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What To Do About High Oil Prices-Heritage Foundation

What To Do About High Oil Prices

Published on March 2, 2011 by Nicolas Loris and John Ligon Backgrounder #2526

Heritage Foundation: Used with Permission

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Abstract: Rising oil and gas prices are a concern to consumers, Congress, and the Obama Administration. The impact of higher oil prices goes far beyond the gas pump and affects the U.S. economy, as a new Heritage Foundation analysis shows. In addition to unrest in oil-producing countries and increased demand around the world, U.S. policies are contributing to higher fuel costs and a smaller domestic supply. Heritage experts Nicolas Loris and John Ligon explain how the Administration’s policies on domestic oil drilling and alternative energy are adding to the problem and what to do about it.

The price of oil passing $100 per barrel is triggering flashbacks for American consumers of summer 2008, when gasoline prices rose above $4 per gallon. However, the adverse economic effects of high oil prices spread far beyond pain at the pump. Federal Reserve Chairman Ben Bernanke recently noted that high oil prices could curb economic growth and result in modest inflation.[1] A Heritage Foundation analysis found that an increase in the per-barrel price of imported crude oil by $10 in the first quarter of 2011 and by $20 in the second quarter would reduce gross domestic product (GDP) by $20 billion, drop potential employment by nearly 100,000 jobs, and increase gasoline prices 18 cents per gallon in 2011 alone. Calls for increases in uncompetitive biofuel production and electric vehicle production will only drive up gas prices for consumers and waste taxpayer dollars. While rising demand for oil is pushing up prices, the political unrest in Egypt and Libya is cause for concern and only reinforces the need to tap into domestic sources.

What’s Causing High Oil Prices?

The political unrest in Egypt and Libya is in part responsible for the latest jump in oil prices, but the effect is marginal. Egypt is not a significant producer of oil, but 2 percent to 3 percent of the world’s crude oil and refined petroleum travels through the Suez Canal. Libya produces about 2 percent of the world’s oil (1.65 million barrels per day), with most of its oil going to Europe. Unlike 2008 when supply constraints existed, OPEC member nations have capacity to spare, and the International Energy Agency said it would increase supply from its 1.6-billion barrel stockpile. Political unrest driving higher oil prices becomes a much bigger concern if the turmoil spreads to the Persian Gulf or to Nigeria and Algeria. The U.S. used 18.8 million barrels of oil per day (MMbd) in 2009 and imported 51 percent (11.7 MMbd). Of those imports, 17 percent came from Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates.[2] As of December 2010,[3] the largest exporters of oil to the U.S. were:

• Canada (2.1 million barrels per day)
• Mexico (1.2 million barrels per day)
• Saudi Arabia (1.1 million barrels per day)
• Nigeria (1 million barrels per day)
• Venezuela (825,000 barrels per day)
• Iraq (336,000 barrels per day)
• Angola (307,000 barrels per day)
• Brazil (271,000 barrels per day)
• Algeria (262,000 barrels per day)
• Colombia (220,000 barrels per day)

The most significant driver of rising oil prices is increased demand. Industrialized countries climbing out of their respective recessions are using more oil, and China and India are also using more oil as they continue rapid economic growth. Rising demand will continue to put upward pressure on prices as the world economy attempts to recover.

Pain Hits Beyond the Pump

Since crude oil accounts for more than 70 percent of the price of a gallon of gasoline, higher oil prices will undoubtedly affect consumers at the pump, but the economic pain spreads well beyond the gas station. Higher energy prices also drive up production costs, which must be reflected in product prices, especially for goods reliant on transportation. Since higher prices reduce quantities sold, producers produce less. In turn, this drives wages down and incomes decline.

A continued price shock to the crude oil markets would have adverse effects on the entire U.S. economy. Heritage analysts conducted a simulation modeling the economic impact of an increase in the per-barrel price of imported crude oil by $10 in the first quarter of 2011 and by $20 in the second quarter.[4] As a consequence of such a price-shock scenario, the U.S. economy would shrink by $20 billion and fall a total of 99,000 private-sector jobs below potential employment. In 2012, the number of lost potential jobs would increase to 117,000, and an additional $13 billion in GDP would be lost.

