It’s no secret that energy companies enjoyed a highly profitable third quarter. “Big oil rakes in historic profits” one newspaper headline recently blared.
The political fallout has been true to form. Several Democrats have criticized the energy industry for doing well at a time when Americans are worried about energy costs. For example, Sen. Byron Dorgan, North Dakota Democrat, has pushed to introduce a “windfall profits” tax on energy firms. Sen. Richard Durbin, Illinois Democrat, recently blasted “the greed of Big Oil.” Surprisingly, though, Republicans are getting in on the anti-profit act. Rep. Dennis Hastert, Illinois Republican, Sen. Judd Gregg, New Hampshire Republican, and Sen. Bill Frist, Tennessee Republican, have joined their colleagues on the other side of the aisle in questioning energy companies, calling for investigations into alleged price gouging.
This bipartisan logic seems to be that if anyone is benefiting from rising prices, while Americans struggle to pay gas and energy bills, then the beneficiaries must be doing something wrong.
But by that logic, the biggest menace to the American people is not energy companies, but the government itself. The nonpartisan Tax Foundation says in a new report that “in recent decades governments have collected far more revenue from gasoline taxes than the largest U.S. oil companies have collectively earned in domestic profits.” For nearly 30 years, if anyone has enjoyed a “windfall” it has been our elected officials. “Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues,” write the Tax Foundation’s Jonathan Williams and Scott Hodge. That is “more than twice the amount of domestic profits earned by major U.S. oil companies during the same period.” Where is the call for a windfall tax rebate given the “greed of Big” Government? It’s particularly odd that Senate Majority Leader Frist has decided to jump on the anti-profit bandwagon.
“If there are those who abuse the free-enterprise system to advantage themselves and their businesses at the expense of all Americans, they ought to be exposed,” Mr. Frist said in a recent statement.
Mr. Frist is facing questions, unfair and politically motivated ones, in my view, from the Securities and Exchange Commission over the timing of a stock sale just before the stock price dropped. There’s as yet no evidence to suggest Mr. Frist “abuse[ed] the free-enterprise system” with his sale. The investigation smells like a political witch hunt. So why is he calling for investigations for others when there is likewise no evidence of malfeasance? The Republicans have missed a good opportunity to show leadership. Instead of looking for scapegoats, GOP leaders should explain what is happening in energy markets. And most importantly, they can outline what to do about it.
The rising price of oil has been driven by increased global demand, particularly from China and India. As Tanweer Akram, an economicanalystat Economy.com wrote at the end of October, “Strong worldwide demand for oil is the major factor responsible for elevated crude oil prices.” Consider that just a few months ago the large Chinese energy firm, CNOOC, was in competition with Chevron to acquire the California-based energy company Unocal. The Chinese need to develop energy supplies and their capacity for exploration and production to meet demand. They looked to Unocal as part of their long-term solution.
Whatever one thinks of the merits of CNOOC’s bid, which was blocked by opposition from Capitol Hill, it underscores just how much the energy-demand picture is changing in other parts of the world. These changes have significant impact on prices.
What’s more, Republicans don’t need to feel like they have to play defense. Besides high energy taxes and rising global energy demand, excessive environmental regulations contribute to higher energy prices.
In just a few months, home heating bills in the Northeast and elsewhere will be rising rapidly. Part of the reason is a supply squeeze on natural gas. One obstacle to getting supply to Americans is that siting liquid-natural-gas terminals has proved very difficult due to opposition from green groups and the prevalence of NIMBYism.
The recently enacted energy bill, passed in the face of Democratic opposition, will help to that end, but it will be a while before that capacity is realized. Republicans should educate voters about the role that excessive environmental regulation is playing in their high energy bills.
Sustained high energy costs are not in the long-term interests of Americans or the global economy. In the long-run, the way to help keep costs down is to enable reliable and growing energy supplies. Tax increases, congressional investigations and political posturing are no way to help bring about that end.
Nick Schulz is editor of TechCentralStation.com Deborah Simmons’ column will appear on Monday.