Nonetheless, Congress is debating a measure that would impose a multi-billion dollar windfall profits tax on U.S. oil companies,  Energy Expert Discusses Why Congress' Idea for a Windfall Profits Tax on Oil Companies Would Not be a Gift to Consumers


Planes, trains and automobiles:  it's the holiday season and that means crowded airports, highways and public transportation.  Typically, it also means higher gas prices.  That's the economic side of the holidays - it's all about supply and demand.

Yet that is not the case this holiday season, as gas prices have fallen substantially in recent weeks.  Nonetheless, Congress is debating a measure that would impose a multi-billion dollar windfall profits tax on U.S. oil companies, following the industry's recent good earnings announcements.

Recently, energy expert Myron Ebell, the Director of Global Warming and International Environmental Policy at the Competitive Enterprise Institute, spoke with CFIF Senior Vice President & Corporate Counsel Renee Giachino about the downfalls of an excess profits tax on oil companies.  What follows are excerpts from the interview that aired on "Your Turn - Meeting Nonsense with Common Sense" on WEBY 1330 AM, Northwest Florida's Talk Radio.

GIACHINO:  My next guest is Myron Ebell, Director of Global Warming and International Environmental Policy.  Mr. Ebell has worked extensively on issues surrounding global warming, energy rationing, property rights, the Endangered Species Act, and federal-lands policies.  Mr. Ebell is joining us this afternoon to discuss our gasoline crisis and the proposed windfall profits tax.

Mr. Ebell has appeared as a guest on numerous television shows and on hundreds of radio talk shows and has testified before Congress.  Mr. Ebell's writings have appeared in a variety of publications.

Mr. Ebell is not one to run from controversy.  Among other recognitions, the Clean Air Trust in March 2001 named Mr. Ebell its "Villain of the Month" for his role in convincing the Bush Administration not to regulate carbon dioxide emissions. In November 2004 as a result of a BBC Radio interview, seven members of the British House of Commons from all three major parties introduced a motion to censure Mr. Ebell "in the strongest possible terms."

It is our pleasure to have you join us this afternoon on "Your Turn."  Thank you for joining us.

EBELL:  Thanks.  Thank you for having me.

GIACHINO:  You are the Director of Global Warming and International Environmental Policy at the Competitive Enterprise Institute.  Please tell us about Competitive Enterprise Institute.

EBELL:  CEI is a small non-partisan, non-profit public policy institute that specializes in regulatory issues from a free-market and limited government perspective.  A lot of our work is on environmental and energy regulations.

GIACHINO:  I have invited you on this afternoon to talk with us about windfall profit taxes, which seem to be dominating the political debate in Congress.  What is this all about?

EBELL:  Well, you know, we have had some pretty high energy prices and particularly gasoline prices now for a while and the hurricanes disrupted supplies and caused huge spikes in prices and Congress wants to find someone to blame for this and deflect the anger of the public away from them.  So there are 20 some bills in Congress on windfall profits, having the federal government set gasoline prices, on having investigations of price gouging, making price gouging a federal crime.  There is an endless variety of these.  The most serious of these, I think, is Senator Judd Gregg of New Hampshire's windfall profits tax bill which would take some of the high profit margins that the oil companies have enjoyed as a result of the high gasoline prices.

GIACHINO:  Interestingly, these taxes are being pushed by Republicans - you just named one, Judd Gregg, who have always been seen as the pro-business party espousing lower taxes.  Why the political shift?

EBELL:  Well, I really think it is a matter of political cowardice and demagoguery.  They want to find someone to blame and so they are blaming the oil industry.  First of all, no one likes high prices for a commodity, especially one that you need all of the time like gasoline or as we are soon going to find out in more northern climates - heating oil and natural gas for heating our houses this winter.  I don't think in Northwest Florida that is a huge concern but certainly the farther north you get the more of a concern it becomes.

We don't like high prices but price is very important because it's a mechanism that reconciles supply and demand.  When supplies are tight and demand is high, the prices are going to go up.  And the people who do the supplying - the oil companies in this case, are making more money.  And so that's the natural order of the way that a free market works and that is absolutely appropriate and it really is the only way of reconciling supply and demand.  The only other model is the Soviet-Communist model where the government sets prices and what you end up with is shortages of everything except the things that you don't want, and then you have tens of millions of excess pairs of shoes and things like that.

