Repeal of incentives means higher costs

By Don Briggs, President of Louisiana Oil & Gas Association

Earlier this week, President Obama addressed the nation during his State of the Union speech where he called for swift and immediate measures to speed up job creation and cut federal spending. On the top of his agenda was a call to ensure a cleaner environment and foster clean energy like wind, solar, and biofuels. Unfortunately, the way in which the President plans to pay for this agenda means bad news for American consumers.

It’s the President’s hope to spur American innovation and job creation through advancements in clean energy technologies. In order to pay for these advancements the President plans to eliminate billions of dollars in tax breaks for oil and gas companies.

Obama candidly remarked, "And to help pay for it, I'm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don't know if you've noticed, but they're doing just fine on their own."

What the President and his advisors fail to realize is that the exploration and development of oil and gas reserves is becoming an expensive business. With much of the world’s conventional oil and gas reserves already discovered, developed, and in decline, companies must move towards non-conventional and offshore resource developments.

The development of these resources comes at a significantly high cost and vital tax incentives for oil and gas companies are central to ensuring that they remain economical and sustainable.

Removing tax breaks and incentives for oil and gas companies can mean only one thing – higher energy prices for American consumers. This is a concept that some policy makers and politicians seem to forget. It also does not only apply to the oil and gas business. When an added cost, like a tax increase, is placed upon business, that cost is made up through an increase in prices. This is the only way that companies can continue to be competitive and stay in business.

Other than the high cost associated with developing offshore and non-conventional resource plays, there are other contributing factors to increasing energy prices. Global oil production decline and rapid demand in developing countries is driving the cost of energy up rapidly. Today, we are already feeling the effects of this energy crunch.

We are once again in the midst of $100 oil and $4.00 gasoline, and the numbers are climbing. Even with billions of dollars in direct subsidies “green” energy businesses are not cost effective. The only way they can become competitive in the marketplace is to increase the cost of fossil fuels through raising taxes on the oil and gas industry. Raising taxes on fossil fuels will not bring about job creation and economic growth. Inevitably, it will lead to increased energy costs, higher food prices, and result in a lower standard of living for all Americans. If the President is serious about getting us out of this economic situation and job creation is his top priority, he should refrain from stifling an industry that will help our nation rise above our economic challenges.

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