NCPA | Daily Policy Digest

OIL FROM STONE: SECURING AMERICA'S ENERGY FUTURE

09 Jul 2009 08:30:58 CDT

Rising prices and security concerns raise important questions about America's energy options. Currently, the United States imports 66 percent of its oil -- about 4.7 billion barrels per year or 9,000 barrels every minute. However, there are vast amounts of oil shale -- a type of rock rich in kerogen, an organic sedimentary material -- which can be converted into high-quality liquid fuels, says H. Sterling Burnett, a senior fellow, and Tomas Castella, a research assistant, both with the National Center for Policy Analysis.

The U.S. Department of Energy (D.O.E.) conservatively estimates oil shale formations in Colorado, Utah and Wyoming contain 800 billion barrels of recoverable oil, more than three times the proven reserves of Saudi Arabia. Per acre, oil shale is significantly more concentrated than oil and gas on Alaska's North Slope, Alberta's tar sands or ethanol production, say Burnett and Castella:

Some shale contains more than 1 million barrels of oil per acre (bbl/acre).
Conventional oil yields about 10,000 bbl/acre.
Corn yields 10 bbl/acre ethanol.

Domestic oil shale production would provide substantial economic benefits, according to RAND:

A 3 million bbl/day industry could generate $20 billion in annual profits while reducing prices for consumers.
As many as 100,000 new jobs could be created by a 2 million bbl/day shale oil industry.
The D.O.E. estimates that, in addition to tax revenues, federal and state governments would receive royalties and lease payments topping $2 billion a year.

Oil shale production requires more energy than conventional petroleum. However, the D.O.E. reports that it is significantly more efficient than ethanol, and at least as efficient as oil from tar sands. Measuring efficiency by the energy required to produce equivalent output:

Conventional oil production is 92 percent efficient.
Depending upon the production method used, oil shale efficiency ranges from 78 percent to 89 percent.
The efficiency of tar sands ranges from 82 percent to 86 percent.
At 52 percent, ethanol has the lowest efficiency of comparable motor fuels.

Source: H. Sterling Burnett and Tomas Castella, "Oil from Stone: Securing America's Energy Future," National Center for Policy Analysis, Brief Analysis No. 664, July 9, 2009.

For text:

http://www.ncpa.org/pub/ba664

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THE OVERSELLING OF ETHANOL CONTINUES

09 Jul 2009 08:30:57 CDT

Like most alternative fuel sources, the potential contribution of corn-derived ethanol has been oversold. It has been heralded as the magic potion that can drive us to the promised land of energy freedom while at the same time slowing global warming and helping America's farmers. To that end, the ethanol industry is urging Congress to increase the share of ethanol required in gasoline to 15 percent from 10 percent, says Bernard Weinstein, a professor of applied economics at the University of North Texas.

This is not a surprising request, considering that the industry's facilities are 20 percent idle and that several large ethanol refiners have recently filed for bankruptcy, despite a 45-cent-per-galon tax credit and a high tariff to limit imports of sugar-based ethanol from Brazil and other countries, says Weinstein.

One troubling consequence of ethanol production is increased food and feed costs. About 20 percent of the corn planted in the United States is used to produce ethanol. Since most of the rest is used as animal feed, the prices of beef, milk, poultry and pork are all affected by the cost of corn, says Weinstein.

According to the Congressional Budget Office:

The increased use of ethanol accounted for 10 percent to 15 percent of the rise in food costs between 2007 and 2008.
Because Americans spend about $1.1 trillion a year on food, ethanol substitutes cost families between $5.5 billion and $8.8 billion in higher grocery bills.
This is in addition to the direct tax credit subsidy that currently amounts to $3 billion a year.

A recent analysis from the Environmental Protection Agency (EPA) highlights another negative consequence of ethanol production. This analysis finds that the reduction in CO2 emissions from burning ethanol is minimal and may actually be negative since making ethanol requires new land from clearing forests and grasslands that would otherwise sequester carbon emissions.

Though clearly ethanol has a role to play in energy diversification, Congress should not buy a pig in a poke by raising the gasoline mandate to 15 percent.

At the same time, a dose of reality is in order -- namely, that oil and natural gas will remain the principal transportation fuels for the foreseeable future, says Weinstein.

Source: Bernard L. Weinstein, "The Overselling of Ethanol Continues," Star Telegram, July 7, 2009.

For text:

http://www.star-telegram.com/242/story/1471707.html

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SO MUCH FOR 'ENERGY INDEPENDENCE'

09 Jul 2009 08:30:56 CDT

A cap-and-trade bill passed by the House aims to "create energy jobs" and "achieve energy independence." Additionally, Democrats are calling to eliminate drilling subsidies that have encouraged advances in technology and have opened vast new U.S. energy sources, says Robert Bryce, managing editor of Energy Tribune.

In May, President Obama called the tax breaks for the oil and gas industry "unjustifiable loopholes" that do "little to incentivize production or reduce energy prices." That's flat not true. Subsidies encourage energy companies to plow huge amounts of capital into more drilling. And that drilling has resulted in unprecedented increases in natural gas production and potential, says Bryce.

