ago. We have moderated the decline by adding regional production from Alaska and Gulf of Mexico. We import around 70% of our oil - the above measures a) make it more difficult to procure oil from a region where it was already more expensive than the world average b) take us further away from a the goal of 'energy independence' by making 'overproduction of oil' punitive, c) do not give one mention of conservation, sacrifice, reduced energy use, etc. Enhanced Oil Recovery (EOR) which uses technology to go back into old fields and extract a higher percentage of original oil is also having its credit removed. This all strikes me as pent up 8 year political backlash against the oil industry in general that ignores current energy realities. I am not a particular fan of the oil and gas industry, (or any industry for that matter)--but we cannot put handcuffs on our 'drug procurers' before we are at least in rehab, and better yet until after we've recovered. It is pretty clear that ignoring reducing consumption with a focus on reducing production is fragmented policy.
Energy and natural resources are what we have to spend. But to spend them we have to invest in them. Reducing incentives to develop the small remaining US reserves by US junior companies means pushing investment in oil and gas to the international arena. It will have no impact on scaling alternative energy, reducing energy imports (which in the face of this will continue to increase, but faster), reducing emissions, and all the other political hype. On the bright side it keeps oil and gas in the ground for the future, when we might better use it. As such, measures like these would be welcome after a demand paradigm shift, and only appropriately accompanied by an across the board belt tightening and new 'ends', not as stand alone energy handicaps. Until that time comes we have to wisely prioritize or will be left with fewer and fewer energy options.
Half measures like these are not a means to an end, they are just a means to a smaller means.
Anyone with more details/information on what this means of oil/gas industry and energy landscape please post below...
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Thanks for pointing this out Nate!
The writers of this clearly don't understand what we are up against. We are not in a position where we can just import more oil if we need it, and renewables cannot do much very quickly.
Tax rates are already tipped quite far toward renewables. This is a comparative tax schedule, showing taxation prior to proposed changes from a paper analyzing tax rates published by the Manhattan Institute:
The first column of number is current effective tax rates. Negative tax rates indicate a subsidy. The amounts in the last two columns show how these tax rates would differ if there were no tax credits and if economic depreciation were used.
Could you clarify what you mean when you say that renewables cannot do much very quickly.
Quickly is the term in question. I have seen a major company in another country start up, transfer the technology from the West, go into production and set up wind farms all within one year. OK, so the percentage of power added by the wind farms may be small, but if we add renewable energies (wind and other) to a reduced demand then would this be quickly enough?
This is a purely political measure which has nothing to do with resources or global warming.
It is driven by two facts: historically, the oil and gas industry has paid a lot less to politicians trying to get elected than other industries of comparable size (and has paid 80% of it to Republicans); and workers in the industry have consistently rejected unionization.
The current administration has a desperate need to increase tax revenues without offending its supporters, so it has picked on an industry which includes few of its supporters. Unfortunately, it is an industry which the sponsors of this proposal understand so little about that they will probably end up steepening the decline curve and actually reducing revenues. At current prices oil development and production in the U.S. is marginally profitable, so this proposal will simply drive investment elsewhere (as pointed out in the original article).
I didn't know this but suspect you are correct. Would that political/lobbying contributions be proportionate to the industries importance....(or get rid of lobbyists).
And they assume that "drill drill drill" is the great new money-spinner. So tax that "drill drill drill". Childsplay.(?)
Meanwhile, but wouldn't you agree that the sooner oil/ff extraction is taxed the better for all sorts of reasons (climate, weaning off addiction, preserving future resources). Yes, it comes at an inconvenient time, but time is going to become yet more inconvenient!
I think preserving future resources is a total non-starter. We need the current built infrastructure of oil pipelines and refineries to do anything with the oil; we also need trained workers. If we drill less now, we close our pipelines earlier, and we have less possibility of doing more in the future.
I don't see weaning off of our addiction as an issue. Financial crises are likely to make our ability to continue buying the huge amount of foreign oil that we have purchased in the past a non-starter. We won't be weaned off oil; our supply will just abruptly drop. If we have made these changes to discourage US production as well, we will be in even worse shape.
I have a hard time seeing that whatever we do (or don't do) with respect to oil will make much of a difference with respect to climate change. Oil production is headed down quickly regardless. If we pull the same amount out, now or later doesn't matter in the whole scheme of things. If we pull less, that may make a bit of a difference, but relative to total world production, not much.
I don't see weaning off of our addiction as an issue. Financial crises are likely to make our ability to continue buying the huge amount of foreign oil that we have purchased in the past a non-starter.
If we wait until the problem becomes unbearable, then we will have missed the window to make major changes in our lifestyles and infrastructure, which will be to our dire disadvantage. Trying to continue in a BAU-style manner is only putting off the inevitable, and suffering greater consequences when the time comes to pay the piper.
Gail, this statement deserves it's own article. What you imply goes entirely against the fundamental tenant of the conservation movement. Unfortunately, you are almost certainly correct.
Alaska is a perfect example. Prudhoe Bay was the largest oilfield in North America and justified the enormous expense of development for the whole North Slope, including Alpine, North Star etc, which were nearly giant on their own merit. Even with all the infrastructure in place, the rumor has started that 300K/day of flow will not support continued operations at any price (In other words, they pop the PB gas cap, dramatically dropping oil production and hastening shutdown. With no gas pipe I'm sure they could produce longer). The fields will be dismantled, not mothballed. I've long felt that Alaska should have kept excess royalties in the ground rather than in the financial markets, but an understanding of infrastructure demands means this doesn't work without full ownership of the field.
