TPT January 2009

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January 2009 82 ›
From the Americas
Election Day plus one
American industry contemplates the future
under a more regulation-minded administration
in Washington
“Rising Democratic power in Washington is likely to usher in a
drive for tighter financial regulation, increased social spending, and
more labour-friendly policies amid a more challenging climate for
business.”
This happens to be taken from the Wall Street Journal. But, on
the morning after the historic presidential election of 2008 in the
United States, it was a fair statement of the thinking across a broad
swath of American industry. President-elect Barack Obama heads
a Democratic Party that also enjoys a decisive majority in both
houses of Congress (56-40 in the Senate, 254-173 in the House of
Representatives).
Business leaders and lobbyists interviewed by the WSJ’s Elizabeth
Williamson expressed are hoping that this phalanx of Democrats
does not portend higher taxes in the midst of the current economic
decline, nor the erection of significant new barriers to trade
(‘Business Braces for Cooler Climate,’ 5 November).
Ms Williamson cited the defence sector, still fighting in November to
raise the Pentagon’s base budget to 4 per cent of gross domestic
product in 2008, from 3.4 per cent in 2007, as an industry nervous
about a Democratic Congress. “Profits and sales are at or near peak
levels,” she wrote. “[And] future Pentagon spending is expected to
come under pressure because of broad budget issues and the likely
drawdown of troops in Iraq.”
The oil industry also faces challenges, what with Democrats
committed to aggressive efforts to curb oil consumption and put
the US on track to reduce emissions of greenhouse gases. At
the same time, Ms. Williamson found that hostility to proposals
to cap emissions “is giving way to efforts by industries – ranging
from power to information technology – to profit from a green tilt in
government policy.”
Accordingly, the expected congressional legislation to require
businesses to pay for the right to emit carbon dioxide under
a so-called cap-and-trade system is a concern to coal and oil
companies, but a potential boon to others. The Wall Street Journal
noted that executives of the German conglomerate Siemens AG,
with $20 billion in US revenue and 70,000 US employees, said they
hope to boost their power-generation, wind-power, and nuclear-
services businesses if the US adopts carbon caps.
What appears to worry business interests most, wrote Ms.
Williamson, “is the possibility that a Democratic Congress and a
Democratic White House will shift the balance of power between
employers and unions back in favor of unions, after two decades
or more in which unions have been in retreat.” Principally, what
business leaders want Washington to do is take action to revive
the economy. Clay Jones, who heads Rockwell Collins Inc
(Cedar Rapids, Iowa), is also chairman of the board of governors
of the Aerospace Industries Association. Mr Jones told the Wall
Street Journal, “What we’ve got to do is very efficiently and
frequently go up there and make sure they understand what our
case is.”
‘Offshore drilling’ is the mantra.
What is the reality?
Stabilizing the US economy must be the first concern of the
Obama White House. But the incoming president is on record as
saying that energy is “the most important issue that the [US] future
economy is going to face,” and he is widely expected to tackle that
issue promptly. The Houston Chronicle believes that exploration,
efficiency, and new fuels will be high among Mr Obama’s priorities.
The Texas newspaper also looks for an early push by the new
administration to resurrect an energy package that stalled out
in the current Congress. That plan would force oil companies to
renegotiate offshore royalties (‘Obama likely to tackle energy early
on,’ 8 November).
The Chronicle‘s David Ivanovich wrote, “Some other Obama
priorities – including higher fuel mileage requirements for cars and
trucks and creating a trading mechanism to cap greenhouse gas
emissions – will almost surely wait until later in the term.” As for Mr
Obama’s call, during the run-up to his election, for a windfall profits
tax on the oil companies, Capitol Hill experts are sceptical that this
will ever happen.
Congressional staffers and lobbyists say that Mr Obama and
Democratic leaders will have to decide – probably by March – what
new offshore areas they may be willing to open up for oil and gas
drilling. But the Houston Chronicle observes that the extent of the
incoming president’s commitment to opening new areas offshore
remains an open question. “[He] has repeatedly argued that the
nation cannot drill itself out of its energy woes,” wrote Mr Ivanovich.
“And he has joined with other Democrats in insisting oil companies
drill on the 68 million acres where they already hold leases but
are not actively working, a proposal drilling proponents dismiss as
largely meaningless.”
It could be argued that offshore drilling is meaningless. The Interior
Department has estimated recoverable reserves off US coasts in
now-banned areas at only about 19 billion barrels of oil. Americans
consume some 20.6 million barrels a day – about 60 per cent from
foreign sources. Opening the as-yet-untapped US coastal areas to
drilling might support about 920 days, or 2.5 years, of consumption
at current rates. Moreover the American Petroleum Institute, the oil
industry trade group, estimates that – if the coastal waters were all
opened to exploration – it would take at least seven and probably
10 years before any benefits were apparent.
And major environmental groups contend that the increased
supply would not much benefit the American consumer. Carl Pope,
executive director of the Sierra Club, told the McClatchy Washington
Bureau last June, “It would take a decade to bring new leases into
production, and then they would only line the coffers of the oil
industry.”
McClatchy also cited Deron Lovaas, senior energy analyst at the
Natural Resources Defense Council, to the effect that – even
if billions of barrels of oil were available offshore – drilling would
put the US in control of only a fraction of the world’s supply. Thus
energy independence is not within reach for the United States.
Mr Lovaas said, “We are just not blessed in this country with enough
resources for [coastal drilling] to make a big difference.”