So then if you look at the profits - the oil companies' profits are setting records.  That's right.  But they are not high compared to other industries.  For example, in the last quarter, the biggest oil company - Exxon Mobil, had sales of $101 billion and they made almost $10 billion in profit so they made roughly 10 cents on almost every dollar of sales.  In the same quarter, many industries did much better.  For example, Microsoft made 32 cents on every dollar of sales.  Many banks made a lot more money than 10 cents on every dollar.  They need to make these profits because if they did not make these profits there would be no reason to invest in new supplies.  So what we would end up with is them making lower profits and no one investing in new oil fields, new natural gas fields and new refineries and so on.  It's absolutely essential that we defend the ability of companies to make profits.

GIACHINO:  I am all for paying less at the gas pumps.  I drive a huge SUV and I don't like when I have to go and fill up that car.  But if you can help us understand this in another way - that is related to what we are experiencing here.  When we talk from an economic standpoint sometimes the idea of supply and demand can be hard to grasp unless there is a concept that is closer to home.

You are on the air here on the Gulf Coast of Florida where we have been ravaged by hurricanes - starting with Ivan, and then Dennis and even some folks had damage from Katrina.  Our housing market has shrunk tremendously - it did immediately following Ivan.  Right after Ivan, all these people - myself included, were without homes and had to go looking to either rent or buy a home.  Consequently, demand was a heck of a lot higher than supply and the price of homes rose dramatically.

Under this tax that they are considering - this windfall profits tax, wouldn't that mean in this situation that the homeowner who gets to raise their price because demand is in excess of supply, that they should then have to pay a tax because they have a windfall profit?  Wouldn't that be the same thing?

EBELL:  That is an absolutely perfect example.  I cannot add anything to it.  The fact is that we understand this in our own personal lives - that when something makes a commodity scarce, we can either benefit from it if we have it for sale, like a house, or we can be harmed by it if we have to buy a house.  And so you made an absolute perfect analogy and that is how the world works.  But if you get the government involved in it, then the government would say that you cannot sell your house for that much or if you do sell your house and make all that profit, then we will take most of it away in a new tax.

That is absolutely right.  It is very important to understand that if the housing market - if the price of houses goes up, that encourages a lot of people to sell their house to people who need it more and it encourages a lot of builders and developers to try to build more houses.  That's the purpose of prices.  It's unfortunate.

We are all suffering.  You say you have a big SUV; I've got a smaller SUV because I have 4 children and we need seven seats.  That's the way it is.  I gulp every time I have to go to the gas station but that makes me use less of a product that is in very short supply.  We have been trying to save gas and if the price had not gone up, we would not have been saving gas and we would have run out.  The gas stations would simply run out.  And that is what happened in the 1970s when there were price controls on gasoline and there were constant shortages and constant people standing in line for 3 or 4 hours at gas stations.

GIACHINO:  I want to follow-up with another question.  When we talk about this windfall tax - I don't want to line somebody else's pocket.  I don't want to take money out of mine and line somebody else's, but I have to believe that there is a better alternative for America than just taxing these companies.  For example, what if we instead in some way compelled them to put those profits back into exploration and refining?  We all know how much of our tax dollars goes overseas and to useless entities like the UN.  If we want a real change in gas prices for the future, isn't there a better solution?

EBELL:  Well I think I started out by saying that Congress is trying to deflect blame by all these investigations and bills and claims of price-gouging.  I think Congress really needs to look at where the problem really is.  There is not a problem in the lack of willingness to invest in new energy supplies but the Congress, and with the complicity of many administrations over many decades, has passed a lot of laws which have led to essentially making it impossible for oil companies and investors to invest money in America's energy infrastructure or bring new oil supplies or energy supplies on line because there are so many different regulations now that you cannot build a new refinery in this country.  It is very difficult to build a new oil or gas pipeline in this country; it is almost impossible to build a new electric transmission line.  Almost all of our energy resources have been eliminated from oil and gas production by regulations.  The Rocky Mountains have a lot of natural gas but most of those areas have been closed off from production.  We have huge oil supplies offshore but those have been closed off - there are moratoriums on the Atlantic, the Pacific and the Eastern Gulf of Mexico.