I could say that Alaska should have prohibited all export of raw energy and materials to assure a long and prosperous resource future. But Japan tried this 200 years ago and found political reality prevents rational behavior.
This understanding also belies the presumption that OPEC can withdraw significant production post-peak and prosper. If they do so, they may render some of their reserves stranded AND find new faces on the throne.
While we all desire a low peak and gradual descent, Peak Oil is past. We can no longer impact the height from which we will fall, so since we've entered the decline phase, the proper course of action is to continue BAU as long as possible. We should minimize the rate of descent all the way down. Successful social attempts to reduce demand will increase the rate of descent, today and tomorrow. Efficiency gains will increase the impact of declines. All subsidy of non-economic development should be eliminated (while fully funding R&D). No matter what we do, we're nearly equally screwed, so we might as well enjoy every moment we can, and also, if we really pull out the stops, maybe, just maybe, we'll avoid a back-breaking economic fall and instead just get bruised rolling down the steep decline.
I live in mountain country, and I know three men who survived falls of several hundred feet down steep brush covered slopes. One had his pants ripped off and lost his wallet (a good analogy of what is going to happen to us economically), but he could walk the next day.
This doom and gloom perspective extends to producers as well. I just don't see Venezuela or the UAE prospering for long after the big three (N.A., EU, Asia) implode. They should be pumping like crazy and be terrified like the rest of us.
I keep wondering which of the three will drop out first, and whether it will benefit the survivors.
Gail, you rock. Wrap this up and put a bow on it, and let's see who can poke holes in it.
Oh, and others might not notice that while social voluntary conservation makes no sense, personal voluntary conservation makes all the sense in the world. I am striving to reduce not only my personal demand, but especially my dependence on oil. It ain’t easy, nor really possible, but my community can contemplate an 1870’s level of existence, which is about as far as we can go while the mainstream economy keeps chugging. It’s like we’re sitting in a sailboat on the back of the Titanic. It’ll be nip and tuck avoiding the whirlpool and swarms of humanity. But the guys I’m with know how to sail and I’ve brought a tucker box, a chart a compass and we are ballasted with chicken manure. If you are wondering why chicken manure on a sailboat, then you haven't read "Road Fever" by Tim Cahill. Look for inspiration everywhere.
Go Gail, go. By the way, what are you doing personally to prepare?
Cold Camel
I am glad someone doesn't think I am totally crazy.
I wrote a post back in June 2008 that I titled something like "If we are going to drill, we should do it now". I got a huge amount of negative comments. One of the other editors changed the title to "The US Offshore Drilling Argument: The Debate Between 'Starting Now' and 'Waiting a While'".
Regarding what I am doing personally to prepare, I have done a little, but not a lot. I bought a solar oven, and a bought a bunch of children's swimming pools I can catch rain water in. I have tried to do a little gardening, but figured out that where I live, the land is much better adapted to growing forests than to growing vegetables. I have a little extra food and water in the house, and have a little gold and silver for trading.
I have thought about buying land, and farming somewhere, but upon investigation, didn't find this a very good option. For one thing, I am not physically strong enough, and don't have the knowledge to do what would be required to support myself, much less other family members. I have visited farms in the area, but either the farmers are growing very little of what they need for a subsistence existence, or they are using techniques that are clearly unsustainable (irrigation using municipal water, tractors, organic sprays on fruit, electric fences for deer, etc.). Often, they are located many miles from the nearest town.
It seems to me that either nearly everyone makes it, or very few make it. If others don't have food, I don't see how I can put my solar oven outside my house to cook what I have, and not have others take it. If I have a lot of something (food, ammunition, medical supplies, etc) stored up, it seems likely that word will get around, and someone will try to break in and steal it.
Because of these considerations, it seems to me that one needs to make the best of the time available now, before the crash. I am not sure that there is much one can do to cushion the fall later. Perhaps moving to a different area would be better, but without the infrastructure (and knowledge base) that is built up over a period of years to sustain subsistence agriculture, I don't see how it would work, regardless. Without draft animals, the work would be terribly difficult. Somehow, one would need to change all of society, and I don't see a way of doing it.
Gail,I sincerely hope that if tshtf for real that somebody out there who is capable of surviving will take you in,as you have earned your spot by putting so much into helping your readers see and understand what the future may look like.
Now I am getting sort of old myself and also helping take care of my parents,who with luck might live another ten or fifteen years,and I hope that I can with a little help keep this old farm running that long no matter what.I am not absolutely sure that it can be done, but we are gradually doing what must be done to return to the ways of my grandparents,who grew up farming with mules and used hardly any fossil fuels except a little kerosene for light and some coal indirectly in the iron tools commonly used before automobiles arrived in the twenties, followed by electricity in the thirties.
The thing that worries me the most is that if things do get really nasty,we will probably sooner or later fall victim to a maruading gang of some sort,although the pickings will be relatively slim and the price high in these mountians,where even little old lady Sunday school teachers "know how to shoot Pappa's gun".We will if necessary fall back still farther to the old ways to the extent we can and partially revive the klans traditions of the Scots and Irish and help look after each other by whatever means are available.My paternal grand father habitually ate with a knife, a habit he had from his Daddy and Grand Daddy before him.People have lived with weapons constantly ready to hand in many times and many places,and we may yet do so ourselves.