The Wrong Policies

Unfortunately for American consumers, the Obama Administration is advocating policies that will increase world oil prices and increase the amount of imported oil by restricting domestic supply. The Administration rescinded drilling permits already issued in the Chukchi Sea, and last December it announced that the eastern Gulf of Mexico and the Atlantic and Pacific coasts will not be part of the government’s 2012–2017 Outer Continental Shelf Oil & Gas Leasing Program. Furthermore, federal leasing of oil and gas exploration in the western United States has dropped significantly in the past two years.[5]

To make matters worse, the Obama Administration has been pushing uneconomical and, at times, nonsensical solutions to reduce dependence on foreign oil, such as increased biofuel production, increased electric vehicle production, and increased renewable power production, all of which are bad policy.

• Biofuels a failure. The major source of biomass production, corn-based ethanol, is fraught with problems and has become an industry built on subsidies, tariffs, and federal protection. If ethanol were economically competitive, it would not need a federal mandate requiring production of 36 billion gallons by 2022 or a 54-cent tariff on imported ethanol. Ethanol produces less energy per unit volume than gasoline, contributes to food price increases,[6] costs taxpayers $4 billion to produce 2 percent of the total gasoline supply,[7] and has dubious environmental effects.[8]
• Electric cars are not economical. Taxpayers have doled out billions for advanced battery vehicle development manufacturing, and they subsidize every electric vehicle purchase (from $2,500 to $7,500 depending on the battery capacity). Even so, the demand for electric vehicles is low because electric cars are prohibitively costly despite the lavish handouts.[9]
• More wind and solar will not matter. Pushing for more renewable energy, such as wind and solar in response to high gas prices, is a non sequitur because these sources of energy affect electricity generation. Since only about 1 percent of America’s electricity was generated from petroleum in 2009,[10] it is misleading to suggest that one would affect the other. Increasing wind and solar production will not affect the gasoline supply or the transportation sector.

The Right Policies

Increasing access to oil reserves in the U.S., both onshore and offshore, would help offset rising demand, increase jobs, and stimulate the economy. Moreover, this will help improve our strategic position, as much of the world’s supply of oil is delivered in a restrictive market dominated by unstable or hostile nations. Some of these nations are using energy as a tool to frustrate U.S. national security and foreign policy objectives. The United States should allow access to easily recoverable domestic oil, remove unnecessary restrictions on oil shale development, and simplify the arduous permitting process.

• Access onshore and offshore. At least 19 billion barrels of easily recoverable oil lie off the currently restricted Pacific and Atlantic coasts and the eastern Gulf of Mexico. Another 19 billion barrels estimated to be in the Chukchi Sea off the Alaskan coast are inaccessible because of onerous regulations, such as acquiring air-quality permits. The U.S. Environmental Appeals Board invalidated the Environmental Protection Agency’s permit approval for that area after appeals from environmental groups.[11] Another obvious and senseless restriction is in the Arctic National Wildlife Refuge, where an estimated 10 billion barrels of oil lie beneath a few thousand acres that can be accessed with minimal environmental impact. Those 10 billion barrels are equivalent to 16 years’ worth of imports from Saudi Arabia at the current rate.
• Access to oil shale. According to the U.S. Department of the Interior and the Bureau of Land Management, there are 800 billion barrels (a moderate estimate) of recoverable oil from oil shale in the Green River Formation, which goes through Colorado, Utah, and Wyoming. This is three times greater than the proven oil reserves of Saudi Arabia.[12] While the technology is still developing and environmental considerations need to be taken into account, the Administration should not create onerous restrictions stifling commercial investment in research and technology that would make the process economically viable and safe for the environment.

