New Study Looks at Lifting the Crude Oil Export Ban

According to a new report out from the United States Energy Information Administration:

Recent increases in domestic crude oil production and the prospect of continued supply growth have sparked discussion on the topic of how rising domestic crude oil volumes might be absorbed, including the possibility of removing or relaxing current restrictions on U.S. crude oil exports.

Current laws and regulations allow for unlimited exports of petroleum products, but require licensing of crude oil exports.Through the first five months of 2015, crude oil exports averaged 491,000 b/d. In addition, exports of processed condensate through the first five months of 2015 are estimated to have reached an average of 84,000 b/d.

  • The discount of West Texas Intermediate (WTI) crude to North Sea Brent, the latter a key marker for waterborne light crudes, is expected to increase to more than $10/b in cases where current crude oil export policy is maintained and domestic production reaches or exceeds about 11.7 million b/d by 2025.
  • In cases where the Brent-WTI spread grows beyond $6/b–$8/b, removal of current restrictions on crude oil exports would result in higher wellhead prices for domestic producers, who would then respond with additional production.
  • Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports.
  • Combined net exports of crude oil and petroleum products from the United States are generally higher in cases with higher levels of U.S. crude oil production regardless of U.S. crude oil export policies. However, crude oil export policies materially affect the mix between crude and product exports, particularly in the HOGR and HOGR/LP cases, which have high levels of domestic production.
  • Refiner margins (measured as the spread between crude input costs and wholesale product prices), which tend to increase as the Brent-WTI spread widens, would be lower without current restrictions on crude oil exports than with them in high-production cases where export restrictions lead to a widening Brent-WTI spread.

Although unrestricted exports of U.S. crude oil would either leave global crude prices unchanged or result in a small price reduction compared to parallel cases that maintain current restrictions on crude oil exports, other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in the Low Oil Price case, or rise along a path closer to the Reference case trajectory.

Sep 09, 2015 | 1 comment | by

California’s Renewable Portfolio Standard

California’s 2002 Renewables Portfolio Standard (RPS), Senate Bill No. 1078 mandated that electric providers procure renewable power from eligible sources at 17% of customer sales by 2017. The bill also required the Public Utility Commission (PUC), being the regulatory agency for electricity providers, establish a certification and monitoring program through the state Energy Commission. Subsequently, Senate Bill No. 107, along with executive orders, accelerated the program to require a 20% renewable procurement by the end of 2010 and 33% by the end of 2020. Recently, Governor Jerry Brown announced his proposal to further increase the portfolio standard to 50% by 2030. According to the RPS Program Overview page, California’s goal is to be, “One of the most ambitious renewable energy standards in the country”. It appears the state may have succeeded in that effort.

Currently, federal funds nurse CA’s renewables mandate in the form of subsidies like the Production Tax Credits (PTC) and American Recovery and Reinvestment Act (ARRA). However, revenue from these federal programs are not expected to continue, and pressure is mounting for the renewable fuel industry to stand on its own. In fact, several states are reconsidering their programs’ viability.

So, how will proponents peddle the program to consumers when the federal subsidies end? The full cost associated with RPS programs are difficult to evaluate. A 2015 study by the National Renewable Energy Laboratory (NREL), and prepared for the U.S. Department of Energy (DOE), estimates an expected 10% increase in electrical energy costs to consumers as a result of the state’s RPS. This, to a state with consistently the highest electricity cost in the nation. Still, the consumer impact aspect of continuing, even expanding the mandate, does not appear to be the primary consideration. The report suggests the methodologies used to discover the true costs are demonstrably inappropriate. As well, outlays for integration, transmission, and administrative expenditures are not included in the cost analysis.

NREL suggests to policymakers that going forward, they should look beyond “simply a narrow consideration” of the costs of the program to ratepayers. Instead, the report promotes the development of a means to recognize program value based on “broader societal impacts”.

Graph

Aug 31, 2015 | Leave a Comment | by

Economic Gain Increases Environmental Quality

The relationship between environmental quality and economic development has been described as an environmental Kuznets curve: Initially, economic development exacerbates environmental problems; however, as an economy grows and develops, average incomes reach a certain point beyond which environmental indicators start to improve.  Indeed, as gross domestic product per capita increases, emissions of pollutants per $1 of gross domestic product falls. This is true also of industrial emissions of carbon dioxide, which was not traditionally viewed as an air pollutant, but is now regulated by the Environmental Protection Agency.  [See the table.] This suggests that economic progress is a prerequisite for improving environmental quality generally, and specifically for meeting carbon dioxide emissions reductions goals.

