Governors and Energy: Economics and Politics

Apparently, federal energy policy is frustrating at least a couple of governors.

When politics mixes with anything in the economics realm, including energy and energy policy, one can never be quite sure as to what the outcome will be.

For example, after a lengthy process that dated back to the previous administration, President Obama wound up rejecting the proposed Keystone XL pipeline project, which would boost U.S. economic growth, employment, and energy affordability and security. The unmistakable political desire was to push the decision beyond the 2012 elections. For good measure, the Obama administration has been slowing or stopping offshore and onshore oil production, pushing increased taxes on domestic energy producers, and proceeding with EPA regulation of emissions.

Two governors spoke out recently on energy policy emanating from the nation's capital.

According to a February 26 report in TheHill.com, Indiana Governor Mitch Daniels, a Republican, provided an interesting reminder on what the objective of the Obama administration's policies seems to be. The article noted:

"‘Let's give the president credit for one domestic policy that works. He wanted higher gas prices and he got them,' said Daniels on Fox News Sunday. ‘Secretary Chu said $8 are about what they pay in Europe. It would be great. Secretary Salazar said $10 and it still wouldn't be for drilling in the places where we know there's an awful lot of domestic production. And so, they have gotten the doubling of gas prices and perhaps worse, it's a conscious policy of this administration. Maybe the one thing they set out to do and actually accomplished.' he said."

TheHill.com went on to explain, "Republicans have leaped on comments from Energy Secretary Steven Chu to the Wall Street Journal in September 2008 saying that government needed to ‘figure out how to boost the price of gasoline to the levels in Europe.'"

Daniels added, "When you have environmental regulations that are going to raise the price of refining gas, possibly put some of our scarce refineries out of business, guess what? You are going to get higher gas prices."

While as a Republican, Daniels obviously wants to score political points, his basic economics are undeniable.

Meanwhile, a Democratic governor is none too pleased as well. In a February 23 report by The Canadian Press, Montana's Brian Schweitzer criticized the politics swirling around the Keystone pipeline. But he did so in a rather unique fashion.

Schweitzer is a big supporter of the project. The most interesting aspect of the article was the following:

"Mr. Schweitzer said Keystone runs through Montana more than it does any other state and would be a boon for oil producers. Oil activity in Montana and North Dakota has picked up, he said, but the oil has to be transported to its destinations by rail. ‘Rail is not safe, it's not environmentally sound and it costs $20 [U.S.] to $30 a barrel more to get to market, so our producers are taking deep discounts because we don't have pipeline capacity and we've negotiated that with TransCanada."

That, of course, just adds more value to the project.

As for his criticisms, Schweitzer got colorful in pinning blame on Washington, D.C. But his wrath was not directed at the administration's political games. Instead, it was directed at Keystone supporters.

The Canadian Press quoted Schweitzer saying, ""Blah, blah, blah, Washington, D.C., politics. If you want to get something a) not done and b) cussed and discussed, send it to Washington, D.C. It's going to get built. Ninety per cent of these jackasses that are complaining about the Keystone pipeline in Washington, D.C., one year ago wouldn't have even known where the Keystone was. While we were doing the heavy lifting here in Montana and in South Dakota and in Kansas and Oklahoma ... in Washington, D.C. ... all these great defenders had never heard of Keystone before."

Hmmm. Why would a Keystone supporter go out of his way to take his Keystone allies to task? Well, while Schweitzer apparently gets the economic benefits of the project, he apparently cannot turn off the politics on the issue. So, he ignores that his fellow Democrats in the White House are the problem, and instead, highlights a point, whether accurate or not, that is meaningless in terms of the substance of the issue.

Like I said, when politics mix with economic policy, especially energy, you never quite know what the outcome will be.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Keystone XL: What Can Congress Do?

President Obama was split on energy production during his State of the Union address - at least when it came to carbon-based energy. On non-economic energy, such as wind and solar, Mr. Obama's commitment to provide continuing taxpayer handouts remained undaunted.

Regarding oil and gas, for example, on the one hand, he spoke proudly of increased U.S. oil and natural gas production. On the other hand, Mr. Obama called for higher taxes on oil firms, which, of course, means reduced incentives and resources for exploration and production.

