Yesterday’s announcement by the White House that it would seek an end to the moratorium on oil & gas development off the eastern and gulf coasts of the US has nothing to do with serving as a bargaining chip for stalled Senate climate negotiations, but rather is intended to blunt expected GOP campaign attacks that Obama the socialist environmentalist has caused gasoline prices to rise $1/gallon since taking office. I see Obama’s move more about controlling the tone of the upcoming mid-term elections than about cutting a climate deal. After all, analysts are predicting $110/barrel oil by July and the Administration is seeking to head off the GOP hystaria when that happens. So here’s my prediction: this drilling announcement marks the death of a climate deal for this congress.
Here’s why Obama’s political move to open up our coasts to more drilling is wrong.
1. Opening up offshore areas to drilling hurts efforts at a climate deal – not helps. On March 23, ten coastal state Senators wrote a letter to the ad hoc Senate climate crew of Kerry-Lieberman-Graham warning that they “cannot support legislation that will . . . put our coasts at greater peril”. They note the environmental concerns that offshore drilling presents, but also highlight the unfair proposal of allowing coastal states to keep a sizable portion of the royalties rather than share that revenue with all states and taxpayers. The letter was signed by Democratic Sens. Bill Nelson (Fla.), Robert Menendez (NJ), Sheldon Whitehouse (RI), Barbara Mikulski (Md), Ben Cardin (Md), Frank Lautenberg (NJ), Ted Kaufman (Del), Ron Wyden (Ore), Jeff Merkley (Ore) and Jack Reed (RI).
2. Opening up “access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030“. The Energy Information Administration estimates that if the ban on drilling remains in place, that “the average U.S. price of motor gasoline price is 3 cents per gallon higher” than if we open these areas to drilling. That’s because the US isn’t Saudi Arabia: we sit on only 1.6% of the world’s oil reserves, while the Saudis have 20%. Dumping our little pond of oil into the giant sea of global reserves can’t make a significant dent on our imports or impact prices.
3. Opening new areas to drilling while failing to hold oil companies accountable for fleecing taxpayers on existing drilling leases is unfair. Now, we’ve written extensively about this over the years. Because of a bureaucratic oversight by the Department of Interior during the implementation of the Deep Water Royalty Relief Act of 1995, oil companies that secured leases in 1998 and 1999 were exempted from royalties, regardless of the prevailing market price of oil. Recent lawsuits have exposed more leases going back to 1996 to this same loophole. This stands in stark contrast to other, similar leases, which require the payment of royalties if the price of oil exceeds a certain threshold. The day the bill was signed in November 1995, West Texas Intermediate oil was trading at $18.28/barrel. With oil now trading at roughly $80/barrel, these companies have been and will be extracting very valuable energy from public land without paying any royalties to American taxpayers. The GAO estimates the loss to the US Treasury of more than $50 billion over the life of these royalty-free leases – a huge subsidy for Big Oil. And investigations have found serious problems in the management of the entire royalty program. I debated Steven Colbert about this.
As recently as August 25, 2009 - when President Obama submitted his Mid-Session Review budget to Congress – he recognized this fleecing of the taxpayer by Big Oil and proposed a “Levy tax on certain offshore oil and gas production” as a back-door way to capture some revenue from these no-royalty leases, raising $6 billion over a decade.
But in Obama’s budget submitted in February, the Administration has now dropped this offshore tax on Big Oil (you can see the itemization of repealed oil & gas tax breaks on page 30 of 88 at the above link, with the new levy tax now gone).
Obama puts a lot at risk with this offshore drilling plan and gets little reward. What a disappointment.
PS – to send a letter to Obama on his misguided proposal, click here.
Tyson Slocum is the Director of Public Citizen’s Energy Program