Two days after rejecting US Sen. Thomas A. Coburn's (R-Okla.) amendment aimed at ending federal fuel ethanol subsidies, the Senate adopted one proposed by Dianne Feinstein (D-Calif.) and Coburn which would phase the tax credit out by 73 to 27 votes. The June 16 vote was more symbolic than significant since the bill which was involved won't likely to become law. But it happened nevertheless.
There were few surprises in this vote. Members from agricultural states voted against it, just as members from oil and gas producing states oppose efforts to end federal tax provisions which that industry considers necessary for its economic well-being. "We should be having this debate in the context of a comprehensive energy plan," Charles E. Grassley (R-Iowa), a member of the Agriculture, Nutrition and Forestry Committee, said during floor debate.
"Nearly every type of energy gets some market-distorting subsidy from the federal government," he continued. "An honest energy debate should include ethanol, oil, natural gas, hydropower, wind, solar, biomass, and probably a lot of other alternative energies I don't think of right now. By discussing it in the context of an overall energy policy instead of singling out ethanol right now, we would then be able to make sure we have a level playing field for all forms of energy because the government shouldn't be choosing between petroleum and alternative energy, as an example."
But Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said that while he preferred to let the subsidy expire at the end of 2011 instead of ending it immediately, he voted for the amendment to make clear that he wants the 2004 Volumetric Ethanol Excise Tax Credit to end. Refiners who blend ethanol into gasoline, not ethanol producers, claim the 45¢ credit for each gallon of ethanol they blend into gasoline, he explained. It costs the federal government an estimated $5-6 billion/year in taxes, he added. Many people consider the 2005 and 2007 federal renewable fuel standards more effective tools in increasing domestic ethanol production, Bingaman said.
Ethanol advocacy groups quickly pointed out that the Senate also defeated an amendment proposed by John McCain (R-Ariz.) to prevent federal investment in ethanol blending pumps or storage facilities by 59 to 41 votes. "This vote signifies that an anti-ethanol wave in Congress isn't swelling, but rather that all this attention on ethanol was little more than political posturing," the Renewable Fuels Association said in a June 16 statement. "Lawmakers must now pivot to fact-based, comprehensive discussions about diversifying America's fuel markets and weakening the grip of OPEC and other nations over our economy and energy security."
Oil and gas industry associations did not issue formal comments, probably because they were preoccupied with trying to increase access to federally-controlled domestic resources or trying to get the US Department of State to make a decision about the Keystone XL crude oil pipeline project's cross-border permit. But they also couldn't have missed that several supporters of the Feinstein-Coburn ethanol amendment said during floor debate that it's also time to end federal tax incentives for oil and gas.
Archive for '2011'
Two days after rejecting US Sen. Thomas A. Coburn's (R-Okla.) amendment aimed at ending federal fuel ethanol subsidies, the Senate adopted one proposed by Dianne Feinstein (D-Calif.) and Coburn which would phase the tax credit out by 73 to 27 votes. The June 16 vote was more symbolic than significant since the bill which was involved won't likely to become law. But it happened nevertheless.
It was John D. Rockefeller IV (D-W.Va.) who got to the heart of the matter when he said the 5 witnesses âget caught up in your profits and canât understand the concept of sharing. You seem out of touch not only with what weâre trying to do, but also with the American people. I donât think you have any idea what the size of your profits does to their ability to accept what you say.â
Witnesses reiterated statistics showing that the oil and gas industry is the most heavily taxed US business, and studies showing that greater access to domestic oil and gas resources would generate more government revenue than increasing the industryâs taxes. None of this seemed to matter to the committeeâs Democrats. They apparently were determined to get so-called Big Oil to pay a bigger share to help reduce the budget deficit.