As you have pointed out above,the likelihood of a typical modern day urban citizen being able to survive by subsistence farming is small to nonexistent.I am really glad to see you,as one of the leading lights of this forum, acknowledge this harsh truth without mincing words.I am afraid that some readers here who lack the requisite knowledge to seperate the bullxxxx from the rest of the discussion of organic fertilizers ,so to speak,will be taken in by some of the many grossly overoptimistic writers and visionaries in regard to food self sufficiency.
If so,they may make plans,either long term or short,which could concievably cost them thier lives and the lives of thier children.
I am not personally convinved that the lights are going out,although I do readily acknowledge that it can happen, and am planning accordingly.My personal guess is that unless there is a full scale war,we will survive the next few decades (without very many if any people starving or freezing in the US)by going onto a wartime sort of footing.People will be moving to warmer parts of the country and doubling up to save on rent and utilities.Millions of people will be on the eqiuvalent of food stamps,and most of the nonessential consumer society taken for granted today will be only a fond memory.Work of some sort that will be useful in transitioning to a low energy society will be available in most places,paid for of course with government funds.Rationing of some products such as gasoline will be draconian.Life could get pretty ugly, especially in the larger cities,when the young men find themselves either unemployed or at best able to get only a subsistence wage dead end job.
Once the reality of peak oil jackhammers itself into the heads of the people,the politicians will as usual see which way the wind is blowing and get out in front to lead us where we are going any way.Hopefully there will still be enough industrial capacity to build wind and solar infrastructure the way we used to build highways and shopping malls.I do not see why this should be such a big problem,since manpower will be plentiful to say the least,and many existing industrial facilities can be converted to new products.A machine used today to make gears for trucks can very easily be modified to make gears for windmills,and the factory that produces the fiberglass for the hoods and fenders can almost certainly adjust to making fiberglass for turbine blades.Life should return to something approaching "normal"within the lives of todays toddlers if I am right.The generations that follow will have to make such further adjustments as they find necessary.It should be easier for them,since the first step of any journey is the hardest.They will at least have the advantage of knowing that they MUST adapt.As I said before,this is just my personal estimate of what the future holds for us here in the US.I expect the Four Horsemen will be afield in Asia and a good many other places.
I am always try to say so when I am just guessing or breezing.When I talk agriculture you may rest assured that I have walked that walk in a way that only a few people still around can relate to from personal experience.I plowed some with my grandfathers mules when I was a kid, and my Daddy still plowed our garden with the last mule in the family up into the nineties-although we have had tractors since the forties.(Had to keep the mule in training,you see ,as well as preserve the old ways for old times sake.)I also happen to hold a degree in ag from a well regarded university.
Listen folks.
Gail is right.Farming at the subsistence level is brutally hard work,the learning curve is steep,suitable land is not to be found just anywhere,and the hours are long.If you think the big crash is on its way,and you think you will need to be food self sufficient ,you need to get started right now by taking a serious look at the land and climate of your home turf.The odds are high that you will need to move.Start getting your hands dirty now.You have a realistic shot at making it- starting from scratch if you are healthy and not too old-if you are willing to do what it takes,and the crash doesn't arrive for a few years.
I'm not a doomer. I want to say that upfront. There is another peak-oil board that is quite well topped up on doomers though, which I stopped visiting last year due to a certain amount of hate-based political ideas I found quite distasteful. Before I left it for good however, I would read comments from people who decided they were "set" because they lived on five acres out of town. It got me thinking of all the McMansions sprouting up on five acre plots in farmland nearby. It seemed that there was little thought about what goes into subsistence or farming without gas powered tools, and I thought I'd try my hand at it as an experiment. I failed miserably and had to cheat at every step.
My plot was 90x30 ft. I was able to do about 30x30 feet without powertools (although I did have a guy with a tractor till up the whole area first -- so I started out cheating). I got through about 30x30 feet of the garden before it became clear that because of an old elbow injury, I wasn't going to be able to do it with a shovel and hoe. I broke down and bought a tiller. Of course, it bears mentioning that even metal hand tools represent a cheat, not to mention electrically pumped water.
It was still a major undertaking. I did enjoy a large amount of fresh vegetables. I weighed my produce and kept track of my expenditures and even with buying a rototiller, I broke even on produce -- made a profit if I depreciated the tiller over several years. That is, until it came to storage. I lost much of my profits to mold over the winter. It turns out that preservation of even hardy winter squash is extremely difficult. Also, choosing the right things to grow and in what proportions is an issue as well. Eating a pound/day of snow peas may be healthy, but after a week or so it becomes unbearable, even if they are worth $6/pound. A lot of my garden profit was "lost" by giving away food, though this type of loss didn't bother me. For purposes of the experiment however, it represents a failure.
As the food started piling up in summer and fall, I cheated again and bought a largish food dehydrator. While effective at what I did dry, I would need to expand it to twenty trays and buy several more equally large setups to put up a significant amount of food. Plus, it uses electricity and for some things, would have to run 24 hours or more (I live in a humid area).
I made some pickles. Cheating again to buy jars and lids, vinegar, sugar, salt, and spices. I have no idea how to make my own vinegar. Even in our fat day and age, the stores ran out of jars. In a doomer scenario, I wouldn't have been able to get any at all. Cheating again, I cooked the food on my electric stove. I'm currently planning on getting a pressure cooker so I can do low acid foods -- another cheat.
