Friday, February 03, 2006

On Taxing Oil Profits

The president is right again.

President Bush rejected criticism of U.S. oil companies over their record profits due to high oil prices:

NASHVILLE, Tenn. (AP) - President Bush defended the huge profits of Exxon Mobil Corp. (XOM) Wednesday, saying they are simply the result of the marketplace and that consumers socked with soaring energy costs should not expect price breaks.
In an interview with The Associated Press, Bush also addressed oil's future, offering a more ambitious hope than in his State of the Union speech for cutting imports from the volatile Mideast.
Those who suggest we should tax oil companies over their profits are basically saying that companies should not profit in circumstances where people are experiencing hardship.

Should we tax defense contractors more heavily in times of war for their record profits when military families experience hardship? Should we tax home builders along the gulf coast who are making a post-hurricane fortune while their customers are living in such hardship?

This is another very misguided energy policy, because it leaves no burden of responsibility on the individual. Remember that people choose which homes they buy, so the best thing to do right now is allow the housing market to drive down the values of homes that require expensive heating oil. It would be best if government did not try to intervene, because many of these companies would simply respond by decreasing their profits through more capital expenditures or bonuses on the payroll. And they would have every right to.

Wednesday, February 01, 2006

SOTU Excerpt On Energy

Here's the President's SOTU excerpt on energy:

Keeping America competitive requires affordable energy. Here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. Since 2001, we have spent nearly 10 billion dollars to develop cleaner, cheaper, more reliable alternative energy sources – and we are on the threshold of incredible advances. So tonight, I announce the Advanced Energy Initiative – a 22-percent increase in clean-energy research at the Department of Energy, to push for breakthroughs in two vital areas. To change how we power our homes and offices, we will invest more in zero-emission coal-fired plants; revolutionary solar and wind technologies; and clean, safe nuclear energy.

We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars, and in pollution-free cars that run on hydrogen. We will also fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips, stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years. Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025. By applying the talent and technology of America, this country can dramatically improve our environment … move beyond a petroleum-based economy … and make our dependence on Middle Eastern oil a thing of the past.

I'm happy that he articulated the problem, but I'm really disappointed that he only proposed an increase in funding for research by the DoE. I think DoE and Sandia have done great things in this area, but I really believe the solutions are best left to the private sector, which can be spurred to action through tax incentives. There's already a VC stampede going on in the field of alternative energy, and he could make this an entirely private-sector effort by using tax incentives to sweeten the deal for financing these kinds of ventures. He could make investment in these companies tax-free and give these companies corporate tax immunity for the next 10 years, and the government would not have to spend a dime; the current private sector VC fire hose would turn into a dam burst overnight.

Nevertheless, the President did good tonight, as far as making this a priority.