Last month, the Pennsylvania state Senate voted in favor of a massive tax increase as part of a plan to close the state’s $2 billion budget gap. The 26-24 vote will result in a tax hike of 571.5 million across the state, affecting over half of households in the form of increased heating bills. While the tax hike will be a great revenue raiser for the government, small businesses will face an uphill battle in the form of fewer jobs, and the suppression of the state’s newest and most vibrant revenue stream. The vast majority of the tax hike is targeted at the state’s booming natural gas industry. The nation’s largest natural gas field, the Marcellus Shale, is located in Pennsylvania. The new severance tax will raise an estimated $100 million each year with an effective tax rate for 2017-18 of 2 cents per thousand cubic feet of natural gas. The state’s natural gas industry has been a target of Pennsylvania Governor Tom Wolf throughout his tenure as Governor. In February, he proposed a 6.5 percent tax on the value of the production. In 2015, he had proposed a 5 percent production tax, plus 4.7 cents per thousand cubic feet. Despite the fact that Governor Wolf has been forced to settle for roughly half of his desired tax rate, there are still significant problems with targeting the natural gas industry. The severance tax is far from the steady revenue source needed to reduce the deficit. The natural gas industry is cyclical with periods of robust growth and decline. No one knows how long the state can depend on revenue from the Marcellus Shale developers. Supporters of the tax have pointed to the fact that Texas also levies a similar tariff on their natural gas. However, as Elizabeth Stelle from the Commonwealth Foundation points out,
“If Texas is really the model to follow, then any severance tax proposal should also include eliminating the corporate income tax, eliminating the personal income tax and streamlining Pennsylvania’s regulatory regime. Sadly, that’s not the type of severance tax the governor and lawmakers want. Their idea is to raise the special tax charged to drillers—now called an “impact fee”—when the industry is already struggling with year-long permit delays for permits that do not even exist across the border in Ohio, ongoing litigation to build critical infrastructure, and the highest effective corporate tax rate in America.”
With Pennsylvanians already paying increased taxes and regulatory costs, it’s unfair to levy an additional burden on energy producers. Onerous government-imposed tariffs exist outside the free market, and not only distort the cost of labor, but tangible goods as well. Instead of clobbering hard-working Pennsylvanians with yet another tax increase, we encourage Governor Wolf to leverage the Marcellus Shale for greater investment that will create jobs.
Recent news has highlighted the United States pulling out of the Paris Climate Agreement, however few articles have mentioned the US’s already impressive record of reducing carbon emissions without a government mandate. According to a new study by Morgan Stanley, the United States may meet the outlined minimums of the Paris Climate Agreement despite no longer being a party to the accord. In their recent analysis, the brokerage firm found that technology is steadily driving down the price of these energy sources to the point that market functions will eventually make renewable energy an equitable possibility for large-scale power.
“We project that by 2020, renewables will be the cheapest form of new-power generation across the globe,” Morgan Stanley analysts said in a report published last Thursday. According to the report, the US is to exceed the Paris commitment of a 26-28 percent reduction in its 2005-level carbon emissions in the next three years. The report points out that better understanding of wind conditions and redesigned wind-turbine blades have made wind power an increasingly viable power option.
Many in the environmentalist community will point to the cost reduction as an argument in favor of maintaining the United States position in the Paris Climate Agreement, and for continued subsidization of green projects. However, we believe that if true, these statistics render the continued government subsidization of green projects completely superfluous. The goal of green energy projects should be to achieve competitiveness based on the merits of the technology, not financial support as an “approved power source” from the government.
The United States’ exit from the climate treaty has been treated as an environmental calamity by supporters of renewable energy, pointing to German Chancellor Angela Merkel’s steadfast support for the treaty as a roadmap for the US to follow. Interestingly, the math doesn’t favor that argument. The U.S. actually reduced its overall greenhouse emissions at a faster rate than Germany over the last decade. American emissions fell by 9.9 percent between 2005 and 2015, as compared with Germany’s 8.8 percent, even though the U.S. was not a signatory to any carbon emissions treaty during that period.
FBAE believes that it is critical for the United States to be judicious in the extent to which it tethers itself to the climate goals of other nations. Climate treaties place an undue burden on the American economy, and in the case of reducing carbon emission is proving to be unnecessary.
