Transcript Slide 1

Energy’s Horsemen of the Apocalypse
Taxes, Cap&Trade, Fracing, Green Pestilence
H. Martin Gibson
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
The First Horseman
Tax
1. Oil and Gas Company Tax
“Preferences”
2.Termination of Oil and Gas
R&D
The First Horseman
Tax
1. Oil and Gas Company Tax
“Preferences”:
Repeal Enhanced Oil Recovery
Credit
Repeal Marginal Well Tax Credit
Repeal Expensing of Intangible
Drilling Costs
Require Cost Depletion/Amortization
Change Amortization to 7 years
The First Horseman
Tax
1. Oil and Gas Company Tax
“Preferences”:
Repeal Deduction for Tertiary Injectants
Repeal Passive Loss Exemption
for working interest
Non-Operator deductions treated as passive
and cannot be deducted against “active”
income.
Repeal Manufacturing Tax Deduction
Section 199 deduction for all American
manufacturing; begins at 3 % growing
to 6% and stops at 9%; deduction
limited to 50 % of U.S. W2 payroll.
• 2008 –limits deduction to oil and natural
gas to 6%
The First Horseman
Tax
1. Oil and Gas Company Tax
“Preferences”:
Eliminate Preferential Time Period
Treatment for G&G Amortization
for Independents
Repeal Percentage Depletion for Oil
and Natural Gas.
The First Horseman
Tax
Why?
“Oil and Gas subsidies are costly to the American
taxpayer and do little to incentivize
production or reduce energy prices.”
“GAO study indicate the U.S. GOM and other U.S.
oil and gas producing regions are attractive
places to invest. Any claim that this proposal
would have a significant impact on oil and
gas production is unfounded.”
“Oil and gas are internationally traded
commodities … as a result, domestic oil and
gas production subsidies … do not
significantly reduce prices … resulting in
higher returns to the oil industry.”
To further President’s vision of a green economy.
The First Horseman
Tax
Status:
Only in President’s Budget
Start January 1, 2011
Expect they will include it in an
energy tax measure to be
taken up by the Senate
Finance Committee next
Fall.
The Second Horseman
Regulation of Hydraulic Fracing
• Current form:
– Excludes from the Safe Drinking
Water Act the following:
• the underground injection of fluids
or propping agents (other than
diesel fuels) pursuant to hydraulic
fracturing operations related to oil,
gas, or geothermal production
activities.
• Proposed Form: Deletes
Exclusion; EPA may now regulate
all fracing.
The Second Horseman
Regulation of Hydraulic Fracing
• Status:
– House
• H.R. 2766
• House Committee on Energy and
Commerce
– Senate
• S. 1215
• Senate Committee on Environment and
Public Works.
The Second Horseman
Regulation of Hydraulic Fracing
• Removing this exemption
– Require the EPA to establish
regulations for state programs
for fracing.
– Could
• (i) prohibit fracing altogether,
• (ii) restrict the fluids that can be
used,
• (iii) subject fracing to general
Underground Injection Control
programs of the SDWA.
The Second Horseman
Regulation of Hydraulic Fracing
• API
– Fluid restrictions
• EPA would prohibit
– water containing surfactants or
detergents
– nitrogen foams and gels which could
interact with water and create
ammonia
– acid used to regulate the pH
• Allow
– water with additives such as salt and
iron control and CO2 foams and gels
The Third Horseman
Cap and Trade
• 1,427 Pages
• Voted On Without Reading
– Democrats who voted against (29) were in
Districts McCain carried
– Republicans who voted for (8), seven in
Districts Obama carried
• 5 Major Parts
–
–
–
–
–
Clean Energy
Energy Efficiency
Reducing Global Warming Pollution
Transition to Clean Energy
Agricultural and Forestry Related Offsets
The Third Horseman
Clean Energy
• Renewable Energy Standards
• By 2020, 20% of electric generation
must be from renewable sources
• BUT up to 8% can come from efficiency
gains.
• Present projections say cannot get to
that level.
• What happens? Pay $25/megawatt
hour, adjusted for inflation. Tax
• Paid to State
– Used for renewable energy or energy
efficiency.
The Third Horseman
Clean Energy
• Carbon Capture and Sequestration
$10 billion
• Capture CO2 as coal is burned -- inject it into
the ground
• Volume Increase
– Carbon molecular weight is 12
– Carbon Dioxide molecular weight is 44.01
– May run through suitable reservoirs quickly.
• Clean Transportation
• Local utility must provide electric charging
stations in parking garages, gas stations,
streets, etc. Battery exchanges.