I am not saying that we need to open up everything and drill everywhere but we need to open up some of those areas for investment and for production.

GIACHINO:  I want to talk a little later about ANWAR and get your thoughts on that, but before I do that, is it okay if I take a call?

EBELL:  Sure, go ahead.

GIACHINO:  Go ahead caller, it's your turn.

CALLER:  You are going to have somebody else on to talk about hydrogen, would you have somebody on to talk about ethanol?

GIACHINO:  I can certainly try.  I will see if I can.  Maybe the engineer coming on next month can discuss both.

CALLER:  I think you need someone from the Ethanol Coalition.  I just received my book on how to make ethanol for 12 cents a gallon.  And that's the slower way to make it that cheap - you use solar energy.  Ethanol has been around for a long time and the oil companies and the government know that we could be using at least 85% ethanol - in Brazil they are using 100% ethanol and they could even ship us tankers full of it if we wanted to go that direction.

It is all just a con game with the politicians and with the oil companies.  I guess before the war started we were spending $55 million to get $11 million of oil out of the Middle East.  It's just all for the oil companies.  I don't know if your guest is paid by the oil companies but we should be using ethanol.  I don't know if he wants to comment.

GIACHINO:  Thank you for the call.  I will give him the opportunity to comment if he would like.  I will see if I can find someone from the Ethanol Coalition to come on and talk about that alternative.

Myron, I don't know if you have a comment and I certainly don't expect you to be an expert on ethanol.

EBELL:  CEI has been a long-term opponent, not of ethanol, but of federal policies on ethanol.  Ethanol is the most sacred product, I believe, produced in the United States now because it has had for many years now a very large federal subsidy of around 55 cents per gallon.  That has not made it competitive and so in the energy bill signed into law by Congress this summer, they did not get rid of the subsidy but they added a mandate onto it.  So now there is a federal mandate for a certain percentage of our fuel to now be ethanol.  So the federal taxpayers are now going to pay for ethanol with this subsidy that continues and the amount of payments will almost double or triple because of the mandate.

Now, I think with high gasoline prices ethanol becomes competitive.  I think if prices go back down, the ethanol subsidy will still cost taxpayers and the ethanol mandate will cost consumers who will have to pay higher prices.  But if the price stays up, then the mandate is not so bad.  There is nothing wrong with ethanol - it is a great product.  But it is very hard for it to compete on price and value with petroleum-based gasoline.

So I think there is a problem with the government deciding that ethanol is somehow a more blessed product than crude oil.  I would say the same thing about the federal subsidies for clean coal technology in the energy bill and also the federal subsidies for wind power and nuclear.  I think all of these are bad.  I think consumers and investors can make better choices than the government.

GIACHINO:  Mr. Ebell, our caller would like an opportunity to respond, if that's okay.

EBELL:  Sure.

CALLER:  Thanks, I appreciate that.  I hope I am not too upset but once you find out that we could have been using ethanol since Henry Ford, it is pretty upsetting.

Ethanol needs no subsidy.  In my book, it talks about a man who sells it to his neighbors for $1.25 per gallon.  The deal is that it is hard to get a license to produce ethanol - they have made it very difficult.  According to this book, they are starting to ease that.  What the subsidies do - I have a son at Baylor University, and they receive these subsidies for these grants.  They know that they can use ethanol but the new grant is to study whether or not you can make it from stubble and other esoteric things.  They already know that you can make it from grain and sugar.  So these subsidies are for these ridiculous grants and then it makes ethanol look bad.  Ethanol is very economical to produce.  I just needed to comment.  Thanks a lot.

GIACHINO:  Thank you.  I don't know if you have any follow-up comments to that?

EBELL:  Yes, very briefly.  I have nothing against ethanol and I hope that it succeeds but there is a very long-term federal subsidy of over 50 cents per gallon and this largely benefits one corporation - Archer Daniels Midland Corporation, which has spent many, many years buying off through payments of millions and millions of dollars a lot of the big law firms and lobbying firms in Washington, D.C.  This is very well-known to anyone in Washington, D.C. who has ever dealt with this issue.  The mandate would never have been given to ethanol without the incredible influence of Archer Daniels Midland and the huge amount of money that they have paid to individuals and the huge amounts of money that they have contributed to campaigns.  They have a right to do that but I have a right to resist that.