What Congress and the Administration Should Do

Congress and the Administration should:

• Get moving on permits. As the only country in the world that places a majority of its territorial waters off-limits to oil and gas exploration, at the very least we should be drilling in the areas where we do have access. Removing the de facto moratorium on drilling would immediately increase supply, create jobs, and bring in royalty revenue to federal and state governments.
• Require lease sales when ready. Congress should require the Secretary of the Interior to conduct lease sales in the Outer Continental Shelf if a commercial interest exists. Interior should not drag its feet on lease offers for research, development, and demonstration projects involving oil shale. Further, Congress should require the Department of the Interior to provide the appropriate lease sales when the private sector deems oil shale commercialization possible.
• Sensible review processes. Placing a 270-day time limit on National Environmental Protection Act reviews would ensure a quick review process for energy projects on federal lands. Construction projects on federal lands take an average of 4.4 years.[13] The 270 days would allow for a thorough environmental review process but would not prevent investments from moving forward.
• Remove regulatory delays and limit litigation. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Shell cited regulatory delays and legal challenges preventing it from moving forward with exploration programs in the Beaufort and Chukchi Seas. Creating a manageable time frame for permitting and for groups or individuals to contest energy plans would keep potentially cost-effective ventures from being tied up for years in litigation.

Increase Supply, Not Dependence

If rising oil prices are a concern for the Administration and Congress, they should seek to increase access to oil and gas exploration in the United States rather than trying to force other sources of energy and technologies into the marketplace. A market-based energy policy that opens supply and prudently balances economics with environmental benefit will lower prices, create jobs, and reduce the need for foreign imports.

—Nicolas D. Loris is a Research Associate in the Thomas A. Roe Institute for Economic Policy Studies and John L. Ligon is a Policy Analyst in the Center for Data Analysis at The Heritage Foundation.

Government Unions and Collective Bargaining Fact Sheet

MEMORANDUM To: Denny Schneider From: Ron Nehring, Chairman Date: March 1, 2011 Re: GOVERNMENT UNIONS AND COLLECTIVE BARGAINING FACT SHEET With the issue of government unions in the spotlight, I wanted to share with you this excellent fact sheet just published by our friends at the Heritage Foundation. Sincerely, Ron Nehring CHAIRMAN, California Republican Party_____________________________________ Government Unions 101: What Public-Sector Unions Won’t Tell You Published on February 28, 2011 Factsheet #79 What Is Government Collective Bargaining? Legal Monopoly: Government collective bargaining gives unions a monopoly on the government’s workforce. The government must employ workers on the terms the union negotiates. It may not hire competing workers. Private vs. Public-Sector: Unions operate differently in government than in the private sector. Private-sector unions bargain over limited profits. Competition from other businesses moderates wage demands. Governments earn no profits and have no competition. Government unions negotiate for more tax dollars. Risking Public Services: When government unions strike, they can deprive citizens of essential services-such as education for children-until demands are met. History of Government Collective Bargaining Unions Once Rejected: Early labor leaders didn’t believe unions belonged in government. In 1955, George Meany, then-president of the AFL-CIO, said: “It is impossible to bargain collectively with the government.” In 1959 the AFL-CIO Executive Council declared, “In terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress-a right available to every citizen.” FDR: President Franklin Delano Roosevelt (D) gave unions extensive powers to bargain collectively in the private sector but excluded them from government. FDR believed collective bargaining had no place in public service and that a government strike was “unthinkable and intolerable.” A Change of Heart: Union membership peaked in the private sector in the 1950s. Unions came to see government employees as valuable new dues-paying members. Some states, like VA and NC, still do not negotiate public spending with government unions. 52% of union members in the U.S. now work for a government. The Consequences of Government Collective Bargaining Leverage over Government: Granting unions a monopoly over work done in government gives unions enormous leverage over budgets and taxes. Unions use this power to raise taxes and get more of the budget spent on them. Inflated Government Pay: Government unions win above-market compensation for their members. The average government employee enjoys better health benefits, better pensions, better job security, and an earlier retirement than the average private-sector worker, although cash wages are typically not inflated at the state or local level. Forced Union Dues: In the 28 non-right-to-work states, unions negotiate provisions that force government employees to pay union dues or get fired. This brings government unions billions of dollars. Politicized Civil Service. Government unions have the power to elect the management they negotiate with, so they spend heavily to elect politicians who promise them concessions. Government unions were the top political spenders, outside the two major parties, in the 2010 election cycle. What about Wisconsin? In Wisconsin: Governor Scott Walker (R) is reforming collective bargaining. His proposal restores voter control over most spending decisions but does not completely eliminate collective bargaining. Reforms: Walker’s proposal restricts government unions to negotiating over wages only, and not benefits or work rules (such as job guarantees for failing teachers). Voters would have to approve any wage increase beyond inflation. Unions would have to demonstrate that they have the support of a majority of members through an annual secret ballot. Wisconsin would stop subsidizing union fundraising by collecting union dues through its payroll system, and would no longer fire workers who choose not to pay union dues. Is This Union Busting? A union is only “busted” if its members are forced to quit the union. Giving employees the choice to pay or not pay expensive dues is hardly union busting. Under Walker’s plan, Wisconsin unions would still have considerably more negotiating power than even federal employee unions.

