Job Creation To-Do List? Here’s Ours

Here’s the president talking about job creation Tuesday in Albany, N.Y.:

“Now, we know the true engine of job creation in this country is the private sector – it’s not Washington.  But there are steps we can take as a nation to make it easier for companies to grow and to hire, to create platforms of success for them -- everything from giving more people the chance to get the right training and education to supporting new research projects into science and technology.”

Sounds good. On job creation the private sector definitely is where it’s at. America’s oil and natural gas industry supports 9.2 million U.S. jobs and could do more – 1.4 million new jobs by 2030 with the right policies, according to a study by the Wood Mackenzie energy consulting firm.

Unfortunately, as the president’s speech went on, his emphasis tilted back toward faith in Washington, with a to-do list for Congress that included familiar items – including tax breaks for small businesses and wind and solar companies. The president:

“We can make a difference.  And at this make-or-break moment for America's middle class, there’s no excuse for inaction.  There’s no excuse for dragging our feet.  None … The truth is, the only way we can accelerate the job creation that takes place on a scale that is needed is bold action from Congress.”

Now, it’s a little odd to hear the president talk about excuse-making and foot-dragging on job creation when he’s the one standing in the way of the biggest shovel-ready project around: the Keystone XL pipeline. This private project would create jobs and help make America’s energy future more secure while sending billions of new dollars in revenue to governments.

Obstacles in Congress? Not with the Keystone XL. The president has the authority to get this project going. No congressional action is needed. Keeping the Keystone XL pipeline – and its jobs, energy and tax revenues – on the drawing board is on the president and no one else.

So, approval of the complete Keystone XL pipeline tops our jobs to-do list. Others:

Regulation – Restrain Washington’s tendency to overregulate. Needless, duplicative regulation is a job killer. Energy is a job-growth sector, especially in the area of shale development. Yet, a new hydraulic fracturing regimen just announced by the Interior Department, while improved from a preliminary version, could threaten shale energy’s game-changing potential by adding a layer of federal regulation in an area that’s already being well-regulated by the states. API President and CEO Jack Gerard during a conference call with reporters:

“It simply isn’t necessary to add a new layer of regulation on top of already competent management and oversight [by the states]. What is the need? ... The feds should not be in the process unless there’s a demonstrated need. … Why not learn from successful models in states like Wyoming instead of risking getting in the way of development?”

Taxes – Reject higher taxes on energy producers. We discuss the president’s energy tax-hike proposals here and here. The bottom line is that when the goal is job creation it makes no sense to raise taxes on a sector that’s hiring and creating economic growth.

Access – Allow greater access to U.S. resources – both by opening new areas for development and by eliminating unnecessary hurdles in places where development is occurring. Vast resources in Alaska and off our coasts remain off limits – and with them job growth that would accompany energy development. Meanwhile, oil and natural gas production in federal areas onshore and offshore is, at best, flat. Gulf of Mexico oil production is just now climbing back toward where it was a couple years ago – and well short of where it was projected, and expected, to be.

OK, so that’s a bit more than would fit on the president’s sticky note. But each of these is within policymakers’ reach, and each would put the onus for job creation where the president said it belongs, on the private sector – specifically on an energy sector that’s a proven job creator and eager to do more.

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Job Creation and the Effects of Regulation

A follow-up to our follow-up on a Washington Post article that dismissed the effects of increased U.S. oil production on global crude oil markets. The story also took shots at the oil and natural gas industry’s ability to create jobs, as well as industry assertions about the potential effect of a new gasoline standard on refineries.

Let’s start with jobs. A Wood Mackenzie study released last fall said that with the right policies the oil and natural gas industry could create 1.4 million new jobs by 2030. Here’s what the job-creation growth looks like in a chart from that study:

As it has done in previous articles, the Post suggested the projection isn’t valid because it includes direct, indirect and “induced” jobs – “everything from day-care workers to valets to rocket scientists.” We discussed that here and here. Kyle Isakower, API vice president for policy analysis:

“Estimates include induced economic benefits, as do the administration and its supporters’ estimates of green jobs created by the stimulus package. Including estimates of induced employment effects is a common practice in economic modeling. Increased economic activity in one sector provides more income to the economy that will have a ripple effect in other sectors.”

Isakower continues:

“Increased oil and gas exploration requires more steel for well casings. More steel means more steel foundry workers. As the steel mill expands and hires workers, those workers’ incomes increase and they spend more on other goods and services – housing, cars, food, etc. So when a new sandwich shop opens up across the street from the steel mill, those workers hold real jobs that would not exist without the increase in oil and gas development. I doubt any policymaker wants to tell any of these people that their jobs aren’t real, or that they don’t matter.”

This isn’t theory. It’s happening in states including North Dakota, Pennsylvania, Texas and Ohio, where oil and natural gas development is creating boom conditions in state and regional economies.

Now, as for the potential connection between increased regulation and refinery closures, the Post wrote:

“API has also said new EPA standards will mean high gas costs. An API study said standards for low-sulfur gasoline would add 12 to 25 cents a gallon to the price and force the shutdown of four to seven refineries. However, a new study by API’s consultants, Baker & O’Brien, says EPA’s new standards would add six to nine cents a gallon and that no refineries would have to close. George R. Schink, managing director at Navigant Economics, testified at a congressional hearing that the standards would add 2.1 cents a gallon.”

Isakower said the Baker & O’Brien findings changed because EPA, which originally was considering lower sulfur and gasoline volatility (or RVP) requirements – leading to the 12 to 15 cents per gallon estimate of increased production costs – later decided it would not include an RVP reduction:

“We asked Baker & O’Brien to revise their study to estimate increased costs for the lower sulfur requirement alone, which resulted in the 6 to 9 cents estimate. Given EPA’s lack of transparency in the early stages of this rulemaking, and their change in regulatory plans, the differences in Baker & O’Brien’s estimates are to be expected.”

And Schink? Isakower:

“(His) testimony that the costs for gasoline production would only increase 2.1 cents per gallon simply  averaged Baker & O’Brien’s cost estimate across all refineries. However, the Baker & O’Brien study estimates the marginal cost for those refineries that must upgrade to meet the new requirements, so his analysis is not directly comparable to the Baker & O’Brien marginal cost estimate. Refiners compete with one another – those that do not have to upgrade will not share in the cost of the upgrades for the facilities that do, as Schink’s testimony suggests.”

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