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Red Tape
Regulations Aren’t Holding American Oil Back

If you believe disclosures submitted by the biggest companies driving our recent energy revolution, red tape isn’t keeping the boom back. Reuters reports:

In annual reports to the U.S. Securities and Exchange Commission, 13 of the 15 biggest U.S. oil and gas producers said that compliance with current regulations is not impacting their operations or their financial condition. The other two made no comment about whether their businesses were materially affected by regulation, but reported spending on compliance with environmental regulations at less than 3 percent of revenue.

These reports to the SEC contrast what many oil industry executives and lobbyists have been saying. The industry is always pushing for less federal and state oversight of its projects, and despite having a fracking friendly president in Barack Obama, it’s now looking forward to an even easier relationship with the new administration.

Donald Trump will be more than happy to oblige, and is expected to sign an executive order any day now rolling back regulations for oil, gas, and coal producers. But while less oversight can only make life easier for these companies, it isn’t going to transform the American energy landscape. As regulatory expert Cary Coglianese summed it up, “[despite] exaggerated claims, regulatory costs are usually a very small portion of many companies’ cost of doing business.”

For any industry, it’s important to try to find the right regulatory balance, and it’s possible that Trump’s executive actions will help us move closer to that. But let’s not kid ourselves into thinking that oil and gas companies—and coal companies too, for that matter—have been struggling under the yoke of the federal government. Oil and gas is flourishing thanks to hydraulic fracturing and horizontal well drilling, and coal is tanking because it can’t compete with natural gas on cost.

Given all that, it’s hard to see just how much of an effect Trump will be able to have on U.S. energy. He certainly won’t be able to make us “independent”—that’s an old myth that we’ve debunked many times. Unfortunately, he’s already snubbed one of the biggest opportunities his administration has for shoring up our energy security, ARPA-E. That agency is focused on energy moonshots, but Trump proposed defunding it entirely in his recent draft budget. In the long run, that choice could have a much larger effect on our energy interests than the regulations the administration is ready to roll back.

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  • FriendlyGoat

    This would be news at many segments of church where the attendee circles somehow become convinced (near elections) that big government regulations “against business” are the reason ordinary people don’t have better jobs.

  • rheddles

    My 80 gallon water heater just sprang a leak. Thanks to regulators I had to replace it with two 52 gallon units hooked up serially. But that’s a very small portion of the cost of my house. Want to talk about toilets, circuit breakers lamps…

  • Jonathan Dembo

    American Interest is not looking in the right direction. Leading oil companies, like leading companies in every business, have always supported regulations and controls, including wage minimums, safety requirements, labor benefits (8-hour day, paid vacation, unemployment compensation, social security, etc.), also corporate taxes, and environmental regulations, to mention only a few. Why? As you say, these costs do not take much off the bottom line of an existing company. The real impact is on new companies that are trying to get into the business. Existing companies do not have to buy safety equipment new every year and they have previous years’ profits to pay for them. Such equipment lasts for years. New companies have to make huge investments all at once in non-income producing equipment and other expenses. Collectively, they protect existing companies, especially the biggest companies, from new competition. The people to ask ask are the people and organizations who tried and fail to startup companies because of the weight of federal, state, and local taxes, regulations, and labor and business laws.

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