This year I wanted to be a bit more self-sufficient (aside from using power tools). However, I started my tomatoes too early and it looks like I'll have to buy starts again. Of course I bought all the seeds I'm using, though I do I have some parsnips and kale in the garden that I'm letting go to seed to try my hand at seed saving.
My experiment has made me conclude that many people have no idea how complicated gardening is and that in any doomer scenario, I'm a goner. We tend to think of farmers as uneducated hicks, that all you have to do is throw out some seeds and you'll eat hearty all year. It is actually a powerful test of one's intellectual and physical prowess. Then of course, there is a large amount luck involved for the inexperienced and still a bit of luck for those with decades to draw upon. For example, last year was very cool here -- most of my tomatoes never ripened, and although the green tomato apple relish is excellent, I would have liked to have had more red tomatoes.
Anyway, I totally failed at every level at no-oil gardening. I did however lose about 2" of belly and the food was delightful. This year, I'm doing it for the flavor, not the experiment.
That is an excellent synapse of what we face. I thought I was pretty smart to be DOING something but it turns out the really smart folks can see that nothing will work. I'll still keep preparing if you don't mind. I am pessimistic for the world, but cautiously optimistic for my own children.
The question remains, why aren't you a doomer? Oh, right. Enlightened people are in the now. We're all going to die, no sense worrying about it. I'm not being sarcastic. I still worry.
Cold Camel
I'm not a doomer because peak oil is not the end of oil, it is the end of cheap oil. I think our standard of living will decline because we won't have access to as much energy to do magic things for us, but I don't think it will decline to the point where everyone hunts and farms with sticks and carved antler bits. Government will have to shed some bloat (I hope) due to a lower tax base. I think the third world will be hell because the first world will look out for itself first and foremost -- nothing actually new there. Lastly, while I don't think we'll see much short-term benefit from alternative energies, it doesn't seem overly optimistic to think that forty or fifty years hence, world technology will look quite different than now, and some real options may exist.
Gail,
You are a visionary. Be careful about your immediate surroundings. Visionaries tend to get eaten.
I missed your 6/08 post and the paragraph:
Only a visionary could make that statement prior to the price and production collapse. I certainly didn’t share that view back then. But I do now.
Considering that you grok the financial impact of resource constraints, your preparations seem a bit on the light side.
First, you need a refuge in place where you can procure food. As they say in real estate, location, location, location. You should fit in culturally and you don't want much diversity. No sense in moving to a war zone. You want a culturally intact community where people care about their neighbors. Surprisingly, considering all the fear-mongering news, this isn’t too difficult. You want to be somewhere moderately poor so they won't find it unbearable to drop back. Some rural poor people retain the tools that you lack. Mini-mansion country is a death-trap. Basically this says to me that you should live in a mostly rural state in a small town 2 hours from a big city.
You bring something special to the table. With your foresight and worldly outlook, helping others should be easy. The trick is to pick something that the locals totally take for granted and provide a post-peak alternative.
A cottage on a few acres will do. It’s the neighbors that matter. You want neighbors that know each other, and who will stop in and chat. They will all know you even though you don’t know them. Set up your barter system early. Every time you visit, you should take a homemade loaf/bottle/jar etc to your neighbor. No return gift required or expected.
For you, assuming you are a woman by herself who doesn’t have a killer mind-set, most would suggest you forget gold. I differ. Keep it till you need it, then give it away. Junior, who is in diapers now, will remember, and give you the warm chair by the fire.
Or, ask to park a container on their land. Fill it with stuff, and leave them the key. Do the same thing with three neighbors. You’ll be the wise woman that kept them out of the gutter. What’s it full of? Whatever you think they will need. Stuff is dirt cheap now, and available in unlimited quantities. They’ll take care of you.
Labor is going to be cheap. You physical prowess is going to be less valuable than the seeds in your container. Physical strength comes attached to the brawny back of your neighbor’s grown sons. If the wife and you are best friends, you’ll do fine.
Again, you’re not trying to be self-sufficient, just a benefit to the community. Play to your strengths. Let someone else keep your solar oven.
This is a copout. If everyone makes it, there is no point in personal preparation. Seize the nettle.
FYI, I’ve been actively working on my preparations for six years and have a long ways to go. But with the right mental mindset, you would be surprised how quickly you could move into a new area and become part of the social fabric, even if you aren’t a social butterfly. People are nice now. That will change.
The alternative is to party ‘til the end, as most of the masses are doing. Alaska tourism is still booming, but the word on the street is that the visitors are hoping this isn’t the last time. Clearly, and you know this in your heart, that cannot be the solution. Get active or party, there is no middle ground.
But it bugs me that others on TOD seem to be encouraging others to remain passive. To me this is a clear indication that they live in a totally unsustainable situation. We are not all doomed. Generally it means they are trapped by age, illness, or as spouse. I’d be just as stuck if I was in their situation. But I’m not, so I act. You can too.
I couldn’t have said it better. You write beautifully.
Uh huh. So? It’s hard for a first-time mother to contemplate giving birth to a baby too. That doesn’t stop them, why should it stop you? This one I've got licked. You can too.
Nope. All you need to do is live comfortably for the rest of your life and give to your neighbors till that day.
Please reply. If this ramble isn't useful, I've wasted a whole bunch of time.
Cold Camel
Yeah, I think you got it right!
From page 60 of the report:
Whoever wrote that proposal is nuts. They are proposing that US long term security would be enhanced by cutting domestic US oil production. So their proposal is to improve national security by RAISING the amount of oil the US imports!!!
