Reducing Demand is the Best Short Term Solution
The office has been in a buzz over the current calls for a profit tax on energy companies. Mike believes that this is a supply and demand problem. Placing a tax on the suppliers fundamentally goes against what we need most- increased production. Mike has been working on legislation to promote a public awareness campaign that informs consumers on ways they can reduce their power consumption.
In the GAS Act, which was passed by the House in October, Mike included in the conservation portion of the bill a fuel efficiency awareness campaign provision. Mike is preparing to introduce a similar piece of legislation as a stand alone bill next week. In the GAS Act, the provision authorizes the appropriation of $2,500,000 to the Department of Energy for the creation of a multi-media public education campaign that provides information to drivers in the United States about the measures that they may take to reduce their gasoline usage. The campaign will be coordinated in a partnership with private industry groups.
“Energy-awareness programs worked then and have since proven to reduce consumption, says Steve Nadel, executive director of the American Council for an Energy-Efficient Economy (ACEEE), a Washington-based advocacy group. For example, electricity use fell 6 percent in 2001 after California adopted a statewide awareness program.”
After the jump I have included Mike’s statement today at the full committee hearing on higher energy prices. Austin Weatherford- Legislative Correspondent for Rep. Mike Conaway
As rising gas prices continue to affect the pocket books of America’s families, it is clear that substantive action needs to be taken. However, Congress’s actions must be rationally based on economics and the realities of global energy markets. We must not fall into the political trap of knee-jerk reactions that will only worsen our problems.
There is a great hypocrisy in America’s national energy policy. As long as politicians continue to demagogue energy companies and oppose legislation that addresses the long-term problem of rising energy costs, we will continue to fail the American people.
Yes, oil companies are making large sums of money in real dollars; however it is disingenuous to simply look at the raw dollar amounts without looking at these numbers in the proper economic context. We need to look at the percent of return these companies are making. In reality the oil and gas industry’s earnings are easily comparable to other industries and in many cases lower.
According to Business Week and Oil Daily magazines, the oil and natural gas industry earned 5.7 cents for every dollar of sales compared to an average of 5.5 cents for all U.S. industry over the past five years. By contrast in the third quarter of 2005 the pharmaceuticals industry made a profit of 18.6% per dollar of sales versus 7.6% for the oil and gas industry. The average profit per dollar for all US industries is 7.9%. Just by way of example, if a company invests $500 billion dollars in their business and generates $25 billion in profits, one could just look at that $25 billion number and say, “wow, they made a lot of money.” However, that $25 billion is only a return of 5% which certainly does not constitute a great “windfall profit.”
It is time for Congress to look at the facts. It is the global market place and the law of supply and demand, not greedy oil companies that are responsible for higher prices. The price of a barrel of oil is set by the global market not by multinational energy companies. When some in Congress refuse to allow for domestic and deep sea energy exploration that would increase supply and reduce cost, the problems get worse. We must enact legislation that would open ANWR, expand refinery capacity, reduce costly fuel regulation and allow for deep sea exploration. These are long-term issues that could have made a difference today had we avoided political posturing and addressed them years ago. It isn’t too late for us to do the right thing now and begin enacting common sense legislation like increasing supply and increasing research and development regarding alternative sources of energy.
Congress should use its powers of oversight to examine policies that will impact both the supply and demand sides of the energy market. We must stop allowing the issue of rising energy costs to be clouded with misinformation and politically motivated emotion.
April 27th, 2006 at 3:44 pm
Thanks for blogging Mike Conaway.
May 9th, 2006 at 5:01 pm
Greed does factor into supply and demand. For example, if I know something will become rare I might hoard it. To say that the law of supply and demand is not affected by greed ignores human nature. All of human activity is affected by wanting and desire and their baser cousin, greed. The more people want something, the more thay are willing to pay for it. If an event or the weather or a company affects or controls the availability of something that is desired, the price goes up. If the same commondity were to be dumped on a market in great abundance the price goes down because no one wants it. The motivating factor on the consumers part is desire/need the motivating factor on the producers part is profit/greed. When does profit cross the line into greed? That’s the $10,000 question. I think the line is crossed when markets are manipulated secretly – like Enron did with electricity. I think the line is crossed when oil companies set national energy policy instead of the people’s representatives setting national energy policy.