President Trump has designated the last week of June as “Energy Week”. Policy weeks have become a trademark of the Trump presidency, and for family businesses, the consequences of this Energy Week could be welcomed by many who are plagued with volatile energy costs. The common thread of Energy Week will be a renewed reliance on traditional energy sources, and dominance of U.S.-based fuels in the export market. The reversal of Obama-era energy policy was a key tenant of the President’s campaign, and based on his Energy Week schedule, Trump aims to make good on that promise. Now, Trump is looking forward, forging actionable plans to shape America’s energy future. In his first 150 days, the president has used his executive power to lift regulatory barriers to domestic energy production and has empowered the Interior Department to begin revisions of Obama-era fracking regulations.
The President has been outspoken on reducing regulations, providing greater access for energy extraction purposes, and encouraging energy production to help lower the cost of our energy production needs. While specifics on the President’s Energy Week plans are scarce, it is known that he will discuss oil and natural gas exports with Indian Prime Minister Narendra Modi when he hosts here today at the White House. On Tuesday, EPA Administrator Scott Pruitt will appear before a Senate Appropriations subcommittee where he will deliberate on the President’s spending blueprint. Energy Secretary Rick Perry will likely offer a preview of some of the President’s priorities when he speaks Tuesday with analysts and executives at the U.S. Energy Information Administration conference in Washington – agenda here. On Wednesday, President Trump will meet with Governors and Native American tribal leaders along with Energy Secretary Rick Perry. This meeting will precede a Thursday panel in the House Natural Resources Committee that will explore energy industry access to federal lands – link here. Finally, the President Trump will host and event at the Energy Department on Thursday where he will focus on how the sale of U.S. natural gas, oil, and coal helps strengthen America’s influence globally.
While President Trump is expected to place his policy focus on traditional energy sources, he is expected to describe openings for other energy exports, including U.S. technology that harnesses power from the wind and sun, and a new generation of advanced and modular nuclear reactors. Many in the industry have argued that the licensing rules for new reactors are cumbersome and convoluted, discouraging investment in an inexpensive and environmentally friendly energy source. There are hopes that President Trump will eliminate these hurdles.
In addition to making it easier to produce traditional forms of energy, the Bureau of Land Management is currently finalizing environmental reviews to allow leasing of federal land for the purpose of installing solar energy collectors in Nevada. The Dry Lake region on Nevada could be the first federal land installation of solar power generation in the country.
Streamlining the energy permitting process and reducing regulations will drive down costs, which is welcomed news for many family-owned and operated businesses with tight margins. FBAE is hopeful that the changes highlighted during Energy Week will lift the burden that stifles job creation and holds back our economic recovery.
While large-scale energy projects seem inconsequential to local family businesses, the unpredictability of a volatile energy market can financially squeeze these vital contributors to our economy. Yesterday, President Trump spoke to a crowd at the Rivertown Marina in Cincinnati, Ohio about his long-awaited infrastructure plan, providing a broad outline of his priorities. In addition to reducing permitting time for projects from 10 years to 2 years and “slashing regulations to speed up the decision-making process,” Trump has made overtures to enhance infrastructure in the energy sector. While specifics have remained scarce, the president has made clear his commitment to eliminating burdensome rules hindering oil and gas exploration.
The Rivertown comments come after Trump’s nominations of Robert Powelson, and Neil Chatterjee to FERC in May. Progress on several natural gas pipeline projects was stalled by the lack of a quorum, causing a number of energy groups to prod the President to fill the positions at FERC. Now, the commission has $50 billion in energy projects to address and is working through proposals to reform wholesale power market structures. Another large component of President Trump’s $1 Trillion plan is the completion of the Keystone XL and Dakota Access pipelines, which he cited as examples of his administration’s commitment to strengthen America’s energy infrastructure. “Nobody thought any politician would have the guts to approve that final leg,” Trump said. The White House statement indicated that Trump will dedicate $200 billion in his budget this year to energy infrastructure. The completion of these energy pipeline projects will bring welcome relief to small, family-owned businesses.
Improving America’s energy infrastructure can help to reduce energy costs for family businesses by making it easier for energy resources to come to market. Transporting crude oil via pipeline reduces the cost of transportation by 50-60 percent compared to rail transport. In addition to energy transportation infrastructure, the development of more energy efficient electrical grids will also reduce the cost of energy for family businesses across the country. As we begin to overhaul and expand our energy infrastructure it is important that we do so in a way that helps reduce energy costs prepares us for the future ways we will use energy.
When your business is subject to the whims of boom-and-bust cycles the way the oil industry is, making money with less effort is very appealing. With that in mind, oil companies are using technology to cut costs while still turning a profit in the downturn.