March 8 Election Day Info

Los Angeles (February 28, 2011)

City Clerk June Lagmay reminds voters to vote on Election Day, March 8, 2011, in the City of Los Angeles Primary Nominating Election. All registered voters are encouraged to review their Official Sample Ballot and Voter Information Pamphlet before going to vote on Tuesday, March 8,2011. The location of your polling place can be found on the back cover of your Official Sample Ballot and Voter Information Pamphlet or if your voting location has changed, a postcard has been mailed to you with the updated information. The polls are open from 7:00 a.m. to 8:00 p.m. on Election Day.

Important phone numbers for Election Day:

Election Division – General Information: (888) 873-1000 or (213) 978-0444

To find your Polling Place: (888) 873-1000 or (213) 978-0444

Language Assistance: (800) 994-8683

Voter Fraud Hotline: (800) 815-2666

Election Night Results Bulletin Hotline: (213) 978-3281

For further information or assistance, please contact the Office of the City Clerk – Election Division between 8:00 a.m. and 5:00 p.m., Monday through Friday, at (213) 978-0444 or toll-free at (888) 873-1000.

The Office of the City Clerk – Election Division administers elections for the City of Los Angeles, the Los Angeles Unified School District and the Los Angeles Community College District. The City’s upcoming elections will be held March 8, 2011 and May 17, 2011. More information can be found on the City Election Division’s website at: http://cityclerk.lacity.org/election/ .

LA City Budget Challenge

Public Employee Unions-Riverside Co Young Republicans

Created By Riverside County Young Republicans, Nathan A. Miller

Event Page: http://www.facebook.com/group.php?gid=42917511522#!/event.php?eid=201893483156890

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The fight against public employee unions and anti-free market forces is coming to Los Angeles and we need a show of force!

A coalition of Merit Shop, Small Business and Minority Contractors will assemble on the front steps of the Los Angeles County Administration building to oppose a union-only Project Labor Agreement on the Martin Luther-King Drew Medical Center Ambulatory Care Facility in Los Angeles County. This discriminatory… and unnecessary agreement has been proposed by Supervisor Mark Ridley-Thomas for purely political purposes. It would be the first such agreement on a county project and will increase costs by up to 20 percent. PLAs also discriminate against minority-owned small businesses and force workers to pay into medical and pension plans that they will not benefit from.

The union issue is finally rising on the agenda of Americans who continue to be frustrated by the exploding growth of government over the last 30+ years. Here in California, unions control nearly every aspect of government life. It is sad that not even public unions can be relied upon to be respectful of minorities, businesses and taxpayers. Alas, union-only Project Labor Agreements on public works projects built by private workers are testimony to the greed and selfishness on display at union rallies around the country. This is our Wisconsin!

Please come join us at 8:00 AM on Tuesday March 1, 2011 on the front steps of the Los Angeles County Administration Building at 500 W Temple St, Los Angeles, CA to show your support for fair and open competition.

Please click the response link below to respond to this message and then see the result.

Thanks for responding,

Nathan
namiller.cagop@gmail.com