AFPM President Charles Drevna had the opportunity of speaking at the United States Energy Association’s 11th annual State of the Energy Industry Forum. In his speech, he called for a comprehensive U.S. energy policy and an end to regulating in silos, as well as a move towards market-based realities and solutions. This blog post is an abridged version of his full speech, which can be found here:

Open a newspaper or a magazine or listen to the nightly news and you’re likely to encounter a viewpoint that says fossil fuels have reached the pinnacle, and are now in a steady decline inevitably to be replaced by so-called “alternative” sources of energy. Not only is this rhetoric inaccurate, but this attitude is foolish. Fossil fuels will continue to raise the standard of living for billions of grateful people around the world—but the U.S. is decades overdue for a comprehensive energy policy.

What we have today instead is a litany of legislative and regulatory consequences enacted as quick fixes in response to one crisis after another. The time has come to begin a dialogue on the need for a robust energy policy built upon the principals of a free and open market; one that will best serve the interests of American consumers. We must start by ending the practice of regulating in silos, because the benefits of any one action are not adequately weighed against inevitable consequences. Or to put it another way, the issue of cause and effect is unilaterally ignored. 

Let me give you the latest example – one that belongs in the “well that didn’t take long” file. Amid falling oil prices there are those that say the time is ripe for a carbon tax with little thought given to the obvious—that what goes down will go back up. While lower prices at the pump may be good for consumers in the short run, economists understand that a carbon tax would stifle commerce, investments and jobs. The Congressional Budget Office, along with various other studies, has also found that a carbon tax would be regressive, imposing larger burdens on lower-income households than on their higher-income counterparts. 

Or consider the restrictions on crude oil exports, the result of the 1970s oil embargos, which paralyzed America and subjected the nation to years of political intimidation. Today’s vibrant U.S. oil production has been the proverbial game changer in terms of energy independence, but has also led to calls for lifting the ban, with some even suggesting that U.S. refineries cannot handle the increased production. Let me emphatically correct that misperception right now: U.S. refiners are successfully processing today’s supply of crude oil, and in fact have additional capacity for at least another million barrels per day of light crude.

AFPM does agree with proponents who argue that the crude oil export ban is a free market barrier, but it is far from the only one. So too is the egregious Jones Act, an antiquated piece of protectionism that has insulated the domestic maritime industry from competition at the expense of American industry, and for 95 years has controlled how commodities are transported between U.S. markets. 

Here again, we must resist the tendency to regulate in silos. Calls to lift the crude export ban have given no consideration to the impact of such a move on East Coast refineries who have been at a competitive disadvantage for years because of the Jones Act. Right now it is four times more economical to ship oil from the Gulf Coast to Canada than to Northeast refineries because oil must reach Philadelphia and New York through Jones Act vessels. Given that the United States has just 90 Jones Act vessels that can legally move oil between U.S. ports, it isn’t hard to understand that demand has squeezed capacity and driven up costs.   

Should Congress allow crude exports, but not in turn repeal the Jones Act, the fallout will be felt not only by East Coast refineries, but by the millions of consumers they serve. Fewer refineries, in particular concentrated in a single geographical region, is not a good thing. The economic and market implications are real.  

AFPM will continue beating the drum on the need to remove various barriers to free trade in the context of energy policy debates on Capitol Hill. And I’m encouraged because the more that people learn about antiquated laws like the Jones Act, the more its very absurdity is exposed. The ban on crude exports and the Jones Act are both barriers to free trade, but they should be addressed together and not in silos.

Our industry welcomes free market competition, but such competition cannot occur if impeded by market distorters including mandates, subsidies and tax credits. The refinery sector does not get nor do we want subsidies, despite some of the false information fossil fuel opponents regularly propagate. The same unfortunately cannot be said for others in the energy space, including alternative fuels.

In closing, I’d like to talk about the imbalances in supply and demand, but not in the true economic sense or what we are now witnessing in both domestic and global oil markets. Rather, there’s too much reliance on government actions and not enough exercising of market-based realities and solutions. In January 2015, we have an invitation to use our combined leadership, our technology, our confidence and our common sense to encourage the balanced interests of the combined fossil fuels industries. Let’s not sidestep this invitation, but RSVP with a firm commitment to work together to achieve it.

Charles Drevna

Posted by Charles Drevna

Charles Drevna is the former President of AFPM. To learn more about AFPM, visit AFPM.org.