The report is written by the 'Department of the Treasury'. Is there a specific group/area within the Department that put this proposal together?
I heard today that in order for the credit card Bill to get passed (making rules more stringent for credit card companies), they had to add a rider allowing guns to be carried in national parks. (I kid you not).
My interest in resource depletion and ecological overshoot has forced me to become aware/awake at how we are 'governed'. It is beyond my ken.
You know it isn't Nate. You know it is all of a piece.
cfm in Gray, ME
For those who wanted to pass guns in schools and parks -- I can't wait for a day where they pass a law that allowed conceal gun law in the hall of Congress and the White House. I think people demand and need for this law and who knows, it might save the country from hoodlums -- wink wink wink.
The bill allows people who have legal permits to carry to carry their concealed handgun in parks the same as they carry everywhere else. They don't cause any problems anywhere else, so why would they cause problems in the parks?
People get mugged, raped and murdered in parks just like anywhere else so the need for people to be able to protect themselves and their families is just as great there.
And there are large animals in many parks like bears that can cause serious injury or death if they invade a campground or attack park goers while hiking, etc... Is there something wrong with people who have a legal permit to carry from being able to protect themselves and their families from these potential threats while in the parks?
You know I'm 56 years old and have been all over the world including being welcomed in the favelas of Rio de Janeiro. The only time I was ever mugged was in New York and if I had had a gun they would have gotten that as well. I never knew what hit me I was walking at night carrying an umbrella in the rain and someone knocked me out probably with a brass knuckle without me ever seeing the mugger. So much for guns offering any protection. The only gun I own is a spear gun and I try to point it mostly at tasty fish.
FMmagyar there are a certain number of scumbags every where.At least three or four people have been murdered on the Appalachian Trail not too far from where I live.Sorry about your experience in New York, but if you care to look at the evidence, you will find that every day of the year there are numerous instances of armed citizens saving themselves from robbery,rape,and murder,most often without firing a shot.The records show that concealed carry laws contribute to a safer rather than a more dangerous society.
Those guys who mugged you knew 1 that the odds of your being armed were close to zero and 2 that you were the typical not very alert "ain't going to happen to me" victim when you let them get close (enough to strike w/o warning )without crossing the street,turning to face them or running.
You don't get out in the wild much do you? While I am nervous going to a shopping mall, I am not too worried in the National Parks and Forests in the east except near trailheads and roads. I have ecountered many bears, boars, etc in the woods all of which have run off as soon as becoming aware that a human was about. The real reason guns have not been allowed in the Parks in the past (they are allowed in the National Forests during hunting season) is that it is illegal to hunt in the National Parks. Now, in order to enforce the 'no hunting' regulations, they will actually have to catch the person shooting a game animal. I expect sightings of deer and bear in the Smokies will become rarer with the passage of this law.
Does the Amazon Rain Forest, The Everglades, The Pantanal or Coral reefs count as being out in the wild? And I don't mean the eco tourism hotels either.
Of those places, only the Everglades is a US National Park and they STILL do not allow guns despite the passage of that law. I have no experience with alligators but I do know that poaching is a big problem in the Smokies. This is true even though they do occasionally hire local hunters to track and kill problem bears.
Well what'd ya xpect? That they'd instead allow disgruntled customer's to carry their guns into the offices of the CEOs of the credit card companies?
Hmmm, I think we should suggest the credit card company CEOs visit our national parks, detail, they must prominently display their company logos.
For all -- O&G tax rules are far from my realm but at first blush I doubt those changes highlighted in the report will change much in the future for the energy companies. Sure, some enhanced recovery projects will be shelved if they were already close to marginal value. But that will give a little boost in prices to the rest of us. And the other provision will have an impact on net income to some extent. But in general the public oils don’t pay a lot of taxes directly. The bulk of the income is taxed as it’s distributed to their shareholders as dividends or capital gains on the stock sales.
Yes…the oil patch is an easy target. But that’s old news to us. Just part of the price for doing business. The only big revenue generated I see is the report above is the excise tax. If the public is too foolish to not see that it would be a direct tax on them then they deserve what they get for supporting it. If ever crude oil seller has to pay the feds another $10/bbl for each they sell then it will be easy for all of us to bump the price up by the same amount. No competition pressure to not do so. The good news is that would raise the cost of all oil/NG products and thus might reduce consumption. The bad news is doing so might delay recovery from the current recession and add to inflation big time.
The one comment that still bothers me is that the industry doesn’t pay enough taxes. The public statements always seem the ignore the big tax we pay on the front end that no one calls a tax: 1/6 (the royalty payment) of every dollar earned from fed lease goes directly to the gov’t right off the top…no deductions…no hold backs. How much revenue has the public receive from just the OCS leases (not counting all the other onshore mineral royalties)? Between 1950 - 2000 the feds have received (based on $60/bbl oil and $3.50/mcf the cumulative amount has been $162 billion. That’s directly from the gov’t website. That number doesn’t included the 10’s of billion of $’s paid in lease bonuses. And yes…many other govt’s have received bigger royalties from operators. That’s one of the reasons much of the activity in the oil patch is over seas these days. Those resources were developed much slower in part because of higher royalty costs to the companies. In retrospect, it might have served the nation better had the gov’t been slower letting the OCS be developed. Our reserve base would be more intact today. OTOH, all that domestic energy did help fuel our economic growth to the #1 spot on the globe (at least until recently.
