A new Congress provides new hope for enactment of meaningful energy policy in the US. The politics of midterm elections fouled the latest effort. For the oil and gas industry, the challenges are to learn and to persevere.
To some observers in the industry, any declaration of hope for energy policy might seem wishful. Prospects for passage of comprehensive energy legislation were better in the 107th Congress than they had been at any time in recent history. Yet they didn't yield comprehensive results (see related story, this issue).
Why? In the answer lie the lesson and the hope.
Ambitious package
The latest energy initiative began as a reasonable if overly ambitious package of constructive measures, many of them overdue. Then it became a monster.
The package included tax reforms that producers legitimately have sought for many years. It addressed the supremely important issue of access to federal land. It eventually clarified regulation of hydraulic fracturing.
Those measures are essential to the domestic producing industry, which is in turn essential to US energy supply and economic health. They're controversial only to a small group of extremists who treat anything supportive of oil and gas production as threatening to nature. They deserve to pass. They suffer, however, from perennial attachment to grander yearnings.
The latest House energy legislation, for example, included oil and gas leasing of the Arctic National Wildlife Refuge coastal plain. Indeed, Congress should lease the area. Any energy policy that doesn't provide for testing of the country's best onshore oil prospect raises questions about seriousness of intent. Yet opposition to ANWR leasing is a bedrock position of environmental groups—and a dominant one under current political and market conditions. As long as producer essentials such as expensing of geological and geophysical costs and access to the resource depend on passage of ANWR leasing, their chances of becoming law will be seriously diminished.
The Senate energy bill added the hydraulic-fracturing provision but omitted ANWR leasing and turned the package into political candy for pet constituencies. Environmentalists got accounting preliminaries to the unratified Kyoto Treaty on Climate Change. Manufacturers of windmills and solar panels got requirements for renewable fuels. Alaska got protection against Canadian competition for a southbound natural gas pipeline. Grain distillers got a grotesquely expanded mandate for ethanol in gasoline.
As if all this vote bait weren't enough to smother energy legislation, the Senate added a section on restructuring of the electricity market, a worthy ambition certain to arouse passions in the wake of power-trading scandals. It's facile to say that the conference committee seeking to reconcile the Senate and House bills simply ran out of time. Especially once electricity reform complicated the challenge, the panel could have worked for months and never assembled the puzzle before it.
It was wise to quit trying. On balance, the legislation promised to increase the role of government in energy markets, to channel the wealth of consumers and taxpayers toward uneconomic sources of energy unable to add materially to supply, and to limit supply from efficient sources. As energy policymaking goes, it would have been no towering achievement.
Yet it had its good, even necessary, parts. Two of them even made it out of the conference committee at the last minute: pipeline safety and nuclear-plant liability. Congress can, after all, act constructively on energy. What it seems unable to do is turn comprehensive energy legislation into anything but a mess.
Change approach
The oil and gas industry should change its approach to energy policymaking. For years—no, decades—it has pursued enactment of an all-encompassing "energy policy," only to be frustrated once its exertions entered the legislative churn. Energy as a subject has become too complex and too political for Congress to handle comprehensively. The strategic approach doesn't work.
What can work—as passage of the pipeline safety measure shows—is a legislative effort focused on an immediate problem recognized across a range of political constituencies. Such a problem looms for the nation now. It keeps alive hope for some of the constructive energy measures that didn't survive this election year. More about it will appear here next week.