“This is about reshaping the industry,” said Muqsit Ashraf, energy strategy consultant with the firm Accenture. He points out tech advances can keep workers safe.
But technology changes will also affect the workforce itself.
“The profile of the employees will change,” he said. “There would be a shift in terms of head count on the field to head count that might be sitting in remote operations centers making decisions.”
Technology is replacing energy workers. For example, oilfield services company Schlumberger has estimated one of its newer, more automated drilling rigs could cut the number of work hours needed to finish a well by more than 30 percent. But in the long term, the effect on jobs is hard to predict, according to Rice University’s Mark Agerton.
“It really depends on whether the technology is going to lower the cost of extraction and make us extract more oil and gas, and hire more people to do that, or if the technology is going to allow us to replace people with machines,” he said.
A more digitized industry also means companies will need more educated, higher-skilled workers to operate new technologies.
These advances are helping drillers in Texas make money even with low oil prices. But another boom could slow the innovation. If prices shoot back up, companies might decide to revert back to more time-tested ways of moving oil.
By Thomas J. Duesterberg, Senior Fellow
The initial report on 1st-quarter Gross Domestic Product (GDP) was weak, but showed encouraging growth in the oil and gas production sector. Capital investment, which has been historically weak since the Great Recession, bounced back to a 9.4% uptick, led by expansion in oil and gas drilling and related equipment. The Federal Reserve Boardearlier reported preliminary 1st-quarter industrial production involving drilling in the oil patch was up 159% over 2016 levels. This accounts for nearly 0.5% of the reported 0.7% GDP growth in the 1st quarter. This expansion bodes well for sustainable growth in the future, as the strength in this sector has outsized impacts on the rest of the economy.
The recent rise in crude oil prices and stability in natural gas prices are behind this new- found growth, but the animal spirits unleashed by the election of President Trump have played an equally large role. Expectations of a freer hand in production, transportation, use and exports of oil and gas also loom large in the revival. It is probably not an idle coincidence that the recent trough in mining sector jobs (which includes oil and gas production) was October 2016.
Since then, over 44,000 new jobs have been created in this sector. Exports of crude oil and refined products are now over 5 million barrels per day (b/d), and natural gas exports, boosted by low-cost production due to the shale technology revolution, have led to a trade surplus of over 2 billion cubic feet per day. Crude oil exports alone in the first two months of this year are more than three times the value of oil exports in the same period in 2016. The technology revolution continues to forge ahead and gas exports will grow as new liquified natural gas (LNG) export facilities come online in the next few years.
Growing strength in the U. S. oil and gas sector is an important factor in stimulating related industries in manufacturing, construction and transportation. The steel, pumps, engines, trucks, drilling bits, earth moving equipment, and related materials used in exploration and processing of oil and gas are largely made in the United States, and, presuming President Trumps executive orders and trade actions on steel, aluminum, transport pipelines and leasing for exploration are upheld, the benefits will be even larger.
In a study I co-authored in 2014, an econometric analysis based on a projection of maintaining a level of crude oil exports of 2 million barrels per day over a ten-year period starting in 2015 would have a strong impact on related industries. Domestic machinery production would be over 3% higher, construction and mining equipment would be 6% higher; over 200,000 construction jobs would be created at the peak of building out needed infrastructure, and overall capital spending would plateau at higher levels.
In the last six months, we have already seen the early impact of these trends in job growth and production in the oil and gas sector and in manufacturing. A related benefit is that increased production to help keep fuel prices low levels tends to boost consumption even further. It is also important to the domestic chemicals and plastics industry, which is the second largest producer and exporter in the U. S. manufacturing sector.
Oil and, more importantly, natural gas and gas liquids, are the main input into U. S. chemicals production, and prices are much lower than those in Europe and the Pacific industrial nations which must import most of their raw materials. Continued growth in the efficiency of oil and gas production, largely in shale producing regions, is allowing increased production while maintaining healthy profit margins.
These trends are likely to intensify as the new tax, regulatory and leasing policies of the new administration are implemented. New policies could stimulate even higher growth, exports and job creation. The 1st-quarter is only a preview of those benefits.
Pro-energy agenda saves families money
By Rep. Krisit Noem
If you’re a family making less than $50,000 annually in South Dakota, you likely spend double the national average on energy every year. It’s one of the largest monthly expenses for many, so if we have the opportunity to drive those costs down, we ought to take it.