Don’t worry about the oil patch. It has survived all these years. The new rules might mean higher cost for the public and greater unemployment for our workers but ExxonMobil et al will keep marching forward towards that inevitable cliff or at least down that unending slope.
I agree; higher prices that are coming soon enough anyway (already over $60/bbl today) will keep the oil companies humming in the future. I don't believe they should have the tax breaks they've acquired through campaign contributions and lobbying, nor do I believe we should try to deplete our resources at a faster rate.
Will and all -- again remember these changes in tax code will have little effect on the companies (ExxonMobil et al) most folks envision when we say “oil companies”. The public oil companies, like most corporations in America, pay little taxes themselves. What income they don't reserve for future operations (which are not taxed) they send to the shareholders via dividends. The shareholders pay taxes on the income. So stop fantasizing about the feds putting the screws to XOM et al. Can’t happen: they don’t have much NET income to tax in the first place. The folks who will get financially slaughtered are the small (typically family owned) companies and private investors. Taking away depletion allowance and other incentives won’t take one $ out of XOM treasury. But it will destroy the investor base of the small operators who deliver 20% of our domestic production from our stripper wells. In the end it will be a major benefit to the major oils and big public independent companies. It would basically kill much of their competition. From a personal standpoint, that would be fine by me. I consult for the big guys. Putting the little companies out of business just increases our market share and delivers less oil to the market place and thus helps lift our revenue.
Of course many won’t understand/believe what I just said. That’s Ok since most of my fellow workers wouldn’t like me exposing this little nasty secret anyway. Another little secret: many companies, especially service companies, have been quietly moving corporate headquarters overseas (Swiss. has been very popular) and thus avoid all US tax laws. It costs us some employment and lots of local taxes but what the heck…business is business.
Roc-
I both understand and believe you - this will hurt the little guys (and there are alot of them) and decrease production, so ceteris paribus it helps the companies like XOM, CHK, etc.
Nate --In an odd way I can almost see a silver lining to the plan. I'm not sure to what degree but the net effect might be to damage the system in such a way as to finally get the public thinking about the realities of the situation. I'm sure the conversation will be very garbled and filled with hefty bias from all sides. But who knows what message might eventually get through.
But let’s be honest: we can rightfully pat our collective selves on the back for the valued conversations we have here at TOD. But the painful truth is that 99.9% of our society isn’t listening to us. Maybe a continued corrupt plan might cause such a public fist fight that eventually some of the truth will filter out to the rest of the folks. If that doesn’t work then I suppose all we can do is wait for the times when the country gets fully behind “exporting freedom” to more oil exporting nations. At least at that point the public can get a good measure of our dependence upon oil by the body count.
I would agree with you. I wrote a post about either the same or very similar legislation. The ones who were/are upset about the legislation are the Independent Petroleum Association of America which represents the little producer. The American Petroleum Institute, which seems to be dominated more by the bigger producers, has been much less concerned about the issue. For example, I am sure there as not been a conference call on this issue.
It does take the smile off my face Gail. I've just started a conversation with an investor about funding an enhanced oil recovery project (1.2 billion BO residual still there) I've been sitting on for quit a while. He's taken a contrarian position and thinks oil is the place to put $400 - $500 million right now. Pocket change for him...he's made billions in the futures market. If the feds change the rules and take his tax breaks away I can probably stick the project back in the file cabinate. But don't feel to sorry for me. I'll pull it back out in 4 or 5 years when the SHTF. Just in tme for my retirement party.
Rockman,
I realize that shareholders pay income tax; Of course, there are large shareholders, such as company directors which are affected by this. XOM in the first quarter of 2008 alone purchased back 110 million shares of its common stock for the treasury at a gross cost of $9.5 billion, boosting the net income per share. During the second quarter of 2008, they purchased back 98 million shares.
like most corporations in America, pay little taxes themselves.
You wouldn't believe that listening to them;
"In 2008, ExxonMobil's worldwide tax expenses amounted to over $120 billion."
http://www.exxonmobil.com/corporate/energy_issues_taxes.aspx
I agree with you Will. I'm sure they want folks to be impressed and sympathetic with that "tax" of $120 billion. But that's playing the same game others do when the offer the huge revenue numbers XOM has. Folks can't relate to such absolute big numebers. The reality is they XOM falls right in the middle of the pile with the rest of them on a percentage basis.
It's a start, but not enough. They should eliminate ALL tax credits in the energy sector.
As people get to pay the real cost for the energy they use, they will start implementing real solutions.
Good start Obama, now just keep going!
Wouldn't it make sense to increase taxes on imported oil - while applying tax incentives to domestic energy?
From a geopolitical POV: No.
You want the outside world to run out of oil before you yourself do. First use their oil, then your own.
Reminds me of two jocular sayings from the 70's
Burn America First
Strength Through Exhaustion
draffen -- I'm not sure but I don't think current international trade agreements would allow us to do that. Basicly you would be taxing the exporting countries directly. Nice if we could do that. But it would be the same as other countries taxing US industries based upon what they export. Imagine if Russia suddenly started changing farmers in Nebraska an extra $40/ton for wheat they ship over there. Where would it all stop?
If oil prices do go up significantly (such as above $100/barrel), there won't be a need for tax incentives to encourage domestic production. And let's be realistic, any incremental increase in US domestic production due to tax incentives will not have a meaningful impact on the price of oil. The US simply imports too much oil for that to happen.
I was nodding along with the proposed measures, the reasons given are rational. Then i encountered Nate's strange thoughts following, which do not seem rational. E.g.