• Money for electric drive vehicle manufacturing
• Require 15% gasoline 85% ethanol or methanol
to be produced to the extent ordered by EPA
• May require bulldozers and tractors to meet fuel
efficiency standards
The Third Horseman
Energy Efficiency
• Smart Grid
– Allows utility to adjust electricity flows for
maximum efficiency
– Local utility can shut off your electricity
• Other
– Sets standards for light bulbs for your
home.
– Energy Innovation Hubs
– Centers for Energy and Environmental
Knowledge and Outreach.
– Nuclear and advanced technologies
• “Clean Energy Deployment Administration”
– Energy Technology Advisory Council
The Third Horseman
Energy Efficiency
• Building Energy Efficiency
• Lighting and Appliance
Efficiency
• Transportation Emissions
• Industrial Efficiency
The Third Horseman
Energy Efficiency
• Energy Efficient Neighborhoods
– All home appraisals must include
renewable energy sources, energy
efficiency and energy-conserving
improvements.
– Bank must provide home loan borrower
with info on energy-saving improvements
and how to obtain better terms for mortgage
secured by home meeting energy efficiency
standards.
– HUD given authority to guarantee loans for
eligible sustainable building elements home
The Third Horseman
Cap and Trade
• Reducing Global Warming
Pollution
– Goals
•
•
•
•
97% of 2005 levels in 2012
80% of 2005 levels in 2020
58% of 2005 levels in 2030
17% of 2005 levels in 2050
– Lots of Reports
The Third Horseman
Cap and Trade
• Reducing Global Warming
Pollution
– 7 Greenhouse Gases including
CO2
• Anything Else EPA Says
– Greenhouse Gas Registry
• May usurp EPA’s March 10, 2009 reporting
rules.
– Allowance is not a property right.
The Third Horseman
Cap and Trade
• Reducing Global Warming Pollution
– Allowances – stated in millions
•
•
•
•
•
•
2012
2016
2025
2030
2040
2050
4,627 million
5,482 million
4,294 million
3,533 million
2,284 million
1,035 million
– Have to have one allowance for each metric
ton emitted.
– EPA may adjust
• Correct base data
• Compensatory Allowance
The Third Horseman
Cap and Trade
• Starts January 1, 2012
– Must have one allowance per ton by
April 1, 2013
• Granted some; must buy the
rest or not emit.
• Violations
– Pay twice the auction clearing
price for the earliest vintage
year emission allowances in
the last auction
The Third Horseman
Cap and Trade
• Offset Credits
– Unclear – determined by the
“Offsets Integrity Advisory Board.”
• Will list project types one year after
enactment.
• Agricultural Offsets will be determined
by Department of Agriculture.
– International Offset Credits
• “credits based on activities that reduce
or avoid greenhouse gas emissions or
increase sequestration … in a
developing country.” Regs in 2 years,
but 2.5 billion allowances in reserve to
reduce price spikes.
– Can use offsets instead of
allowances.
The Third Horseman
Cap and Trade
• Covered Entities
– Anything emitting 25,000 or
more tons of CO2
– These regardless of emission
level
• Any electricity source
• Any Petroleum Refinery
• Geologic sequestration site
The Third Horseman
Cap and Trade
– Granting of Allowances.
• Electricity Consumers – 43.75% first two
years; none after 2029
– To LDC
– Must be used to benefit ratepayers
» Rebates cannot be distributed
according to usage, but must be
with regard to the fixed portion of
bills or as a fixed credit or rebate.
• Natural Gas Users – 9%; none after
2029
– To LDCs based on volume delivered
– 1/3 to energy efficiency, balance to
ratepayers
The Third Horseman
Cap and Trade
• Granting of Allowances
– Home Heating Oil and
Propane 1.875%
– Low Income Consumers 15%
– Trade Vulnerable Industries
2%/15% in 2014
– Carbon Capture and Sequestration
1.75%
– Energy Efficiency 9.5%
– Energy Innovation Hubs 0.45%
– Clean Vehicle Technology 3%
The Third Horseman
Cap and Trade
• Granting of Allowances
– Refineries 2% (none in 2012 or
2013; none after 2026)
• Additional 0.25% to small refiners
– Lawyer math says refineries will
have to purchase 95% of their
allowances starting in 2014
– One gallon of gasoline = 19.4
pounds of CO2
» It’s the addition of two oxygen
atoms for each carbon atom.
Lawyer math assumes all
refinery production yields 19.4
pounds. Not right: diesel yields
22.2 pounds.
