deadline: end of day Friday August 15.
Robert Naiman Just Foreign Policy www.justforeignpolicy.org naiman at justforeignpolicy.org
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Economists' Letter on Offshore Drilling
[date] Senate Majority Leader Harry Reid Senate Minority Leader Mitch McConnell House Speaker Nancy Pelosi House Minority Leader John Boehner
Dear Senators Reid and McConnell and Representatives Pelosi and Boehner,
As economists, write out of concern that you are being pressured to lift the Congressional ban on most oil drilling off our coasts, despite the fact that this would do nothing in the short term and almost nothing in the long term to reduce gas prices. Simpler measures that don't threaten our environment would do much more.
The federal government's Energy Information Administration projects that this would have no impact on gas prices in the near-term since it will be close to a decade before the first oil could be extracted. The EIA projects production would reach 200,000 barrels a day at peak production. It describes this amount as too small to have any significant effect on oil prices, even when production is at its peak. [1]
If the US had raised auto fuel efficiency standards between 1985-2005 by a quarter of the amount it raised them annually from 1980-1985, instead of leaving them virtually unchanged, the result would roughly have been the equivalent of 3.3 million barrels of oil per day in new production,16 times the projected impact of offshore drilling. [2] It is reasonable to assume that modest increases in fuel efficiency in the future would have a similar effect.
If we negotiated an agreement with Iran that led to the lifting of US sanctions, oil production in Iran could increase 1-2 million barrels a day. That would be 5-10 times the projected impact of drilling off our coasts.
U.S. oil companies are not doing all they can do boost production. In May, the Washington Post reported that Exxon had spent $8 billion buying back shares in the first quarter as a way to boost the value of the stock for shareholders. That far exceeded the company's $5.5 billion capital spending budget.[3] In 2006, Exxon spent $25 billion buying back its stock, again more than its capital spending budget. [4] The industry spent $52.4 billion on stock buybacks in 2006, nearly double the amount in 2005. [5]
It would be far better to pursue modest conservation and negotiations with Iran, having the effect of bringing 20-25 times as much oil on the market, rather than endanger tourism, fishing, and beaches on our coasts for a long-term effect on gas prices that we won't even notice.
Thank you for your consideration of our concerns.
Michael Perelman, Economics Dept, California State University, Chico Jim Devine, Economics Dept., Loyola Marymount University, Los Angeles Hadi Esfahani, Economics Dept. University of Illinois, Urbana
References: [1] "Annual Energy Outlook 2007 with Projections to 2030," Energy Information Administration, February 2007, http://www.eia.doe.gov/oiaf/archive/aeo07/issues.html [2] " Offshore Drilling and Energy Conservation: The Relative Impact on Gas Prices," Dean Baker and Nichole Szembrot, Center for Economic and Policy Research, June 2008, http://www.cepr.net/documents/publications/offshore_drilling_2008_06.pdf [3] "Up $10.9 Billion, Exxon Worries About New Tax," Steven Mufson, Washington Post, May 2 2008. [4] "Higher Oil Prices Help Exxon Again Set Record Profit, " Steven Mufson, Washington Post, February 2, 2007. [5] "Big Companies Put Record Sums Into Buybacks," Ian McDonald,. Wall Street Journal, June 12, 2006.