US energy, manufacturing economists warn on regulations, taxes

19 April 2012 18:04  [Source: ICIS news]

WASHINGTON (ICIS)--US energy and manufacturing economists on Thursday warned that a gathering storm of federal regulations and tax increases could jeopardise the wobbly economic recovery and the nation’s energy security.

In a conference call with reporters, American Petroleum Institute (API) chief economist John Felmy cautioned that US energy policy and the economy are at a crucial crossroads.

“We are seeing a relatively weak economy,” Felmy said, citing low gasoline demand and weakening diesel consumption as evidence that consumers and businesses are cutting back. He also cited low jobs growth figures for March.

He said that the thus far, modest US recovery from the 2008-2009 recession was in no small measure attributable to newly abundant supplies of natural gas from previously inaccessible shale deposits.

“We have an opportunity going forward to make use of these abundant resources, and it could lead to a million more jobs, new revenue for federal and state governments and energy security for the nation,” he said.

Felmy said that between shale gas developments in the US and new resources being developed in Canada, “North America could be energy self-sufficient in 12 years”.

But that prospect, he said, is threatened by an increasing federal regulatory reach and repeated proposals by the Obama administration to raise taxes on oil and gas producers.

President Barack Obama has called frequently for elimination of various tax credits that oil and gas developers enjoy – calling them subsidies – in order to fund alternative energy projects.

“We don’t get subsidies,” Felmy said.  “We get credits that all manufacturers get, and it is unfair to single out our industry for elimination of those credits.”  Raising taxes on energy production in a time of high gasoline prices “just doesn’t make sense”, he added.

Chad Moutray, chief economist at the National Association of Manufacturers (NAM), also complained that “manufacturers are negatively affected by an onslaught of regulations”.

In particular, he cited the Obama administration’s rejection of the Keystone XL pipeline project earlier this year and new federal environmental restrictions that essentially would bar construction of any new US coal-fired electric power plants.

“Policymakers need to focus on growth policies, and a sound energy policy must be part of that,” Moutray said.  “We have to have an all-of-the-above energy policy, not one that picks and chooses winners and losers in the energy sector.”

He noted that US manufacturing industries consume one-third of the nation’s energy resources and have been a major contributor to the recovery.

“But it is clear that the pace of growth has slowed in the past month,” he said. “The recovery is tenuous and the economy is facing persistent headwinds, creating uncertainty in the marketplace.”

While the economy has been positive overall, he said, any bump in the road – such as increased energy costs – is magnified and could undermine progress.

For example, he said, a steel manufacturer in the US midwest told NAM that a one-cent increase in the cost of a kilowatt hour of electric power would cost the company $1m (€760,000).

Asked to name the single greatest threat to manufacturers’ energy options going forward, Moutray said “environmental regulations”.

“When we talk with our member manufacturing firms, this is their top concern, regulations,” he said.

($1 = €0.76)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

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