TPT January 2009

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.”

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J anuary 2009

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