Oil Import Fees

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND
COMMERCE, SUBCOMMITTEE ON FOSSIL AND SYNTHETIC
FUELS, AND THE SUBCOMMITTEE ON ENERGY CONSERVA-
TION AND POWER,

Washington, DC.

The subcommittees met pursuant to notice, at 10 a.m., in room 2322, Rayburn House Office Building, Hon. Philip R. Sharp (chairman, Subcommittee on Fossil and Synthetic Fuels) and Hon. Edward J. Markey (chairman, Subcommittee on Energy Conservation and Power) presiding.

Mr. SHARP. Today's hearing will come to order.

This morning the two energy subcommittees of the Energy and Commerce Committee are jointly holding a hearing on the proposals with respect to the oil import fee, a proposal that for more than a decade has been regularly proposed to the Congress and not adopted, but it seems to have nine lives.

Though at the moment it appears that the administration has backed away and it appears that at least in the Senate tax bill it doesn't seem to be actively under consideration, one has to assume, given what is happening in the oil business today as well as what is happening to the revenue picture of the Federal Government, that it is likely to be a proposal that will continue to have some currency on Capitol Hill and in the political debates.

There are obviously two strong arguments or motivations made for it, one deriving from energy policy and the other deriving from revenue needs of the Federal Government. It is very clear to this member that in terms of the revenue needs of the Federal Government, it is probably the least efficient way to raise revenues.

However, the question that is more seriously relevant to our subcommittees' jurisdiction is whether it is very relevant as an energy policy for this country as we see another dramatic change of events in oil markets in the United States and around the world.

I am delighted that we will have a panel of six or seven witnesses to try to give us a broad range of views on this question. But I first want to recognize my colleague, the senior Republican from California, Mr. Dannemeyer, for an opening statement. Mr. DANNEMEYER. Thank you, Mr. Chairman.

Just a few years ago crude oil prices were at $34 a barrel. Certain people in this room were predicting that President Reagan's decontrol of oil in January 1981 would jack up the price of Texas oil to $50 per barrel by the spring of 1981. Oil was supposed to be $75 to $100 per barrel by now, with the retail price of gasoline,

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home heating oil, and other petroleum products going up with the price of crude.

Well, what happened? The laws of supply and demand worked. In response to higher prices, the amount of energy consumed per unit of gross national product has fallen by one-third since 1973. Meanwhile, oil production from non-OPEC, non-Communist sources climbed from 17.4 million barrels a day in 1973 to 26.2 million barrels a day last August. OPEC production, by contrast, shrank from 31.3 million barrels a day in 1973 to 15.7 million barrels a day last August.

Last fall, Saudi Arabia threw in the towel at trying to reduce production enough to prop up prices. It boosted its production from 2 million barrels a day to almost 5 million barrels per day in January. Largely as a result of this surge in production, oil prices have fallen nearly 60 percent since late November.

Lower oil prices are good news for consumers and the economy because they mean more economic growth. At least one econometric forecasting firm projects that a $5 drop in oil prices, an the amount that appears conservative now, will boost the gross national product by one-half of 1 percent and produce the inflation rate almost a full percentage less than would otherwise occur. This frees up resources for investment and other domestic enterprises. Those advocating a $5-per-barrel import fee attempt to paint it as a painless way to raise revenue. However, such a fee would not only raise imported oil prices by $5 per barrel, it would also permit domestic oil prices and all domestic energy prices to rise to this artificially higher level. The higher inflation generated by these price increases would boost spending for Government entitlement programs and raise interest rates.

In addition, every 1 percentage point reduction in economic growth reduces Federal revenues by $15.6 billion per year, according to the President's Council of Economic Advisors.

Aside from those hungry for more Federal revenue, advocates of an import fee include those who fear that lower oil prices will push energy consumption to dangerous levels, while shutting in much domestic production. Hence, they see an oil import fee as a necessary energy policy measure.

This argument also falls upon closer scrutiny. There might be a modest increase in consumption from lower prices as consumers switch from other fuels to oil. But it is very unlikely that the major gains over the past decade in energy efficiency will be lost. Consumers are not going to rip out their home insulation or the better windows and other energy-saving measures they have taken over many years. The same holds true for industry and small business. The automobile, which accounts for about 40 percent of our oil consumption, is a case in point. While consumers are shifting toward large cars, the Ford Crown Victoria, a full-size 1985 model at 21 miles per gallon, is at the low end of the fuel economy ratings today. However, this is the same mileage rate as the 1975 Ford Pinto, which at the time was Ford's most fuel-efficient car.

The common thread running through all the arguments for oil import fees is that oil prices are too low. Clearly, the sudden drop in prices has placed great stress on the domestic energy industry. But the fact of the matter is that the same benevolent bureaucracy

that can raise oil prices to artificially higher levels can also hold the price artificially low, as it did in the 1970's with price and allocation controls.

Rather than recreating this bureaucracy, the better course of action is to ride out this turn of events and reap the aggregate benefits for the economy. Although it appears that lower prices are here to stay, no one can predict just what those prices will be or how long they will be with us. We should take advantage of OPEC's blunders and do those things that will enhance the domestic energy industry's ability to survive and prosper without penalizing the rest of the economy.

We should, one, decontrol all natural gas prices; two, repeal demand constraints, such as the Fuel Use Act; three, allow responsible oil and gas development both offshore and onshore.

Mr. Chairman, I would like to thank one of our colleagues, Mr. Joe Barton of Texas, who is chairman of the GOP Research Committee Task Force on Energy, which put together a proceeding the other day designated, as I recall, as a forum or-what did you call that, Joe?

Mr. BARTON. Seminar.

Mr. DANNEMEYER. Seminar. That's a Texas word for people getting together to talk.

They did a fine job of pointing out many facts, I think, that led some of those folks who were there to a contrary conclusion than I have expressed, but certainly they were well-versed and articulate. I look forward to hearing our testimony here.

Thank you, Mr. Chairman.

Mr. SHARP. Does the gentleman from Texas Mr. Leland wish to make a statement?

Mr. LELAND. Thank you, Mr. Chairman, particularly for convening this hearing on a topic that is of great importance to the people of my home State of Texas, particularly my home city of Houston. I welcome your initiative at this time of crisis in the oil patch.

Mr. Chairman, the price of oil has declined over 60 percent since last November. The benchmark price for domestic crude now stands at approximately $13 per barrel. While this is welcome news for many consumers, there are thousands upon thousands of people in Texas and other oil-producing States whose economic existence is threatened by the decline in energy prices. It has been estimated that for every $1 drop in the yearly average price of oil, the State of Texas will lose 25,000 jobs, $100 million in State revenues, and $3 billion in gross economic activity.

Furthermore, Mr. Chairman, analysts have predicted that if oil declines to $15 per barrel, more than $2 above its present price, Texas would lose 250,000 jobs over the next 3 to 5 years. This increase in unemployment comes at a time when Texas is facing a huge shortfall in expected State revenues. Already, the State comptroller is estimating that revenues will be $2 to $3 billion less than expected during the rest of the current fiscal year.

In the simplest terms, Mr. Chairman, the future is not bright for Texas. It is easy to imagine this collapse in energy prices as affecting only a small group of stereotypical "fat-cat" oil producers. Nothing, however, could be further from the truth. The potential for economic devastation touches people in all sectors of our socie

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Oil Import Fees: Hearing Before the Subcommittee on Fossil and ..., Volume 4