Carbon Dioxide Emissions

(kilograms of CO2 per $1 gross domestic product)

 

  1990 2000 2010
China 1.9695 1.0110 0.9084
India 0.6533 0.6538 0.5338
Japan 0.3341 0.3328 0.2966
Singapore 0.6105 0.3196 0.0510
South Africa 1.1881 1.0964 0.9692
United Kingdom 0.4272 0.3169 0.2416
United States 0.5988 0.5121 0.4174

 

Note: Dollars of GDP adjusted for purchasing power parity.

Source: Millennium Development Goals Database, United Nations Statistics Division.

Special contribution by NCPA research associate Jiawen Chen. 

Aug 26, 2015 | Leave a Comment | by

The Golden-cheeked Warbler and Piecemeal Environmental Policy

A tiny, migratory songbird is causing a big ruckus in Texas. At issue is the Golden-cheeked warbler’s status according to the U.S. Fish and Wildlife Service (FWS). The bird caused a related stir in 1990 when it was the subject of a petition by members of the anarchist environmental group, Earth First! The petition moved the FWS to exercise its emergency authority to declare a species endangered under the 1973 Endangered Species Act (ESA). In December 1990, the agency issued its final rule designating the bird to be an endangered species.

However, a recent comprehensive study has motivated several groups to call for the removal of the golden-cheeked warbler from the list. The findings, as presented by Texas A&M, has been peer reviewed, published in respected journals, and judged as scientifically sound. It appears the golden-cheeked warbler is not endangered. Even more concerning, the species may not have been in peril in 1990, the year FWS declared an emergency protected status.

What does this mean to the hundreds of private property owners who have suffered land restrictions, substantial fines, and criminal prosecution as a result of the warbler’s status? For example, one such case saw a Texas rancher penalized for clearing Ashe Juniper (Cedar) from his property. An activity FWS deemed damaging to the protected bird’s breeding habitat. In a negotiated settlement, the landowner transferred 48 acres to a public preserve and paid $220,260 in land management fees.

Even if one were to believe the earlier, mostly anecdotal based evidence that the golden-cheeked warbler was threatened, the latest research supports its removal from the list of endangered species. Still, some ask since recovery efforts have been so successful, why should the warbler be delisted to face uncertainty?

Simple answer first, the endangered species listing is for species that are, in fact, endangered. To maintain a status that is not evidenced based, delegitimizes the significance of the entire list. Second, although there is no geographical designation of warbler habitat, Ashe Juniper (Cedar) trees are recognized as essential to warbler nesting. So, while the bird is a protected species, landowners are subject to restrictions, in what amounts to a regulatory taking of property rights in regards to Ashe junipers.

Finally, the listing of the warbler has caused a clash of agencies, pitting federal against state in a battle of species management. As well, the limited focus on warbler breeding habitat protection has contributed to serious health issues, particularly for children.

To explain, while the FWS strictly enforces habitat (a tree) protection, the Texas Parks and Wildlife Department (TPW) calls the golden-cheeked warbler issue, “A single-species approach to wildlife management“. As a result of federal restrictions, the invasive characteristics of Ashe juniper has negatively impacted the natural ecosystem. According to TPW, in areas where the tree has been left to survive, it has depleted groundwater, increased soil erosion, and impacted the diversity of other plant species. The rise of Ashe juniper, being of little food value, has disrupted the natural habitat of other animal species. In fact, TPW has worked to limit, even eradicate the Ashe juniper while the FWS punishes citizens for clearing the tree from their land.

The increase in Ashe Juniper has also resulted in an upsurge of illness during its pollination cycle. Termed “cedar fever” the effects of Ashe juniper allergies can range from itchy eyes to pneumonia and even trigger asthma attacks. The Ashe juniper tree has one of the most allergenic pollens. In fact, The Asthma and Allergy Foundation of America (AAFA) has named seven Texas cities in its 2015 list of the most challenging places to live in regards to annual pollen scores.

