The decades-old legislation that prevented American producers from exporting oil is officially overturned despite previous presidential threats to veto a bill to lift the oil export ban. That’s good policy. However, to get the support of “reluctant Democrats,” The Economist reports that “an additional five years of tax credits for wind and solar power” became part of the package. That’s bad energy policy.
While it will likely be months before the first tanker of crude oil leaves U.S. shores, the benefits of lifting the ban are already being felt as the spread between the global benchmark price, known as Brent, and the U.S. benchmark, known as WTI (for West Texas Intermediate), has shriveled to the smallest in years. Because U.S. crude had limited markets—and the crude being produced by the shale revolution didn’t match what many American refineries needed—its price was forced down to make it more attractive to refineries. At one time the price differential between the two benchmarks was as high as $30 (September 2011). Between 2011 and 2013, the spread has been closer to $10 to $25 a barrel. Once some of the bottleneck of U.S. production was relieved when the southern leg of the Keystone pipeline was opened and limited amounts of light crude were approved for export or swap, the gap began to really shrink. On December 11, the spread was $2.31 per barrel. Once the export ban was lifted, it dropped to only a $1 difference—with a brief blip of WTI being above Brent.
This helps American oil producers as it gives them a wider market for their product and allows them to sell oil at essentially the same price as the international benchmark prices—WTI goes up, Brent comes down. The lower global price helps consumers as the price of gasoline is based on the international price, not WTI. The win/win makes for good policy—a win I have pushed for many times in the past year and predicted last year.
The bad policy comes as part of the bargain struck to get the Democrats on board: the Production Tax Credit for wind energy (which had already expired) has been revived, and the Investment Tax Credit for Solar power (which was scheduled to ramp down at the end of 2016) has been extended. Many Democrats wanted the taxpayer handouts made permanent. Instead the deal, part of the $1.1 trillion omnibus spending bill, gave only multi-year extensions to renewables.
One green-energy company that is in need of renewable energy subsidies was the single largest recipient of taxpayer funds through Obama’s 2009 Stimulus Bill: Abengoa. Its stock prices have tumbled throughout 2015. On November 25, the company filed for insolvency protection in Spain. Figures released in the proceedings indicate that Abengoa’s largest creditor—$2.35 billion—is the U.S. Treasury. Additionally, $280 million is owed to the ExIm Bank—the controversial U.S. export finance agency. Representative Mike Pompeo (R-KS), who serves on the House Energy and Commerce Committee and has an Abengoa project in his district, is concerned. In a press release, he said: “Abengoa’s bankruptcy is a glaring example of how the president’s green loan program puts billions of taxpayer dollars at risk for no return. … We have been down this road before. Except this time, instead of losing millions, the American people could be on the hook for billions of dollars in loan guarantees.”
Abengoa—which has so many subsidiaries and projects it is difficult to keep all of them straight— is scrambling to find ways to restructure its debt and raise cash.
Just before Christmas, thousands of the company’s employees worldwide have been laid-off—many stranded in the countries in which they worked without a way to get back to their home countries. One of its solar farm projects, Palen, located in Southern California, is for sale. Plants have been shut down, suppliers are not being paid, dividend payments have not been made, and construction projects have been put on hold. All this, despite having received more than $2.7 billion from U.S. taxpayers—which obviously wasn’t enough to keep this green-energy company afloat.
Abengoa, reports the Washington Free Beacon: “is seeking additional federal backing.” Despite its financial woes—or, perhaps because of them—the company has spent $70,000 in the past three months “lobbying Congress for renewable energy subsidies.” It looks like the company may get a short-term reprieve as the lobbied-for credits have been extended. (No news is available at the time of writing as to how the extensions might directly impact Abengoa.)
When you hear about the tax credit extensions being such an important policy development, remember the Abengoa story, as it is companies like it—who hope to game the system and fleece the taxpayers—who spend big money on lobbyists to push for legislation that benefits them.
One slight silver lining: removing the oil export ban is permanent; extending the renewable energy tax credits is temporary.
The Economist, concludes its coverage of the trade off this way: “Congress is freeing up one part of the energy industry while picking winners in another.”
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column. Follow her @EnergyRabbit.