A study conducted by CRA International[i] and released February 3rd by the American Petroleum Institute (API) finds that instituting a windfall profits tax on the oil and gas industry would cost the U.S. a net loss in jobs of between 370 to 490 thousand by 2030; reduce U.S. gross domestic product between 0.5 to 0.9 percent, or $140 to 240 billion; and increase crude oil imports by 13 to 18 percent (1.2 to 1.5 million barrels per day). The increase in oil imports results from a decline in domestic crude oil production of 21 to 26 percent, or 1.5 to 1.9 million barrels per day, between 2010 and 2030.
The study results are similar to past US experience. Congress enacted a windfall profits tax on domestic oil producers in 1980 expecting to generate tax revenues. The Congressional Research Service[ii] found that, instead, domestic crude oil production was reduced by 1.2 to 8.0 percent and foreign oil imports were increased by 3 to 13 percent.
While there is no specific windfall profits tax proposal currently being considered by Congress, such a tax was part of President Obama’s campaign platform. When crude oil prices dropped last fall, President Obama’s aides changed course and indicated that with oil prices below $80 a barrel would not be considered for a windfall profits tax. However, whether a windfall profits tax or some other similar tax or combination of taxes is instituted on the oil and gas industry, the impact on US jobs, the economy, and foreign imports of oil and natural gas would be similar.
Other study results are:
- A decline in natural gas production of 9 to 13 percent, 1.6 to 2.4 trillion cubic feet, between 2020 and 2030. More natural gas imports would result, increasing 14-55 percent, or 0.5 to 1.2 trillion cubic feet, during this period.
- A reduction in refinery output of 2 to 4 percent, or 410 to 660 thousand barrels per day, during the 2010 to 2030 period. The reduction in domestic refinery output could partially be offset by increasing foreign imports of petroleum products by 15 to 21 percent, or 230 to 430 million barrels per day, during the 2010 to 2030 period.
- A reduction in household consumption between $20 to 42 billion by 2030.
- A decline in domestic investment by the oil and gas industry between 20 and 25 percent by 2030.
[i]“Energy and Economic Impacts of a Proposed Windfall Profits Tax on Producers of Oil and Refined Products in the United States “, CRA International, February 2009, http://www.api.org/Newsroom/upload/CRA_WPT_Study_1_30_2009.pdf
[ii] Lazzari, Salvatore, “The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy”, Congressional Research Service, CRS Report for Congress, March 9, 2006