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February 25, 2013

FACT CHECK: Is the White House Responsible for Production Increases?

February 25, 2013
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“I’m proud of the fact that under my administration, oil production is higher than it has been in a decade or more. We have seen a doubling of fuel efficiency standards on cars over the next several years, so that is saving people money at the pump,” Obama said.

President Obama still doesn’t seem to get it. Yes, oil production is higher than it has been in a decade or more. But, that is not because of actions taken under the Obama Administration. Rather, it is because of state policies and regulations that have encouraged exploration and development on private and state lands, according to the Congressional Research Service. In fact, 96 percent of the increase in oil production over the past 5 years has been on private and state lands, where President Obama and his administration have no input. On federal and Indian lands, where federal policies and regulations are in force, it takes an extremely long lead time to produce energy, and the Obama administration has repeatedly used delaying tactics and moratoria that have reduced production. In fact, between fiscal years 2010 and 2011, oil production on federal and Indian lands declined by 13 percent.

President Obama also claims that a doubling of fuel efficiency standards over the next several years (actually, a dozen years, by 2025) will save people money at the pump. Mr. Obama must be oblivious to the fact that average gasoline prices have increased by 55 percent between 2009 and 2012, are currently rising, and are at the highest levels recorded for this time of year. This price increase has occurred during his administration.

Does President Obama believe that doubling fuel economy standards by 2025 will make the American public feel better about rising gasoline prices when they won’t be able to afford the new, more efficient cars that are mandated? Does he believe that American parents will feel okay transporting their children in cars of much less weight, which is the only way to achieve such standards? People are keeping their existing cars longer, leading to historic numbers of older cars on the road.  In 2011, for example, the average car on U.S. streets was 11 years old, up 12 percent from the previous 5 years.[i]  With a bad economy and rapidly rising auto prices in part due to government mandates such as fuel economy, people cannot afford new vehicles, particularly the higher-priced vehicles that stricter economy standards force into the market.

Studies have shown that the Obama fuel economy mandate will force about the 7 million drivers out of the market because the mandate increases the price of automobiles.[ii] Even though these people will not be able to afford a new more efficient car to take to the pump, the President will presumably state that they “saved money at the pump.”

Oil Production on Federal Lands

In February 2009, at the start of the Obama administration, Secretary of the Interior Ken Salazar began withdrawing tracts of public land that had already been approved for oil and gas leasing, even though most of the tracts had undergone a thorough, seven-year-long environmental review.[iii] Then, after the oil spill in the Gulf of Mexico, the Obama administration put a six-month moratorium on both shallow and deep offshore drilling, even though the oil spill accident occurred in deep water and drilling in shallow water had spilled only 15 barrels in the previous 15 years. Although the administration ostensibly lifted the moratorium in October of 2010, drilling permit approvals did not take place, resulting in a so-called “permitorium”.  These delays led a Federal Court to hold the Administration in contempt for its actions of slow-walking permits.[iv]  Further, the Obama administration did not put in place President Bush’s offshore lease plan for fiscal years 2010 to 2015 that would have opened new areas to drilling, and waited until late 2011, to put forth its own offshore lease plan for the 2012 to 2017 period that reverted basically to the original areas that had been opened to offshore drilling.

Data from the Bureau of Land Management in the Department of Interior shows just how bad the leasing statistics are under President Obama’s administration.  According to a study by Nobel Royalties Inc., the number of acres leased on federal onshore lands in the lower 48 states in 2010 was at a 30 year low, with 38.9 million acres leased in 2010 compared to 126.6 million acres leased in 1984—a drop of 69 percent. That study also states that on federal lands, 91 percent of resources are either inaccessible or restricted due to government policies. If the federal government were to allow leasing to gradually trend up to normal levels, the government would receive $442 billion in royalties from federal onshore lands and $363 billion from federal offshore projects between 2013 and 2042, for a total of about $800 billion. Once drilling on federal lands is fully operational and production levels have peaked, however, annual royalty payments could reach $100 billion, putting federal royalty income at $1 trillion over 10 years.[v]

But limiting the leases available on federal lands is not the only destructive policy that the Obama administration has undertaken. The administration dramatically increased the time it takes to get a permit to drill to 307 days in 2012. That’s a 100 percent increase since 2005. By comparison, it takes the oil producing states less than a month to grant a permit to drill on private and state lands. North Dakota, for example, where the unemployment rate is around 3 percent and the state economy is growing at 7 percent annually, takes only 10 days to grant a permit. North Dakota now ranks second among the states in oil production, recently surpassing Alaska in output despite having one sixth the land mass and no offshore oil reserves.

Time-required-to-drill-1-sm

 

Efficiency Standards for Automobiles

The Institute for Energy Research has already assessed the problems with President Obama’s corporate average fuel economy standards in a recent publication. Basically, there is a trade-off between fuel efficiency, horsepower, safety, and cost. The automobile manufacturers can only go so far in increasing fuel efficiency without reducing the weight of the vehicle, thereby affecting safety. Further, increased fuel economy comes with a cost, so there is a further trade-off between purchasing a new vehicle versus just spending more at the pump. With the economy contracting, it will be more difficult for a middle class family to afford buying the new, more fuel efficient car that President Obama is touting.

Conclusion

If Obama wants more federal revenue, he can get it without raising taxes by just relaxing the restrictions on drilling on federal lands both on and off shore. The new revenue from taxes and royalties would be large, jobs would be created, and the economy would grow rather than contract. The oil boom in North Dakota is an example of what the nation could achieve: 3 percent unemployment, 7 percent economic growth, if only he would embrace oil and gas drilling and innovation in this country.  While his rhetoric tries to take credit for growing production, his actions show another story entirely.

 


[i] Auto Blog, Average U.S. vehicle age rises 12% in the last five years, January 20, 2012, http://green.autoblog.com/2012/01/20/average-u-s-vehicle-age-rises-12-in-the-last-five-years/

[ii] Proposed Fuel Economy Rules Cut 7 Million Car Buyers Out of New-Vehicle Market, April 12, 2012, http://www.nadafrontpage.com/NADA_Proposed_Fuel_Economy_Rules_Cut_Millions_of_Car_Buyers_Out_of_Market.xml

[iii] Forbes, Putting the Truth-o-Meter on President Obama’s State of the Union Energy, December 13, 2013, http://www.forbes.com/sites/merrillmatthews/2013/02/13/putting-the-truth-o-meter-on-obamas-state-of-the-union-energy-claims/

[iv] Bloomberg, U.S. in Contempt over Gulf Drill Ban, Judge Rules, February 3, 2011, http://www.bloomberg.com/news/2011-02-03/u-s-administration-in-contempt-over-gulf-drill-ban-judge-rules.html

[v] The Institute for Policy Innovation, Smart Energy Policy Would Make Obama Look Like an Economic Genius, December 21, 2012, http://www.ipi.org/ipi_issues/detail/smart-energy-policy-would-make-obama-look-like-an-economic-genius


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