The Third Horseman
Cap and Trade
• Granting of Allowances
– 0.5% in Climate Change Worker Assistance
Fund – 1% post 2026
– 0.9% for “Domestic Adaptation” in Climate
Change Health Protection and Promotion
Fund 3.9% after 2026
– 0.385% for Wildlife and Natural Resource
Adaptation 1.54% post 2026
– 1% for International Adaptation
– 1% for International Clean Technology
Deployment
– Anything left over – Deficit Reduction
– Climate Change Consumer Refund – starts
in 2026
The Third Horseman
Cap and Trade
• One Example – the 0.9% for Domestic
Adaptation
– 2 yrs EPA or other fed agency designated
by the President must issue regulations
– 1% for Indian Tribes
– Balance to the states based on:
• “the per capita income of the US divided by the
per capita income of all individuals in the State”
– Climate Change Consumer Refunds – same way
– Use of funds:
– “to build resilience to the impacts of climate change
more flooding and cyclones, more heavy rain, water
scarcity, heat waves, droughts, sea level rise
– Requires State and Tribal Climate
Adaptation Plans
– Reporting
The Third Horseman
Cap and Trade
• Other
– Modifies payable, earned income credit for
individuals with no children to $11,640.
– Allows Sec. Treasury to transfer fund to SS and
Medicare without appropriation.
– Creates National Climate Service and many
more
– Sets up auction to sell, quarterly, allowances
– Davis-Bacon Act applies to all laborers and
mechanics employed by contractors and subcontractors on any project or no allowances.
– “Carbon Market Assurance” – FERC regulates
spot market for allowances; CFTC over
derivative markets and credit default swaps
– Deleted Swap exemption; limits number of hedges
held by any person
– Can prohibit imports if results in “carbon
leakage.”
The Third Horseman
Cap and Trade
• Prognosis
– No final action until 2011 or 2012
• Health Care, SC nomination, financial
services reform, annual appropriations
bills.
– Waxman-Markey
• Cannot pass the Senate
– Likely Energy Legislation
•
•
•
•
Renewable Electricity Standard
Security Threats to electric grid
Energy Efficiency
Might authorize additional OCS leasing
[?]
The Third Horseman
Cap and Trade
• Prognosis
– Senate
• Procedural
– Against using “special budget
procedures”
– Point of order if would cause
significant job losses in
manufacturing and coal-dependent
regions (blue states)
– Must not increase electricity or
gasoline prices
The Third Horseman
Cap and Trade
• EPA May Do It Instead
– U.S. Supreme Court
• Clean Air Act of 1990 authorizes EPA to
regulate CO2 because meets the
definition of “air pollutant”
• July, 2008 EPA Notice of Rulemaking to
regulate greenhouse gases under the
Clean Air Act.
• April, 2009, EPA proposed finding that
greenhouse gas tailpipe emissions
anticipated to endanger public health
• If Congress does not act, expect EPA to
make the endangerment finding.
The Fourth Horseman
Green Pestilence
• Can we save the planet?
– Under cap and trade, US emissions
should be 83% of the 2005 level by
2050.
– That’s 4,980 million metric tons of
CO2 reduction
– It takes 14,138 mmt CO2 to raise the
CO2 concentration by 1 part per
million.
– It takes 125 ppm to raise the
temperature 1 degree Centigrade
The Fourth Horseman
Green Pestilence
• Can we save the
planet?
– Therefore it take 1,767,250
mmt to raise temp 1
degree
– 4,980 mmt divided by
1,767,250 = 0.0028°C/year
– Multiply by 40 years =
0.112°C
The Fourth Horseman
Green Pestilence
The Fourth Horseman
Green Pestilence
The Fourth Horseman
Green Pestilence
• EPA dissident
– Note on EPA Endangerment Finding.
• Lack of observed upper tropospheric heating in tropics
• Satellite data show no appreciable temp increases 19781997
• Models ignore PDO, AMO and ENSO natural variation
• Solar Variability ignored
• Other natural effects
• Surface temp data hopelessly corrupted by urban heat
island effect
– Most disturbing
• EPA had no analysis of whether GW or AGW is real
Ages-Old Icecap at North Pole Is Now Liquid, Scientists Find
New York Times
By JOHN NOBLE WILFORD
Published: Saturday, August 19, 2000
The North Pole is melting.
The thick ice that has for ages covered the Arctic Ocean at the pole has turned to water, recent visitors there reported
yesterday. At least for the time being, an ice-free patch of ocean about a mile wide has opened at the very top of the world,
something that has presumably never before been seen by humans and is more evidence that global warming may be real
and already affecting climate.
