More federal leasing needed to make energy R&D idea work, experts say

Note: Certain quotation attributions for Andy Karsner and Michael Levi were corrected in this story on Mar. 20.

The Obama administration will need to open more onshore and offshore federal acreage to oil and gas development if it expects a proposed energy security research trust fund to work, experts agreed during a discussion of the concept Securing America’s Future Energy originally offered as part of its proposed national energy security strategy on Dec. 3, 2012.

US President Barack Obama endorsed the idea of using federal oil revenue to establish federal alternative and renewable energy research and development support in his 2013 State of the Union address on Feb. 12 (OGJ Online, Feb. 13, 2013), and mentioned it again on Mar. 15 when he addressed employees at Argonne National Laboratories in Lemont, Ill. (OGJ Online, Mar. 17, 2013).

But SAFE’s original recommendation was to use a portion of revenue from developing acreage in addition to what the federal government leases now, including tracts in the eastern Gulf of Mexico, off Atlantic and Pacific coastal states, and on the Arctic National Wildlife Refuge’s coastal plain. Obama omitted this detail in both addresses.

“You will see more action from the administration to support this idea,” Heather Zichal, Obama’s deputy assistant for energy and climate change, told an energy security trust fund discussion hosted by SAFE’s Energy Security Leadership Council on Mar. 19.

“While in true DC fashion the devil’s in the details, the idea of using federal oil revenue to fund future energy technology research and development is one that frankly has legs, and could get support from both sides of the aisle,” she continued.

Oil in transportation

Obama and SAFE agree that reducing petroleum’s 92% contribution to US transportation fuels would dramatically improve US energy and military security, help the economy, and address climate change. “We believe oil security—and oil displacement in particular—is a nexus where we can find agreement in this town, which is a rarity,” SAFE Pres. Robbie Diamond said.

“The reason this burns in our guts is that oil dependence has constricted our policies and involved this country in parts of the world where it wouldn’t otherwise be,” said the discussion’s moderator, Retired US Navy Adm. Dennis C. Blair, who also is a former National Intelligence director.

But two of the three panelists said the idea won’t work unless oil and gas producers gain access to federally controlled areas which are currently off-limits.

“President Obama needs to decide whether he wants a political or policy legacy, which is more difficult,” said Andy Karsner, a former deputy US Energy secretary for energy efficiency and renewable energy. “He has a congressional champion in [US Sen. Lisa Murkowski (R-Alas.)], who’s talking to other people on the Hill. But we’re not going to do this without expanded production from federal lands.”

McKie Campbell, a partner in BlueWater Strategies who previously was Republican staff director of the US Senate Energy and Natural Resources Committee, added, “I don’t think people would object to using some revenue from existing production, but it’s already allocated. Using revenue from expanded production makes more sense."

Government’s role

Karsner said the federal government needs to become more involved early in the alternative and renewable energy research and development process. “Other technological breakthroughs may have started in people’s garages, but the size and scale of energy is the difference, both in the companies that are involved and the time that’s necessary to make a transformation,” he said, adding, “It requires a delicate, multi-decade effort. Markets are best at making the final transition, but they can’t get things started.”

The proposal nevertheless deserves further discussion, participants agreed. Campbell said, “It gives common cause to two disparate groups—those who want to do more exploration and production, and those who want more alternative energy research and development.”

Michael Levi, an energy fellow at the Council on Foreign Relations, noted, “The problem now is that each group tears down the other’s ideas when they’re proposed in isolation. The emphasis here needs to be less on what’s wrong with an opposing idea and more on the advantages a comprehensive proposal offers.”

Diamond said, “We believe there’s clearly a place for negotiation. We should use the money not on commercialization, but on medium and long-term solutions. There should be a minimum $200-500 million/year spending of money from the Treasury. These would not be new taxes, but a share of money the oil and gas industry would spend to lease more federal acreage.”

Contact Nick Snow at nicks@pennwell.com.

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