Starkly defined policy choices in US election
The race for the White House is shaping up to be a barn-burner after Republican Mitt Romney’s bold choice of running mate. PE examines the differences on energy policies and the impact on oil markets
Suddenly, the US presidential election has become a real contest. By choosing Tea Party darling Paul Ryan as his running mate, Republican challenger Mitt Romney has managed for the first time to cast the upcoming vote in stark shades of fiscal black and white.
Social entitlements and taxes are the headline issues. But energy lurks ominously in the background, where pump prices are a proxy at the ballot box for the whole range of energy-related policies at home and abroad.
And it is the taxation, production and regulation of energy that clearly define the differences between Romney and Obama, apart from any division on foreign policy issues that have a direct bearing on North American oil prices.
Domestically, the battle lines on issues such as cap-and-trade and the Keystone XL pipeline were already clearly drawn. Those positions have hardened given the presumptive-nominee’s views on corporate taxation, environmental protection and his support for drilling in the Arctic National Wildlife Refuge.
That’s not including a renewed focus on tax cuts. Romney supports lowering the corporate tax rate by almost a third, to 25% from 38%. Ryan’s 2010 manifesto, A Roadmap for America’s Future, advocated the elimination of taxes on corporate income altogether, as well as the elimination of taxes on dividends, interest and capital gains.
The Center For American Progress estimated the lower effective tax rate and other special breaks would save the five largest oil companies operating in the US – Shell, BP, Chevron, Conoco and ExxonMobil – more than $4 billion annually.
Those five companies made a combined $29.7bn in the second quarter, and are on track to reap $125bn in 2012.
US reliance on foreign imports has fallen to the lowest levels in a quarter of a century and energy self-sufficiency is within reach
Romney has also proposed exempting overseas profits from US taxes, and allowing those profits to be repatriated at lower rates. For oil companies, what’s not to love?
Not surprising, he has been a beneficiary of moral and financial support from oil interests. To the end of June, the Romney campaign reported direct contributions of more than $1.5 million from the oil industry, alongside an untold amount of third-party advertising.
Lobby groups like the American Petroleum Institute (API) have launched multi-million dollar ad campaigns in swing states Colorado, Florida, Ohio, Virginia and North Carolina urging people to “vote4energy”, without formally endorsing Romney himself.
It’s not particularly earth-shattering given that Romney’s pro-business leanings were well documented and the subject of intense scrutiny.
Likewise, Ryan’s positions on climate change and the environment are also evident from his voting record in Congress. Over seven terms, the Wisconsin representative has been crystal clear on where he sits in terms of energy, economics and the environment.
He was against allowing the Environmental Protection Agency (EPA) to regulate carbon emissions and criticised the agency’s attempts to classify carbon dioxide (CO2) as a pollutant. In 2011 he voted in favour of a bill to repeal a scientific finding that declared CO2 to be dangerous to human health.
Ryan also opposes the Production Tax Credit (PTC) for renewable energy sources such as wind power, even though members of his own party support it in battleground states like Colorado.
That position is at odds with the official Tea Party doctrine of an “all-of-the-above” energy policy that vows to “reduce regulatory barriers to all other forms of energy creation, lowering prices and creating competition and jobs”.
In other words, it doesn’t discriminate against any form of energy – whether it’s wind, coal, or even nuclear.
Ryan may also be overstepping his avowed Libertarian love of property rights. He has voted in favour of forcing President Barack Obama to issue permits for the Keystone XL pipeline, which would take oil-sands heavy oil from Canada to the Gulf, despite protests from property owners along the pipeline route who call it trespassing on their land.
Ryan’s populist credibility would seem to hinge on embracing such David-and-Goliath grassroots causes in states like Nebraska and Iowa that were successful in forcing the pipeline route to be changed. Yet his resumé as a career politician and Washington insider are starkly at odds with the romantic image of a frontier maverick.
There are other inconsistencies that belie Ryan’s reputation as an ideological hardliner. For all his deficit-slashing bluster, Ryan voted in favour of bailing out the banks and the automobile companies after the 2008 recession. It seems to suggest at least some tacit support for government intervention in the economy, and by default, the policies of President Obama.
By contrast, Democrats are unapologetic for using public dollars to avert an economic meltdown. And his health care reforms show Obama is not afraid of expanding the role of government in society, as well as the economy, with new taxes on the wealthy.
For all the talk of eating the rich, his administration has been the saviour of corporate America whether his rivals are prepared to admit it or not. Without Obama, there would be no recovery, as slow and fragile as it is.
To label Obama anti-business is simply not accurate, though he panders less to their corporate sensibilities. It’s a matter of degree.
A different approach
Energy is not so cut and dry, though there are clear differences of approach. However, the rhetoric doesn’t always match reality.
Despite a perception of bias against fossil fuels, production of both oil and natural gas has risen sharply under Obama’s watch. According to Energy Information Administration (EIA) numbers, domestic oil production has jumped 20% to 6.26m barrels a day (b/d) since 2008; natural gas has risen 16% and will reach an all-time high of 66 trillion cubic feet (cf) by 2013.
Critics call it a fluke, but the proof is in oil and gas states like Pennsylvania, Texas and North Dakota that have some of the lowest unemployment rates in the country. US reliance on foreign imports has fallen to the lowest levels in a quarter of a century and energy self-sufficiency is within reach.
At the same time, though, support for fuel-efficiency and climate change measures have some in US industry the impression that Obama is no friend.
In 2011, he increased Corporate Average Fuel Economy (Cafe) standards, requiring vehicles to hit efficiency levels of 55 miles per gallon by 2025. He has advocated subsidies and tax breaks for green energy even as he has vowed to eliminate “corporate welfare” for oil companies.
In practice, those threats have been posturing. The past four years have been more or less a continuation of the status quo – with a few tweaks made for political pet causes and greenhouse-gas reduction.
Geopolitically, there are intangibles that may – or may not – have an impact on the vote. It’s still not clear what effect sanctions on Iran will have on world oil prices, though they seem to have stabilised around $113 a barrel for Brent and $93/b for WTI. And Romney and Ryan, it’s safe to say, would hardly be taking a softer line with Iran.
Those levels will keep US gasoline prices in check when the summer driving season ends in September, well under $4 a gallon. However, a sharp price spike from an attack on Iran or escalation of the Syrian crisis could disrupt those calculations.
It’s unclear what would justify a release of stocks from the Strategic Petroleum Reserve in the unlikely event of a major supply disruption. It’s safe to assume Obama would be much more inclined to open the taps if North American prices climbed steeply again.
It’s also hard to say under what circumstances Romney would do the same. Thus far, the situation hasn’t called for speculation about hypothetical situations. By contrast, informed speculation is what elections are all about.
It’s still not apparent how Romney’s bold shift to the right will affect his chances of winning the White House. But the US is facing a generational choice between two clearly marked paths. Rarely have the choices been so clear.