But all of that is just rhetoric for a president facing re-election in November. The rubber hits the road in actual policymaking. And the biggest recent policy decision made by President Obama was to reject the Keystone XL pipeline project.

That project would transport Canadian sands crude oil to refineries on the Gulf Coast, and thereby enhance energy security, boost U.S. GDP, create new opportunities for firms of all sizes in the energy sector, and generate tens of thousands of new jobs.

How could President Obama reject such a project, particularly since, as the government itself made clear in its research, no real environmental risks exist? That question essentially was asked by U.S. Rep. John Sullivan (R-OK) after the State of the Union: "Let's not forget that just last week, President Obama turned his back on 20,000 new private sector jobs and our energy security by rejecting the Keystone XL pipeline. What logical reason could there be to say no to 20,000 new private sector jobs - potentially 100,000 indirect jobs - while our national unemployment rate remains close to 9 percent?"

Joe Oliver, the Minister of Natural Resources in Canada, actually provided the answer recently. As noted by The Wall Street Journal, Oliver observed that the green movement's "goal is to stop any major project no matter what the cost to Canadian families in lost jobs and economic growth. No forestry. No mining. No oil. No gas. No more hydroelectric dams." In particular, any carbon-based energy production must be opposed.

The Obama administration graciously said, however, that TransCanada, the pipeline owner and operator, could reapply. How nice.

Can Congress do anything to reverse the administration's decision?

Well, as widely reported, the Congressional Research Service issued an analysis that under its powers to regulate foreign commerce, Congress could approve this cross-border project.

In a recent op-ed on the issue, U.S. Rep. Ed Whitfield (R-KY), chairman of the House Subcommittee on Energy and Power, wrote: "So we are going to make every effort to see to it that this pipeline is built. That may require giving the Federal Energy Regulatory Commission, the federal agency responsible for domestic pipeline siting, the limited authority to make the final decision on the permit of the Keystone XL pipeline."

As reported by Reuters, U.S. Representative Fred Upton, chairman of House Committee on Energy and Commerce, "expressed his desire to again try to force the construction of Keystone by attaching legislation to the next payroll tax cut bill... Representative Lee Terry, whose home state of Nebraska would host part of the pipeline, told reporters that a highway construction funding bill Congress is likely to consider this year is one of the other measures that Republicans are thinking of using to target for Keystone."

Rep. Lee also has sponsored legislation to transfer authority of the pipeline to the FERC.

On January 26, testifying before the House Subcommittee on Energy and Power, Assistant Secretary of State Kerri-Ann Jones asserted that the pipeline application was not rejected on the merits, but simply because the State Department did not have enough time under the recently imposed deadline imposed in legislation signed by the President in December. But it is important to note that TransCanada already agreed to the re-routing of the pipeline around the Nebraska Sandhills, thereby answering one of the prominent environmental questions, and the legislation signed into law allowed for TransCanada, the state of Nebraska and the State Department to reach an accord to re-route part of the pipeline in that state.

Of course, even if the House passes legislation to advance the pipeline, it would have to pass the Senate as well and be signed into law by President Obama himself. That's not going to happen. But passing such legislation and debating the issue is important so that American businesses and the people can better understand who exactly is obstructing energy production, security and jobs.

In the meantime, it's more delays and mere hope that the U.S. is not simply eliminated from the Canadian sands crude oil equation altogether. As AP reported: "TransCanada has said it will submit a new application once an alternative route for the pipeline is established. Company chief Russ Girling said a proposed route could be made public in a few weeks." But the option also exists for a pipeline from Alberta to British Columbia, with petroleum then exported to Asia.

Environmental opposition to the Keystone pipeline is not about Nebraska Sandhills. Instead, it's all about hard core, unwavering greens who oppose any and all efforts to expand carbon-based energy, especially oil (and, of course, coal). Unfortunately, the President has chosen to align himself with such groups, rather than doing what's right for U.S. consumers, businesses and the overall economy.

As U.S. Rep. Cathy McMorris Rodgers (R-WA) put it after the State of the Union: "As we saw with the recent Keystone decision and tonight's speech, the President has decided that while jobs can wait, his campaign cannot." That's bad economics that just might turn out to be bad politics as well.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.