> the above measures a) make it more difficult to procure oil from a region where it was already more expensive than the world average
Of course it does, and that's the purpose, right? The current price of oil does not reflect the impacts (externalities) so it needs to become more difficult to procure, until its price moves to reflect its impacts.
> b) take us further away from a the goal of 'energy independence'
Deepening out dependence on our own dwindling oil sources is not 'energy independence' either; it is just accelerating our end-game. Independence has nothing to do with _where_ you drill.
> c) do not give one mention of conservation, sacrifice, reduced energy use, etc.
That's because people will only conserve, etc. when the price of oil forces them to, when its in their own economic self-interest. Hence, anything we do to raise the price of oil _already_ benefits those goals indirectly.
> Energy and natural resources are what we have to spend.
I really, really don't understand how someone even moderately informed can have this view. Non-renewable natural resources are _not_ what we have to spend, they are the natural capital, and the _interest_ is what we have to spend. Any rational use for non-renewable resources spreads the usage out over the longest time span possible. Removing economic incentives for rapid depletion should be truly non-controversial among the educated.
It's not that simple. If you have followed my writing here for past 4 years you know I am in favor of basing our society on renewable flows. But to do that we have to dramatically reduce consumption. By reducing production and MAINTAINING consumption, we will deplete so fast as to move towards resource grab, anarchy etc. I think there is an inflection point on these issues where ones attitude depends on ones perception of just how ugly the default trajectory can get. Most environmentalists (of which I consider myself one), think that we can wean ourselves off of highly energy dense fossil stocks and seamlessly go to renewable flows - this cannot happen in anything less than 10-20 years and only then with considerably less consumption. Ergo, these rules sound great if you think we aren't in too much of a pickle, but unsound if you realize we are...
And I meant energy and natural resources, as opposed to dollars, are what we have to spend, as in that is our maximum budget, which we can't extend beyond for too long.
Why not tax the consumer and they can decide whether to use the fuels or not?
> If you have followed my writing here for past 4 years you know I am in favor of basing our society on renewable flows.
Yes, that's why i was so surprised to see what looks like a defense of BAU coming from you.
> But to do that we have to dramatically reduce consumption.
Yes, and the only way to reduce consumption is either rationing, or by making oil more expensive (by either directly taxing and/or removing tax breaks, as the measure propose.) So how could you not be in favor??
> By reducing production and MAINTAINING consumption, we will deplete so fast as to move towards resource grab, anarchy etc.
But by reducing production, we raise prices which REDUCES consumption, which postpones resource grab, anarchy etc.
> Why not tax the consumer and they can decide whether to use the fuels or not?
I think many or most of us here are in favor of a direct tax, but that's not either/or with removing tax breaks on domestic extraction. It's a matter of opinion, but most of us would say BOTH are important. I just don't understand how you could rationally argue against either.
IMHO, <[rant slightly off topic]> if we are going to be using our remaining military power for anything, it should be to force oil producers to NOT pump their oil. Which is a bit difficult to do when we are still foolishly pumping our own, AND buying theirs. Shutting down domestic oil "production" [sic, actually depletion] would be leading by example.<[/rant]> There's just no political support for that, whereas there IS political support for baby steps like removing tax breaks for oil companies. It's a small step, but vital to reach for it because it's one the few politically possible steps.
Ben, I started off doubting the opening wisdom but have been persuaded by the replies above of Gail and particular this one of Nate.
Meanwhile governments continue to be consistently useless anyway. Just got the Conservative's euro-election thingy: "Vote for Change"..[e.g.:]..."Helping Jaguar LandRover".....
Our so-called "political" system is all about MAINTAINING consumption if not increasing it. And doing so while MAINTAINING if not increasing the power of those who already have it. The dynamic requires fitting any "change" into the existing power structure. Changes that would alter that structure to the detriment of those running it cannot be considered.
Don't listen to what they say, watch what they do. Giving GM to the unions isn't pandering to the unions - it will destroy them when GM goes under taking with it the jobs and pensions. Think about who gets paid and who takes the loss for GM.
Guns in national parks - why not courtrooms too? That's ultimately about replacing rule of law with rule of man and brutalizing society over a longer run. The American solution - always more guns. In my more optimisitic moments I wonder if the plethora of guns might slow the construction of the checkpoint society and police state. Then I realize I'm dreaming again.
cfm in Gray, ME
Obama is "ignoring reducing consumption"? Um, hellooo...Cap and trade? And wasn't it 2 days ago that the administration released its proposal to raise CAFE standards? (What does conservation have to do with "explanations of revenue proposals", such that anything about that should be in this document you are starting this thread about?) I think you are way off with this particular criticism, Nate. It comes off as a disingenuous rhetorical slight-of-hand.
As for whether it is wise to incentivize domestic production in the face of peak oil, or do the opposite, (or do nothing), that's obviously a complicated question that we're already debating in this thread. While it may be true that the writers of this document are not (very) aware of peak oil issues, it's not particularly logical, on the face of it, to say that the proposals themselves are evidence of this.
It's no doubt true that the administration's policy proposals are motivated primarily by global warming politics. But that doesn't mean that their push for renewables (and elimination of subsidy for oil) isn't also a reasonable response to peak oil. Personally, I think will help. In any case, the community here at TOD has been debating these questions for a long time without coming to any consensus. So Nate, it might have been edifying if you laid out the basis for your assumption that we should pump more of "our own" oil sooner, instead of assuming the logic behind that is implicitly obvious.