So here we have the question, should the golden-cheeked warbler be removed from the list of endangered species? Yes. If not merely for the logic the bird is not threatened, then for the impact the designation has to other sensitive areas. More consideration should be made to the causal sequence of government agency decisions prior to making rules. Consideration should be given to economic impact to private citizens, potential health issues, and an analysis of the possible harm to other plant and wildlife species. When pondering the importance of diverse species to a healthy environment, too often the human element is not represented in the equation. A more holistic approach would better assure a healthy, balanced ecosystem.

Aug 24, 2015 | Leave a Comment | by

Increased Energy Use Raises Standard of Living in Developing Nations

Global production of oil and natural gas has increased in recent years, and prices have been falling.  This is not only good news for consumers in developed countries, but also for the poor in developing countries around the world.  Increased energy use is essential in developing countries if they are to raise the living standards of the poor and grow the middle class.  Even rapidly growing economies use much less energy than developed countries.  For instance, India uses one-tenth as much energy per person as the United States and, despite decades of rapid economic growth, China still uses only one-third as much energy per capita.  [See the figure.]

jaiwin fossil fuel

 

Special contribution by NCPA research associate Jiawen Chen. 

Aug 24, 2015 | Leave a Comment | by

EPA and Regulatory Taking of Private Property

The Fifth Amendment to the U.S. Constitution forbids the government from taking privately owned property without the due process of law, and without just compensation. However, what constitutes a government “taking” and can “due process” be preemptively satisfied by agency regulation? It seems in the case of “wetlands”, the EPA has overreached its authority.

Let us first attempt to identify “wetlands”. According to a comprehensive classification system developed in 1979, a site can be categorized as coastal or inland, yet the classification of “wetland” is not site-specific. Instead, “wetlands” is explained as a hierarchical, progressive structure of connected waters of the state. In what is termed the Cowardin Classification System, “wetlands” is an all-encompassing geographical feature. It consists of linked layers of species and subspecies, soil types and subtypes, an assortment of vegetation, along with various water sources, movements, and duration of presence. Simply stated, a piece of ground that can receive water (including rain) is part of the system that is “wetlands”. The Cowardin System, prepared for the U.S. Fish and Wildlife Service, is an impressive, comprehensive report. Indeed, it has been the de facto standard for EPA employees in assigning a wetlands designation to private property. As a result, EPA’s authority and jurisdiction relating to “Navigable Waters” has multiplied.

As a result, many landowners have lost private property usage and development rights. Effectively, the property owner has suffered a “taking” by the federal government. Such was the case of Mike and Chantell Sackett, an Idaho couple who challenged the EPA’s enforcement actions under §404 (wetlands) of the Clean Water Act (CWA). In a 2013 decision, the Supreme Court ruled unanimously against the EPA. In essence, the agency could not deny the Sacketts a hearing to challenge the agency’s use of CWA authority and jurisdiction over their land. The Sacketts successfully argued the EPA violated their constitutional right to due process. The simple question before the Supreme Court was whether landowners have a right to challenge a legal order of the EPA? The answer was a resounding 9 to 0 “Yes”. The EPA worked to preclude the right to judicial review exercising self-assumed authority in designating wetlands. In the majority opinion, Justice Antonin Scalia wrote that the court rejected EPA’s attempt to use the CWA as a blanket fulfillment of due process. Justice Samuel Alito concurred stating Congress should clarify ambiguities in the CWA.

In the case of Rapanos v. the United States, though the court came to no decision (the parties eventually settled), four Justices spoke against the EPA. Justice Scalia wrote the EPA’s use of the term “waters of the United States” is an overreach in identification of wetlands. The concurring Justices agreed. The court found that occasional, intermittent, or ephemeral water flows may have a hydrological connection. However, “are not sufficient to qualify a wetland as covered by the CWA; it must have a continuous surface connection”.

Likewise, in Solid Waste Agency of Northern Cook County (SWANCC) v. United States Army Corps of Engineers, the Court ruled against EPA. Chief Justice William H. Rehnquist wrote the EPA overreached in its wetland designation of “isolated, abandoned sand and gravel pits with seasonal ponds, which provide migratory bird habitats”. Both the Rapanos and the SWANCC court opinions counter the Cowardin concept of all waters being connected in one wetlands system. Such decisions constitute a slap-of-the-hand by the Supreme Court to EPA and offer an opportunity to discuss the ever increasing dominance of the agency over the lives of everyday citizens.

