David Kirkpatrick

February 11, 2009

Oil and gas windfall profit taxes might backfire

This study commissioned by the American Petroleum Institute sees problems with the idea of a windfall tax on the oil and gas industry. I’m all for seeking out and implementing alternative sources of energy.

I blog often on solar, wind and other alternative power breakthroughs, but at the same time I’m realistic. We need a strong domestic petroleum industry for many reasons. Not the least of which that is the way our nation is powered for the time being and no single alternative energy innovation, or wishful thinking, is going to change the fact.

Realistic thinking, many innovations and a nation running on all cylinders, so to speak, will make a difference in the long run. And like it or not, the oil and gas industry is integral to the effort.

From the link:

The imposition of new taxes on the oil and natural gas industry likely could kill hundreds of thousands of jobs, slow economic growth and make Americans more dependent on foreign sources of energy, according to a study released today.

The CRA International study, commissioned by the American Petroleum Institute, underscores how ill-advised tax policy would likely result in less domestic oil and natural gas production – which would likely undermine both the nation’s economic and energy security. While there is no specific windfall profits tax proposal being considered by the Congress, the CRA analysis focuses on the windfall profits tax to illustrate that a similar tax or combination of taxes could have negative consequences for the U.S. economy.

“U.S. dependence on foreign oil could be magnified over the next 20 years if the oil and gas companies face the prospect of higher taxes that reduce returns on new investments,” said W. David Montgomery, a vice president at CRA, who conducted the study. “Although this study has specifically assessed the impact of a proposed windfall profits tax, similar forms of increased taxation or other policies that reduce incentives for new investment would be expected to have similar negative consequences.”

The study also found that a windfall profits tax likely would:

  • Cause a net loss of up to 490,000 U.S. jobs by 2030. 

  • Reduce U.S. gross domestic product by roughly 1 percent, or $240 billion by 2030.  

  • Increase U.S. imports of crude oil by up to 18 percent in 2030 and reduce U.S. domestic production of crude oil by up to 26 percent in the same year. 




Update 2/17/09 — Here’s my EnerMax post on the study.

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