Posted by
Alexander Koby on Wednesday, May 28, 2008 2:20:00 PM
During the month of May, two notable pieces of legislation from both sides of the aisle were presented to the United States Senate as a means of attempting to address increased fuel costs as they inch past $4 per gallon. As it stands, both of these bills are sitting in committee, struggling to gain traction.
- American Energy Production Act (s.2958) sponsored by Sen. Domenici (R-NM); a measure to expand fuel exploration within ANWR and the coastal plains of the United States, lift the moratorium on refinery permits/construction, and create a balance between state & federal revenues. Full Press Release >
- The Consumer-First Energy Act of 2008 (s.2991) sponsored by Sen. Reid (D-NV); a measure designed to create a 25% tax on the profits of major oil companies, tightens the rules restricting the use of foreign tax credits on oil and gas related income, suspend filling of the Strategic Petroleum Reserve (SPR), punish price gouging, limit excessive speculation in the oil markets, and crack down on OPEC. Full Press Release >
I have read through both of these, along with other articles, and I am left thinking that neither Senators Reid nor Domenici are in touch with reality. The government can tax and restrict all it wants, but we are still failing to focus on the bigger picture.
Spain, Australia and Brazil are well ahead of us when it comes to alternative fuel sources; and it is not just corn. Wind, solar and thermal energy are all being harnessed to supply the needs of small to medium sized cities.
I've also noticed that for some reason, people and news outlets alike, consistently refer to oil companies as if they were human beings gaining "record profits" and amassing wealth, caviar and multimillion dollars homes. This is simply not the case and it pains me every time I hear. An Intro to Economics course would tell you that no company, from McDonalds to Exxon, maintains wealth. Sure there are profits, however those profits are quickly depleted in order to satisfy fixed costs (such as operational expenses, distribution fees, wages, etc) and the remainder to variable costs (such as research and development, infrastructure, expansion, etc.)
Further, if we want to get serious about profits, lets talk about significance of "profit margin" -- the percentage of net income divided by net sales. Basically, the percentage of profit left over once all of a company's fixed costs are met. This percentage is then typically used to fulfill those variable costs we talked about. For crude oil the average is around 9%, compared to pharmaceutical distributors which stands closer to 17% -- there are your "windfall" profits. Now, The Consumer-First Energy Act (CFEA) of 2008 calls for a 25% tax on "windfall" profits of oil companies, (such as Royal Dutch Shell PLC, BP PLC and Burlington Resources Inc.) who are already paying 30%-40% in taxes. This tax also applies to companies who are not running at capacity or who are not reinvesting in alternative energy. The bill also urges refineries to increase production; most of which who are already running at full capacity. So, there is nothing to be gained here, other than the hopes of filling a piggy bank slush fund.
Moreover, the CFEA encourages lawsuits against price gouging for people who do not grasp the rules of supply and demand. Price fluctuation is designed to protect us from ourselves in the time of a shortage. Are there isolated incidents? Sure, but it is no where near an epidemic. Gas prices are higher because we are dependent on foreign oil and have no other functioning alternatives on the table. With the moratorium on drilling in many domestic regions, the United States is losing its leverage within the global market because we have nothing of our own to bargain with. Canada and Mexico, our two largest oil importers, could care less about our corn. Currently, in Iran, the price of fuel is 44¢/gl, Saudi Arabia 45¢, Venezuela 12¢, and Russia at 88¢. Why? Granted the U.S. has a higher rate of consumption than these nations, however these nations also allow drilling within their borders. Nevertheless, even if the U.S. actually began constructing more refineries, opened the northern section of ANWR to production and continued to supply our strategic reserves; it is still only a band-aid on an ever growing wound.
Additionally, I have come to believe that the "scare" tactics peddled by Al Gore (and others) regarding the dooms day scenarios of global warming are meant to weaken the American economy rather than improve the global environment. Instead of exploring our own petroleum fields, Americans are being guilt-tripped into lowering their thermostats, reduce energy consumption and implement green practices. In essence, we are being told to implore "lifestyle changes" versus seek "economic independence."
Why have we not had any notable and well orchestrated rallies on Capitol Hill in protest to the rising costs of Energy and food? We had massive gatherings for civil rights, homosexuality world peace, etc. Why not this? Are we not all affected? At this point, the common consensus is, "Well, deal with it." A founding father once said that a government belongs to its citizens. It is time that we an together and truly concerns. Until then, I am lead to believe that even when gas begins to creep north of $7 per gallon, Americans will continue to mutter to themselves as they fill up their gas tanks ... and do not say that it will not get there. We, as a people, need an aggressive advocate, who is a compelling speaker and who has a dedicated belief in practical & realistic solutions.
I would consider being such a spokesman, however I am a little preoccupied.
--
AAA National Gas Average - 5.28.2008
Regular ........ $3.944
Mid ............. $4.188
Premium ...... $4.339
Diesel .......... $4.778
E85 ............. $3.317
# # #
(a.k. 05.28.08)