The last time scientists can be certain the pole was awash in water was
more than 50 million years ago.
''It was totally unexpected,'' said Dr. James J. McCarthy, an oceanographer, director of the Museum of Comparative Zoology
at Harvard University and the co-leader of a group working for the Intergovernmental Panel on Climate Change, which is
sponsored by the United Nations. The panel is studying the potential environmental and economic consequences of marked
climate change.
Dr. McCarthy was a lecturer on a tourist cruise in the Arctic aboard a Russian icebreaker earlier this month. On a similar
cruise six years ago, he recalled, the icebreaker plowed through an icecap six to nine feet thick at the North Pole.
This time, ice was generally so thin that sunlight could penetrate and support concentrations of plankton growing under the
ice. Dr. McCarthy said the icebreaker's Russian captain, who has made the voyage 10 times in recent years, said he had
never before encountered open water at the pole.
Another lecturer, Dr. Malcolm C. McKenna, a paleontologist at the American Museum of Natural History, said the ship, the
Yamal, crunched through miles of unusually thin ice and intermittent open water on the approach from Spitsbergen, Norway,
to the pole. When the ship reached the pole -- which Dr. McKenna and his wife, Priscilla, confirmed with a handheld Global
Positioning System navigation device -- water lapped its bow.
• Predictions made on the occasion of Earth Day 1970:
• “The world has been chilling sharply for about twenty years. If
present trends continue, the world will be about four degrees colder
for the global mean temperature in 1990, but eleven degrees colder in
the year 2000. This is about twice what it would take to put us into an
ice age.”
Kenneth Watt, Ecologist
• “At the present rate of nitrogen buildup, it’s only a matter of
time before light will be filtered out of the atmosphere and none of our
land will be usable.”
Kenneth Watt, Ecologist
• “Air pollution…is certainly going to take hundreds of thousands
of lives in the next few years alone.”
Paul Ehrlich, Stanford University biologist
• “We are prospecting for the very last of our resources and
using up the nonrenewable things many times faster than we are
finding new ones.”
Martin Litton, Sierra Club director
• “By the year 2000, if present trends continue, we will be using up
crude oil at such a rate…that there won’t
be any more crude
oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and
he’ll say, `I am very sorry, there isn’t any.’”
Kenneth Watt, Ecologist
• “Dr. S. Dillon Ripley, secretary of the Smithsonian Institute, believes
that in 25 years, somewhere between 75 and 80
percent of all
the species of living animals will be extinct.”
•
Sen. Gaylord Nelson
“We have about five more years at the outside to do something.”
Kenneth Watt, ecologist
• “Civilization will end within 15 or 30 years unless immediate
action is taken against problems facing mankind.”
George Wald, Harvard Biologist
• “We are in an environmental crisis which threatens the survival of this
nation, and of the world as a suitable place of human habitation.”
Barry Commoner, Washington University biologist
• “Man must stop pollution and conserve his resources, not merely to
enhance existence but to save the race from intolerable deterioration
and possible extinction.”
New York Times editorial, the day after the first Earth Day
• “Population will inevitably and completely outstrip whatever small
increases in food supplies we make. The death rate will increase until
at least 100-200
million people per year will be
starving to death during the next ten years.”
Paul Ehrlich, Stanford University biologist
• “By…[1975]
some experts feel that food shortages
will have escalated the present level of world
hunger and starvation into famines of
unbelievable proportions. Other experts, more optimistic,
think the ultimate food-population collision will not occur until the
decade of the 1980s.”
Paul Ehrlich, Stanford University biologist
• “It is already too late to avoid mass starvation.”
Denis Hayes, chief organizer for Earth Day
• “Demographers agree almost unanimously on the following grim
timetable: by 1975 widespread famines will begin in India; these will
spread by 1990 to include all of India, Pakistan, China and the Near
East, Africa. By the year 2000, or conceivably sooner, South and
Central America will exist under famine conditions….By the year
2000, thirty years from now, the entire world, with the exception of
Western Europe, North America, and Australia, will be in famine.”
Peter Gunter, professor, North Texas State University
• “Scientists have solid experimental and theoretical evidence to
support…the following predictions: In a decade, urban
dwellers
will have to wear gas masks to survive air pollution…by
1985 air pollution will have reduced the amount of sunlight reaching
earth by one half….”
Life Magazine, January 1970
Energy’s Horsemen of the Apocalypse
Taxes, Cap&Trade, Fracing, Green Pestilence
H. Martin Gibson
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201