America’s founders designed our government to serve the people. Increasingly citizens are left with little recourse but to ask the courts to assure their constitutional rights as threatened by dominant government agencies. The EPA, arguably being one of the most insidious, dictatorial federal agencies.

Fortunately, recent Supreme Court decisions and Justice Alito’s urging that Congress address ambiguities have triggered action by some. Several Senators have introduced S.980 a bill that attempts to clarify the CWA by explaining waters of the state are “Navigable-in-fact” and is “permanent, standing, or continuously flowing bodies…from streams, oceans, rivers, and lakes and are connected to waters that are navigable-in-fact“. Passing S. 980 would be a great start to corralling the EPA’s assault on private property rights. This, along with the Supreme Court ruling affirming the 5th amendment right to due process is an indication we are making headway.

Aug 19, 2015 | Leave a Comment | by

Gold King Mine an EPA Superfund Site

On Tuesday, August 11, 2015, the Environmental Protection Agency (EPA) released an Emergency Response Statement to a massive pollutant spill in Colorado. According to the agency, EPA contractors caused the accidental breach. As a result, contaminated water flushed from the long abandoned Gold King Mine into Cement Creek, a tributary of the Animas River. The following day, EPA released another statement to explain early reports of a much smaller spill. Following efforts by the U.S. Geological Survey to measure flow rate, the volume of lead, acidic toxins, and heavy metal-laden water was determined to be over three million gallons.

Additionally disturbing was the failure of the EPA to inform the state governors of the spill. “The EPA is not communicating openly with the state of New Mexico,” said Governor Susana Martinez to Fox News. “It took them about a little less than twenty-four hours before they even told us.” In fact, she goes on to explain that it was the Southern Ute Indians that notified her office and criticized the EPA for not revealing exactly what the toxins are.

To farmers, industry, and small business the EPA has the well-established reputation of intimidation and tyrannical authority. The enforcement section of their web page offers thousands of criminal prosecutions, a majority of them settled by a guilty plea. Comparable percentages in the criminal justice system are unattainable. Simply, the justice system requires the government to prove a person guilty while EPA’s system leaves little opportunity for one to even attempt to prove themselves innocent.

For example, Washington state dairyman Roger Bajema pled guilty to permitting wastewater discharge. His plea finally came three years after EPA inspectors took a sample of soil from a drainage ditch. Mr. Bajema acknowledges the ditch had a broken rain water pipe used to move run-off from barn roofs to a holding pond. Broken pipe aside, the family believes he was “targeted”. The farmer had attended an EPA informational forum the day before the inspection. Mr. Bajema spoke, voicing his displeasure with the heavy-handed presence of the agency in his community. The following day, while he worked to repair the cracked water pipe, EPA officials arrived at his farm and began inspecting and sampling. After three years of threats of fines for up to $37,000 a day, he finally learned of the results of the samples in a highly dramatized press release.

The EPA earned a $7,500 penalty for the three-year assault on the Bajema family dairy farm. A large sum of money for a small operator, but a mere pittance to EPA coffers. In 2014 alone, under Civil Enforcement Monetary Commitments, the agency raked in $9,738,000,000 (rounded up to the nearest hundred million) in court ordered Injunctive Relief. They received another $135,000,000 (give or take) in other penalties. In addition, under Superfund Cleanup Enforcement they realized $601,000,000 (thereabouts) and another $63,000,000 in Criminal Enforcement Fines (Environmental Protection Agency [EPA], 2015). This to an agency with a 2015 enacted budget of over $8.1 billion and a workforce of over 15,000.

Still, the EPA is responsible for violating the 1972 Clean Water Act (CWA), the very law it is tasked with enforcing. According to 33 U.S.C §1251 et seq. (1972), the CWA makes it, “unlawful to discharge any pollutant from a point source into navigable waters” (EPA, 2015, para. 3). Mr. Bajema was penalized $7,500 and humiliated in his community for the charge of “potential” to pollute. As a result of the stress, he has sold the cows and closed his operation. Will the EPA suffer a similar punishment? It isn’t likely.