It is a fine product, but I believe that when you have things like subsidies and mandates what you do is you turn the producers into welfare dependents rather than entrepreneurs who want to make money in a free market.  I don't think they are ever going to get off the subsidy wagon because once you get on it, it is a free benefit and you don't have to do anything.  And so I wish it well in the marketplace but I would like to get rid of the federal programs that support it, which are mammoth and cost the taxpayers lots of money and now they are going to cost the consumers a lot of money.

Yes, there are ways to make ethanol cheaply in small batches but most of the ethanol comes from corn.  The idea of making it from stubble or other methods has been around for decades.  The subsidies for that is even larger.  So far no one has been able to perfect it even though there have been huge amounts of money spent on research by lots of different people - both federal and private, to make other forms of ethanol work.

Brazil produces a lot of ethanol from sugar cane and that is great.  But of course in this country our sugar industry is another industry that gets a huge welfare payment from the federal government.  So unless we are going to import a lot of ethanol from Brazil, I don't think it is near being competitive yet.

GIACHINO:  Let me turn back to the windfall tax idea.  I want to ask, and maybe you know the answer to this because you know a lot about energy in general, do you know how much of a role the individual gas stations play in setting the prices?  Is it competitive at that level too?

EBELL:  Yes, there is a lot of different contractual relationships.  Most gas stations are mom and pop.  Some of them are not and so they are competing.  Some of them are groups who own chains of gas stations.  There are even some gas stations that are owned by the refining companies and the oil companies.  So you have a wide variety of contractual arrangements and so you will see that when the price of crude oil or the price of gasoline as a finished product goes up, the wholesale price, gas stations respond in different ways.  And that is according to the specific contracts that they have.

For example, some of the off brands or the independent brands buy it and they don't have a contract and so they buy it according to whoever has it available on the market.  And so when it is cheap they have lower prices than the major stations.  And then when it goes up they cannot get it at all and their prices have to go way up.  People say they have been gouged because the price of crude oil went up but they already have it in their tank and they don't have to pay that for a few weeks until they get their next delivery but you know if you are a small mom and pop operation you are paying for the next delivery with what you are earning from the sales today.  And you will not be able to afford the next delivery if you don't have that cash.  There are many reasons why different gas stations or different brands will have different pricing. 

In my neighborhood here, for example, Exxon Mobil had better supplies than Shell and that is because Shell had a much larger disruption in the Gulf of Mexico than Exxon Mobil did.  They do not have as much gas and so they have to charge higher prices or they simply will run out of it.  So I think you see all kinds of different things and people need to understand that they all do not have the same arrangements.  Some are protected - they have contracts that kind of protect them from wild price swings.  Other do not.

GIACHINO:  I can tell you that I will be watching this issue of windfall profit taxes very closely because as I look at it, both sides could be playing a partisan card.  Republicans may like the idea of a special tax because it brings more money to the federal government, lowers the deficit and helps finance an expensive war.  On the other side, I see the liberal Democrats who like the idea because they like higher gas prices because it helps push their agenda regarding SUVs and energy conservation and even global warming.  How off base am I?

EBELL:  I think you have to be suspicious of the motives and what everybody is doing in Congress now.  We are in a huge fight right now to get the Arctic National Wildlife Refuge open - a small portion of it, opened up for gas exploration.  This has passed the Senate 51-48.  It passed the House earlier this year by a fairly bi-partisan vote, 30 some Democrats voted for it, as well as about 200 Republicans.  And now a very small group of liberal Republicans are trying to block it even though it clearly has majority support in both the House and the Senate.  And they are likely to get away with it even though the country needs new energy sources.  And every one of them is railing against higher energy prices and saying that the price of gas has to come down, and yet they are trying to block the one major initiative in Congress that will increase supply.  Yes, you have to be suspicious of everyone's motives and some are better than others but they all need to be investigated and watched.

GIACHINO:  That's right.  There is a lot to be watched up on Capitol Hill.

Thank you Myron Ebell for joining us.  To learn more about his organization, visit  That's the Competitive Enterprise Institute.  Thanks for joining us this afternoon.

EBELL:  Thanks for having me.

December 1, 2005
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