Ben
You are right. I have far too many demands on my time. I shouldn't have posted it without more logic and background to my comments. As to cap and trade, if you think that is 'reducing consumption' in any meaningful way then we will have to agree to disagree.
(Well, "cap and trade" is a half-assed, ineffective, politicized policy, but its intended to stop growth in FF consumption, if not to reduce it.)
I can relate to having demands on one's time. No disrespect was intended.
How can they possibly write something like this:
and expect to be taken seriously. Are ANY mining operations, such as fossil fuel extraction, "sustainable" as in, to prolong or persist over time without exhaustion or causing lasting damage?
Your point is well made, but I wonder if you miss the larger point: How do you wean energy companies away from oil and into renewables as quickly as possible? Surely not by giving them tax breaks. You do it by discouraging investment of the kinds mentioned here.
Obama is trying to keep the existing system going until he can get a new system in place--and he's made major strides; just look at the standards already in place for a smart grid, standards needed before design and construction can be done.
If it turns out that renewables cannot meet the energy needs, then removing the new taxes is a possibility, but why encourage people to be pessimistic and continue the same old stuff? Why not encourage optimism and new development from the start--and use oil as a possible fall back possibility if things don't work out?
It seems to me that people are walking into this with their eyes shut, regarding what we really can do with renewables. We have had years of experience with wind turbines, and our experience has not been terribly good.
Wind turbines do not produce at the amounts used in pro forma projections. I have noticed this using EIA data for US wind production, where the percentage of capacity varies from year to year, but tends to be barely 25%, even though the turbines sold in recent years all claim to have capacities up in the upper 30% range. I want to look at the EIA data more closely (it is available by wind farm) and see if mismatches are occurring.
This is the abstract of an article in the July 2009 issue of Energy Policy (already available on line).
I don't get point c: "do not give one mention of conservation ... reduced energy use". (I don't agree that giving up car dependent suburbs and commuter airlines is a sacrifice.)
One can find plenty of examples of the Obama administration pushing for reduced energy use. Just because those measures are not mentioned in an article about taxing fossil fuel production does not mean they do not exist.
Given that the goal is reduced fossil fuel induced climate change, reducing subsidies for fossil fuel producers seems important. I tend to think that climate change is a more important issue then peak oil. The consequences of run away climate change dwarf the consequences a reduced oil supply.
Nate,
Most who read TheOilDrum and post on it would accept that no amount of exploration is going to create more oil in N America, all it can do is ensure its pumped out quicker.
Consumption will match production, some changes such as increased CAFE, higher taxes are going to increase conservation, having more oil available removes the pressure to change to renewable energy.
If you believe that in 40 years the world is going to have much less oil available than now, then its logical that eventually any stranded oil not developed in 2010 or 2015 will be extracted at some future time. Imagine if the Alaska North slop had not been developed in 1970's, prices would have remained high in 1980's SUV's would never have become popular, the US would now have a future resource that could be developed perhaps when prices are at $200/barrel or $300, certainly it would not have been used to power 15mpg vehicles.
As it is future generations will ask; "why did they burn all that oil in homes and vehicles, didn't they know it can be used to make chemicals, plastics?"
It may seem logical but it isn't. Thing is that after a substantial economic downsizing, even assuming it goes non-catastrophically (which I very much doubt), there is liable to no longer be the capability to go after hard-to-get oil.
Two uk historical examples of this sort of thing. Watt had the idea of his steam engine but struggled for years to find anyone who had the technology to actually make it, and indeed one supporter ended up financially ruined, before a cannon-manufacturer succeeded.
Secondly the primitive old main line canal in Birmingham was superceded 60 years later by the new main line. Any fool in 1770 could have imagined it being better to have a canal that was straight rather than very meandering, and cutting through a big hill rather than congested with twelve time-consuming locks. But first they had to get together the wealth for such an unprecedentedy huge project.
http://www.railaroundbirmingham.co.uk/full_photos/smethwick_galton_hl_vi...
http://en.wikipedia.org/wiki/BCN_Main_Line
http://www.waterscape.com/canals-and-rivers/birmingham-canal-main-line
(And now the coal fields those canals go to are empty anyway.)
Olduvai Theory implies that we are going to fragment into surviving groups
Trapped oil would be used by a surviving group. The horrendous cost of drilling is mostly caused by Capitalistic profits.
An old rig in the hands of a surviving group with a few oil engineers could probably drill a hole, or reconstitute a mothballed one.
Obama's auto 40 miles to the gallon will not even put a blip on the oil decline graph.
I liked the "gun in parks" amendment. They are a lot safer than Credit cards. The sooner we all revert to Cowboy Law and each carry a Glock in a side holster the sooner the US will become civilized again. It is long overdue.
Funeral homes will be a growth industry until the Good guys outnumber the Bad guys.
Graham
The cost of drilling offshore is also caused by the fact that it's miles from shore, under thousands of feet of water and rock.
This is true only of fields that need low technology and low capital. The best were exhausted early in the oil age.
Robin,
Those examples are not relevant, if oil continues to have value beyond it's BTU content( ie chemicals) then it will be mined just as many gold mines that were closed when gold was $32 /oz have been re-opened now that gold is $900/oz.
If we develop low cost replacements for oils chemical value then you could be correct, but if for example we find it very difficult to replace say jet fuel even a very small producing field may be worth transporting out by tank truck. Air travel would be only at first class prices and cattle class space.