Oil – it’s often called the lifeblood of the American economy and when the prices are high, it takes its toll on the
These higher oil prices are often the subject of media reports – usually blaming “Big Oil” for economic hardship. But, since oil prices have fallen off its summertime high of $147 a barrel, oil as a hot button issue has lost its appeal and that had Diane Swonk, a CNBC regular and chief economist at Mesirow Financial, concerned.
In an appearance on CNBC’s Nov. 7 “Squawk Box,” Swonk showed her skepticism of drilling for more oil domestically to increase the supply and lower the price.
“One of the things that is the big issue and the big sticking point on the political side is of course the issue of how long does it take to actually pull that oil out of the ground once you start developing it,” Swonk said. “I’ve heard estimates of seven years if you were to start today. That’s not going to cure today’s problem.”
Swonk asked Larry Nichols, CEO of Devon Energy (NYSE:DVN), if raising taxes on oil in the form of gas taxes would help us artificially “wean ourselves” off of oil.
“What do you do in the interim and what do you do about gas taxes?” Swonk asked. “Do we tax oil higher? You know, you can’t do it in this environment, but when oil prices are low, that’s when to try to tax it to try to wean ourselves off of oil. I mean, all of these things are the things that economists think about.”
Taxing oil would artificially raise the price above a real market value. If oil and its products were more expensive due to the taxes, it would make alternative sources of energy – currently more expensive and less efficient than oil – more attractive by comparison.
Nichols dismissed Swonk’s premise that since there are estimates of seven years to draw oil out of the ground it isn’t worth doing because it wouldn’t “cure today’s problem.” He maintained developing “alternative energy” wouldn’t cure the problems either.
“Well, to develop any resource – to develop alternate energy – no one knows how long it’s going to take to discover something that we haven’t yet discovered,” Nichols said. “That could take seven years or 10 year or 20 years.”
Nichols proposed developing more natural gas – an energy resource that could be brought online in a matter of weeks.
“And while it’s true that there are some offshore facilities that take 7-10 years to bring on-stream, all of our natural gas onshore – we can bring on-stream in a matter of weeks or months. Those are resources we can develop and can develop quickly if we have the political will.”
Natural gas legislation has been offered to Congress by President-elect Barack Obama’s recently named chief of staff Rahm Emanuel while he was serving in the House of Representatives. It included a provision specifically for tax credits and mandates to build natural gas vehicles and the fueling station infrastructure. It passed in the House, but never made it to the Senate.
Obama supports a cap-and-trade system designed to reduce greenhouse gas emissions. The plan would raise costs for energy producers that would be passed on to consumers, raising the price of electricity. Obama has said the purpose of the program is to “make dirty energy more expensive.”
