OpinionJournal - John Fund on the Trail

OpinionJournal - John Fund on the Trail

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Power to the People
Washington policy makers stand in the way of sensible energy policies.

Monday, November 28, 2005 12:01 a.m. EST

After Hurricane Katrina temporarily knocked out 30% of America's oil refinery capacity and caused gasoline prices to spike, it became dramatically obvious that the nation needed to build more refineries away from the vulnerable Gulf Coast. But when a bill to streamline the permitting process and provide incentives to build refineries on closed military bases was headed for the Senate floor, Sen. Lincoln Chafee (R., R.I.) joined with every Democrat on the Senate Environment Committee and blocked the bill.

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But on other energy issues it's Republicans standing in the way of progress. This month, House leaders had to bow to the demands of some two dozen GOP moderates and strip a budget bill of provisions to allow exploration for oil on Alaska's North Slope and permit states like Virginia that wanted to opt out of moratoriums on oil and natural gas exploration off their coasts to do so. Sen. Judd Gregg, a New Hampshire Republican, has been touting a "windfall profits" tax, even though the net profit margin of oil and gas companies on the Standard & Poor's 500 is 9%, barely above the S&P average of 8%.

Some members of Congress still believe their demagoguery somehow restrains prices. Sen. Dick Durbin (D., Ill.) told CNBC's Larry Kudlow that "the energy companies push [prices] to the ultimate limit until Congress is raging mad on both sides of the aisle and then retreat with their prices."

In reality, high energy prices are often the direct consequence of misguided government policy. After House leaders were forced to remove natural gas drilling provisions from the budget, Jack Gerard of the American Chemistry Council said he was "flabbergasted that some in Congress continue to live in a fantasy world, in which the government encourages use of clean-burning natural gas while cutting off supply, and then they wonder why prices go through the roof." Natural gas prices recently spiked at $14 per million BTUs, the highest in the world and the equivalent of $7 a gallon gasoline.

Not only will such price spikes increase the cost of heating homes this winter, but they are already costing jobs. Andrew Leveris, CEO of Dow Chemical, testified before Congress this month that high energy prices were a major reason that Dow has closed 23 of its plants in North America, shedding 7,000 of its 25,000 U.S. jobs. Out of 120 chemical plants currently under construction around the world, only one is being built in the U.S. More than 50 are going up in China, where natural gas costs half of what it does in the U.S.



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