The superpower agency may have already begun working on a way to spin their failure. The EPA website shows the Upper Animas Mining District in Silverton, Co as a Region 8 Superfund site although not on the National Priority List (NPL). It is clear the EPA was aware of the issue for decades. However, a recent Associated Press (AP) news article blames the local community for standing in the way thus contributing to EPA’s failure to take action. This “it’s not our fault” approach to the disaster is not a defense Mr. Bajema offered.

Six days after the spill EPA Administrator Gina McCarthy stated, “It pains me to no end to see this happening”. As well, at an event in Washington D.C. she said the EPA is taking full responsibility and when pressed by a reporter said, “I am absolutely sorry this ever happened“. This may be the closest we get to an apology. It pains us all, but where is the accountability? Are we to believe the zero tolerance attitude of EPA enforcement will result in an equal penalty, punishment, and public humiliation as suffered by other offenders? Or, like the General Services Administration (GSA), Internal Revenue Service (IRS), and the Veteran’s Administration (VA) the EPA will go on and suffer no consequences.

Aug 17, 2015 | Leave a Comment | by

Lifting Crude Oil Export Ban Benefits U.S. Economy

The Government Accountability Office (GAO) suggests that removing crude oil export restrictions could both reduce consumer fuel prices and increase the price of U.S. crude oil from ~$2 to ~$8 per barrel.

Regulations implemented 40 years ago are being reviewed as technological advances in the extraction of crude oil from shale formations, commonly known as hydraulic fracturing or “fracking”, have contributed to increased U.S. oil production. In recent years U.S. crude oil prices have been lower than international prices but removing export restrictions could generate more revenue for oil companies and cause international crude oil prices to decrease.

If, as estimated, international crude oil prices do decrease, consumers could see anywhere from 1.5 to 13 cents per gallon drop for refined oil products such as gasoline and diesel. However, experts cautioned that estimates of the price implications of removing export restrictions are subject to uncertainties and there could be important regional differences.

Additionally, removing crude oil export restrictions could benefit in the following areas:

  • Economy: Removing export restrictions would lead to increased investment in crude oil production and increases in employment. This could result in additional positive effects for employment and government revenue.
  • Industry: Increased domestic production of crude oil will result from eliminating current export restrictions. Estimates range from an additional 130,000 to 3.3 million barrels on average per day until 2035.

After decades of generally calling U.S. crude oil production, from 2008 through 2014 production increased by about 74%. Perhaps, lifting the restrictions on crude oil could help both the economy of the U.S. and the average consumer.

Aug 12, 2015 | Leave a Comment | by

NCPA Nationwide Survey of Anti-Fracking Activism – the “Frac Map”

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The NCPA completed a nationwide survey of successful anti-fracking activism that we presented to state legislators, energy associations and think tanks. This map demonstrates the threat of misguided activism to oil and gas production, the key to continuing our economic recovery, addressing the national debt, lowering the trade deficit and preserving U.S. superpower status into the future.

The NCPA “Frac Map” was also featured at the Washington Post.

 

 

Aug 10, 2015 | Leave a Comment | by

The Changing Price of Oil Relative to Gold

It is true that a shift in supply or demand will change prices in any market; however, not all market-price movements are necessarily due to a change in market supply or demand — especially in the case of prices for commodities as highly political as crude oil. Longer term trends in the price of oil also reflect cumulative changes in the purchasing power of the dollar. Looking at oil prices relative to gold prices instead of U.S. dollars takes account of the long-term decline in the value of the dollar and allows us to recognize more clearly the effect of supply, demand and public-policy factors that influence the price of petroleum.

The long historical tendency for the price of crude oil to parallel the price of gold and other precious metals is well known. As a whole, the trend is toward an average annual increase in the oil-gold price ratio through 2014 of 1.1 percent. The long-term increase is attributable to:

  • The slowly increasing scarcity of crude oil.
  • The fact that the cost of exploiting crude oil reserves has risen faster than the cost of exploiting gold reserves.
  • The growth of market forces that also govern the relative flow of capital into the oil and goldmining industries.

If it takes two years to half-close the gap in current oil prices compared to the equilibrium price suggested by the table, it would be reasonable to expect the price of crude to rise at an annual rate of about eight dollars a barrel over the next 12 months.

Source: R. David Ranson, “The Changing Price of Oil Relative to Gold,” National Center for Policy Analysis, July 27, 2015.

Aug 05, 2015 | Leave a Comment | by
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