When former President Obama was first running for office, he outlined an energy agenda that, as he said, would “necessarily skyrocket” electricity rates. Over the course of the next eight years, his administration implemented provisions that made affordable energy more and more difficult to access. His boldest move promised to increase costs by as much as $17 billion nationwide and put a quarter-million people out of work annually, according to some estimates.
In South Dakota, analysts believed the plan would force electricity prices to rise 30 percent on average and 36 percent during peak times.
In addition to being costly, many questioned whether President Obama’s regulatory actions were within the Executive Branch’s authority. As a result, the Supreme Court temporarily blocked the administration’s proposal and Congress passed legislation to stop it, although President Obama chose to veto that effort.
I believe our energy challenges can be solved, but the answer is innovation, not regulation. I’ve been very encouraged by the Trump administration’s actions on this front. In late-March, President Trump signed new Executive Orders to roll back many of the Obama administration’s overreaching energy regulations and I was honored to join Interior Department Secretary Ryan Zinke hours later as he signed Secretarial Orders reflecting that same agenda. Their actions help clear a path so market-driven ideas can lead the way forward.
By prioritizing innovation, I’m optimistic we’ll see lower costs, a revved up economy that supports good jobs and higher wages, and a decrease in our reliance on foreign energy from volatile regions of the globe. I’m also hopeful that by allowing innovation to lead, we’ll be able to strike a balance between energy production and environmental protection in a way that doesn’t cripple the economy.
There is almost no profession that values the sustainability and integrity of the land than a farmer or rancher. Our livelihoods depend on it. During planting season when I was a kid, I remember climbing into the tractor to take over for my dad and almost always finding a tiny, purple prairie pasque inside. My dad loved that flower and told me countless times how special it was, as it seemed to grow best on native grasslands. It’s an image I don’t forget.
American ingenuity can address even the toughest challenges, but I don’t believe the government is the best facilitator for that innovation. Instead, we need to give folks the freedom to pursue smarter technologies and finally drive down energy costs for South Dakota families.
Today President Trump signed an executive order supporting affordable energy by undoing previous executive orders that increased the cost of producing electricity. This is a step towards preserving affordable energy for all Americans including family businesses.
During his speech announcing the Executive Order, President Trump said:
“With today’s executive action, I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations. And, by the way, regulations not only in this industry, but in every industry. We’re doing them by the thousands, every industry. And we’re going to have safety, we’re going to have clean water, we’re going to have clear air.”
Here is Majority Leader Kevin McCarthy’s statement on the Executive Order:
“President Trump is taking action to keep the lights on in our homes, our factories, and throughout our economy’s supply chain. America will have a stronger future by developing, not neglecting, the abundant energy resources our land offers. The rationale behind this action is what Republicans have been arguing for years: environmental protections and economic growth are not mutually exclusive. Innovation and technological changes have proven our ability to advance energy development in a cleaner and safer way. We are a resilient people who power a resilient economy. Unleashing our energy potential will strongly support jobs and healthier lives for everyone.”
The Executive Order can be found here: https://www.whitehouse.gov/the-press-office/2017/03/28/presidential-executive-order-promoting-energy-independence-and-economi-1
By Anthony Mirhaydari
Consumers, get ready: You’re about to suffer some sticker shock. Thanks to the post-election surge of business optimism, last year’s rebound in energy prices and a tightening labor market, we learned this week that inflation measures are already rising at the fastest pace since 2013.
Headline consumer price inflation jumped 0.6 percent month-over-month — double the expected gain. On an annual basis, inflation is rising at a 2.5 percent clip (the hottest since March 2012).
Should these trends continue, as they appear ready to do, shoppers are going to suffer a surge of higher prices not seen since the end of the last economic expansion in 2007.
It’s not just inflation, but real growth is heating up as well. And that means the inflation surge is no mere flash in the pan.
Headline retail sales rose 0.4 percent in January over December, pushing the annual rise to a level that was last hit in 2014. And the February Empire State manufacturing survey increased to its strongest print since September 2014.
Separately, producer price inflation increased 0.6 percent last month from the month prior, double the gain expected and landing the annual rate at 1.6 percent — another level not seen since 2014. You get the idea.
Digging into the consumer price index (CPI, chart above), energy is playing a big role, with gasoline prices up 7.8 percent as we eclipse last February’s energy price wipeout before OPEC started teasing a production freeze agreement that was eventually finalized late last year. But other areas of upward price pressure include apparel, new vehicles, household furnishings, housing and medical care. So the forces are broad-based.
