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Oil and gas exploration and development (E&D) subsidy has been in existence since the early days of the income tax and is available to integrated and independent oil and gas companies. The Obama administration estimated that it could raise nearly $14 billion by repealing tax credit (Zengerle). In a protest, the American Petroleum Institute would launch new print and radio ads to “educate the consumers” (Snow). All these developments have spurred a nation-wide verbal war. But reality demands some incentives for the green energy industry in terms of reduced competition. The arguments in favor of “Green Energy” are clearly apprehensible on the medium to long term basis. The world’s primary demand for energy is expected to increase by one third by the year 2035. As the time goes on, the price mechanism of the energy market will be more focused on the development in the emerging economies. This will put the developed economies in an uncomfortable position as demand cut back on their behalf won’t have much effect on the prices of the energy. Today the US consumes nearly half of the total oil produced, but by 2035, nearly 30% of the consumption will shift to Asia backed by heavy use of automobiles. Also there is a “Peak oil” situation already in process. By 2020, the oil production from the Middle East and North Africa is expected to decline by 6 million barrel per day. Hence, for a long term policy formulation, preference should be given to the green energy sector. Another long-term concern is global warming. By 2035, the CO2 emission is expected to increase by 20%. ...
Moreover, these are environment friendly and good for human health. The combined basket for green energy also contains green technology. The development and operation of green energy power systems are still in their growing phase. The focus of innovation is still centered on energy efficiency. A lot of industry practices have been standardized. So replacing the old inefficient power systems is no more a problem (Pembina Institute). The oil & gas industry has its own arguments as well. One of the most talked about argument is that rising taxes will not make the gasoline cheap; rather, it may push the price higher. Another argument is that, with the repeal, investment for deep water gas and oil production will be discouraged and this will result in more severe shortage of fuel in the long term. The oil & gas industry observers argue that there will be a possible loss of 50,000 jobs in the near future (Snow). The other major argument is that the exploration of oil & gas is a very capital incentive and risky business. So, the repeal of tax credits will definitely hurt the small producers (Zengerle). There is no doubt that the repeal of tax credits will push the spot price higher, at least for the short term and it will hurt the common American people. Again, without the tax incentives, the exploration sector will not find much investment; hence, companies with heavy reliance on exploration business will definitely get hurt. It takes years of investments to make one single well productive. So, reduction in work force is a possible reality. Also there is no doubt that future-supply will decline substantially as present day exploration activities will decline; and oil still satisfies a major share of total energy needs and will remain in the dominating
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