An April Department of Energy report estimated that the newly available shale resources total 649 trillion cubic feet of gas. That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq, says Bryce.

President Obama's 2010 budget calls for the elimination of two tax breaks:

One permits energy companies to deduct the bulk of their expenses for drilling new wells;
The other allows well owners a tax break based on the value of production from their wells.

Removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas, says Bryce. Meanwhile:

Ethanol and biofuels are getting subsidies of $5.72 per million British Thermal Units (BTUs); that equals about $33.25 in government subsidies for the energy contained in one barrel of oil.
Natural gas and petroleum liquids, by comparison, only get $0.03 per million BTUs (about $0.17 for the energy contained in one barrel of oil).

Growth Energy, an ethanol industry front-group, is pushing the Environmental Protection Agency (EPA) to adopt a proposal that would increase the amount of ethanol blended into gasoline from the current maximum of 10 percent to as much as 15 percent. However, there is plenty of evidence to suggest that gasoline with 10 percent ethanol is already doing real harm, says Bryce. There have been numerous media reports that ethanol-blended gasoline is fouling engines in lawn mowers, weed whackers and boats.

Lawyers in Florida have already sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol fuel. They are claiming that consumers should be warned about the risk of using the fuel in their boats, says Bryce.

Source: Robert Bryce, "So Much for 'Energy Independence,'" Wall Street Journal, July 7, 2009.

For text:

http://online.wsj.com/article/SB124693284425203789.html

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OBAMA CAN'T BE TRUSTED WITH NUMBERS, SO WHY SHOULD WE TRUST HIM WITH HEALTH CARE?

09 Jul 2009 08:30:55 CDT

The Obama administration consistently pledges unrealistic results that it later distances itself from. It has gotten away with it because the media haven't asked many pointed questions. That may not last as the debate shifts to health care, says Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush.

The Obama administration wants a government takeover of health care. To get it, it is promising to wring massive savings out of the health care industry. And it has already started to make cost-savings promises, says Rove. For example:

The administration strong-armed health care providers into promising $2 trillion in health savings.
It got pharmaceutical companies to promise to lower drug prices for seniors by $80 billion over 10 years.
The administration also trotted out hospital executives to say that they would voluntarily save the government $150 billion over 10 years.

None of this comes near to being true, says Rove. On the promised $2 trillion, everyone admits that the number isn't built on anything specific -- it's an aspirational goal. On drug prices, a White House spokesman admitted that "These savings have not been identified at the moment." It is speculative that these cuts will actually be made, when they would begin, or whether they would reduce government health care spending.

None of this will stop the administration from arguing that its "savings" will pay for Obama's $1.5 trillion health care plans. By the time the real price tag emerges, it will be too late to do much more than raise taxes and curtail spending on urgent priorities, such as the military, says Rove.

Source: Karl Rove, "Obama Can't Be Trusted With Numbers; So why should we trust him with health care?" Wall Street Journal, July 9, 2009.

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http://online.wsj.com/article/SB124709502661214861.html

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EVERYDAY JOB GROWTH, WAL-MART-STYLE

09 Jul 2009 08:30:54 CDT

Wal-Mart does surprisingly well during economic recessions. In fact, shareholder reports show that Wal-Mart employment has grown in each of the most recent recession periods: 1973-75, 1980, 1981-82, 1990-91, 2001 and today, says economist Greg Kaza, executive director of the Arkansas Policy Foundation.

Wal-Mart's current victory is especially noteworthy:

Since the present recession started in December 2007, U.S. nonfarm payroll employment has declined by 6.5 million jobs.
During that same time interval, Wal-Mart has expanded its domestic work force by 40,000 (2.9 percent) and announced June 3 that it will add 22,000 jobs in its U.S. stores in 2009.
Wal-Mart added 34,269 jobs from 2007 to 2008, and the firm has continued to add jobs this recession (June data) in states with the highest unemployment rates: Michigan, 32,664; Oregon, 10,668; Rhode Island, 2,621; South Carolina, 28,891; and California, 74,768.

Price cutting has been central to the growth of Wal-Mart, which terms the policy "Every Day Low Prices," says Kaza. Goods-producing firms, in the old cycle, passed inflationary price increases to consumers, often in line with CPI or labor agreements. The new price structure is deflationary, a strategy explained by ex-Wal-Mart CEO David Glass, who noted when asked about recessions: "Historically, we have prospered during such periods, as our customers become more value conscious."

Wal-Mart's ability to create jobs, even in a recession, has benefited financial markets. The Bentonville, Ark.-based firm was one of only two Dow 30 components (the other was McDonald's) to record a gain in 2008 as the market sank.

Corporations with entrepreneurial roots (think Wal-Mart's founder, Sam Walton) are providing the everyday job creation the U.S. economy needs to escape the worst economic contraction since the Great Depression. Government should resist demands to increase economic regulations and leave entrepreneurial firms alone to prosper, says Kaza.

Source: Greg Kaza, "Everyday Job Growth, Wal-Mart-Style," Investor's Business Daily, July 2, 2009.

For text:

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=481279

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