Shelter costs in particular are a big deal because they’re heavily weighted in inflation measures (at about a third of overall spending) and have been rising steadily in recent years. The CPI’s shelter component is rising at a 3.5 percent annual rate — last hit in the fading days of the housing bubble in 2007.
Two dynamics threaten to precipitate the inflation surge: The long-awaited rise of wage pressure and the ability of businesses to pass higher costs onto consumers via higher prices.
Wages certainly look poised for a move higher, assuming the tepid but steady payroll gains continue. The National Federation of Independent Business survey found a growing shortage of qualified, desirable applicants. The latest numbers show the net share of small companies saying they’re receiving inadequate applicants for job postings rose to 47 percent from 44 percent in December.
Should this hiring tightness translate into higher pay as businesses compete for a diminished pool of quality workers, the temptation to protect profitability will be hard to resist.
So far, this dynanmic isn’t hitting consumers: Only 5 percent of NFIB respondents said they’re raising prices. But that could soon change.
Originally posted at: http://www.cbsnews.com/news/why-consumers-should-brace-for-higher-prices/
U.S. producer prices recorded their largest gain in more than four years in January amid increases in the cost of energy products, but a strong dollar continued to keep underlying inflation at the factory gate tame.
Rising raw material costs are boosting producer prices across the globe, notably in China, which is the biggest source of U.S. imports. But economists still expect overall U.S. inflation to keep climbing gradually given the buoyant dollar.
“China saw the biggest price gain since 2011 in January. Given that most of the upward price pressure is the result of raw materials prices returning from the depths of last year, the longer-term view continues to be wary but not alarmed,” said Jay Morelock, an economist at FTN Financial in New York.
The U.S. Labor Department said on Tuesday its producer price index for final demand jumped 0.6 percent last month, which was the biggest rise since September 2012 and followed a 0.2 percent gain in December. Higher prices for some services also contributed to the increase in January.
Economists had expected the PPI to rise 0.3 percent in January. Despite the surge, the PPI only increased 1.6 percent in the 12 months through January after a similar gain in December. A measure of underlying producer price pressures that excludes food, energy and trade services advanced 0.2 percent after edging up 0.1 percent in December.
The so-called core PPI rose 1.6 percent in the 12 months through January, slowing from December’s 1.7 percent gain. The Federal Reserve has a 2 percent inflation target.
Gradually rising inflation together with a tightening labor market and firming economic growth should position the Fed to continue raising interest rates this year. The U.S. central bank raised rates in December and projected three more hikes in 2017.
Fed Chair Janet Yellen told U.S. lawmakers on Tuesday that waiting too long to raise borrowing costs would be “unwise.”
The dollar .DXY was trading higher on Yellen’s comments, touching a three-week high against a basket of currencies. U.S. government bond prices fell while stocks on Wall Street were mixed.
More U.S. manufacturers are reporting paying higher prices for raw materials. The Institute for Supply Management’s (ISM) prices index surged in January to its highest level since May 2011.
Closely correlated to the PPI, the ISM index has advanced for 11 straight months. Those gains largely reflected increases in the prices of commodities such as crude oil, which are rising due to a steadily growing global economy. Oil prices have climbed above $50 per barrel.
But with the dollar strengthening further against the currencies of the United States’ main trading partners and wage growth still moderate, the spillover to consumer inflation from rising commodity prices is likely to be limited.
A government report on Friday showed import prices excluding fuels fell in January for a third straight month. Data on Wednesday is expected to show the consumer price index increased 0.3 percent last month after a similar gain in December, according to a Reuters survey of economists.
“While the trend in inflation remains upward, it is not quickening as fast as today’s headline suggests. Inflation is not an immediate issue for the Fed,” said Sarah House, an economist at Wells Fargo Securities in New York.
Last month, prices for final demand goods increased 1.0 percent, the largest rise since May 2015. The gain accounted for more than 60 percent of the increase in the PPI. Prices for final demand goods advanced 0.6 percent in December.
Wholesale food prices were unchanged last month after climbing 0.5 percent in December. Healthcare costs edged up 0.2 percent. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index.
The volatile trade services component, which measures changes in margins received by wholesalers and retailers, shot up 0.9 percent in January after being unchanged in the prior month.
Originally posted at: http://www.reuters.com/article/us-usa-economy-idUSKBN15T1PS