With the exceptions of Louisianaâs Mary L. Landrieu and Alaskaâs Mark Begich, Senate Democrats overall believe that requiring the nationâs 5 biggest oil companies to surrender tax deductions enjoyed by smaller producers and the rest of American business is a small price to pay because the majors made so much money in 2011âs first quarter. âWe have a responsibility to review everything,â said Debbie Stabanow (Mich.). âTaxpayers expect us to ask tough questions. Itâs very appropriate to look at whether a tax deduction which was enacted in 1916 is still appropriate. Itâs not that we donât want you to be successful. It just may not make sense to subsidize what youâre doing.â
Thomas R. Carper (Del.) said that congressional Democrats and Republicans have been conferring with the administration on ways to reduce the federal budget deficit. âWe basically were told to look in every nook and cranny,â he said. âThereâs a strong belief in this country that some of the tax deductions for your industry do not get us results we deserve. Weâre going to vote on this bill sometime next week, but it should not be the end of the conversation. Later this year, weâre going to vote on reducing the deficit by some $4 trillion and everything will be on the table.â
ExxonMobil Corp. chief executive Rex W. Tillerson responded that the nationâs top multinational oil company supports comprehensive tax reform. âEverything should be on the table. If youâre going to repeal Section 199, repeal it for everyone,â he said. âThe object is to create conditions for greater investment in this country. Thatâs where a lowering of general rates would help. The foreign tax code needs an overhaul as a well. The principals we live by are to make US investments attractive and donât harm US operations overseas.â
âI donât think the American people want shared sacrifice,â observed Chevron Corp. chief executive John W. Watson. âThey want shared prosperity. Oilfield workers who canât work today because their companies canât receive drilling permits or access to more leases feel the pain.â
That idea did not sit well with Rockefeller. âI think the main reason youâre out of touch, particularly with respect to Americans as we try to balance the budget, is that you always prevail in the halls of Congress for a variety of reasons from your lobbyists to where you do business,â he said. âThe size of the amount of money you make is hard for average people in West Virginia to understand. Theyâve always in the process of losing. Everything is an uphill battle. My view is that Iâm holding onto a huge boulder with 2 hands and trying to push it uphill. If I take one hand off, the boulder and I disappear into the gulch.
âI have never seen any industry so successful that it gives you a sense of assurance I donât see from the steel or automobile executives Iâve seen sitting there at the witness table,â he continued. âI donât think you have any reason to feel threatened because of how votes line up in this Congress. But I yearn for at least one of you to see what American people are facing in terms of losing health and unemployment insurance, and consider what you can do to address that.â
The Menendez billâs chances of passing the full Senate when it comes to a vote arenât good. The hearing about it revealed a deeply felt attitude among most Democrats on that side of the Capitol that the industry is a perfect tax increase target because they believe it isnât paying its fair share now. Itâs an attitude that could make matters difficult if this committee begins the serious deficit reduction discussions its chairman, Max Baucus (D-Mont.), wants later this year.
The committee, which the 1990 Oil Pollution Act established, should also evaluate contributions from its completed research and provide an update of efforts to revise its plans in its 2012 biennial report to Congress, GAO said in a report it publicly released on Apr. 25.
It said that the committeeâs member agencies, which include the US Bureau of Ocean Energy Management, Regulation, and Enforcement; the US Coast Guard; the US Environmental Protection Agency; the National Aeronautics and Space Administration; the US Navy; the National Oceanic and Atmospheric Administration; and the US Pipeline and Hazardous Materials Safety Administration, have spent $163 million on oil pollution research.
About $145 million of this amount came from the Oil Spill Liability Trust fund which OPA established and which was funded primarily from a tax collected on domestically produced and imported crude oil, the report said. The tax was 5Â¢/bbl when OPA became law, but expired in 1994. It was reinstated in 2005 and increased to 8Â¢/bbl.
GAO said that federal agencies have conducted at least 144 research oil pollution prevention and research projects since 2003, âbut the inter-agency committee had a limited role in facilitating the coordination of agency efforts.â It established a joint research plan in 1997 which identified oil pollution risks and research priorities, but has not updated it in light of oil production and transportation changes, the report added.
It said that the committee also submitted biennial reports to Congress but did not identify member agenciesâ progress addressing gaps which the 1997 research plan identified. âUntil recently, it also had not revisited the plan, as the National Research Council recommended,â GAO said. The committeeâs efforts to foster communication and coordinate its membersâ research, and to reach out to the oil and gas industry, statesâ organizations, and other stakeholders, also was limited until recently, according to the report.
In a March 4 response to an early draft of the report, the US Department of Homeland Security, which oversees the Coast Guard, said that it generally concurred with the recommendations and is addressing them. It noted that DHSâs fiscal 2012 budget request includes a full-time position as executive director of the inter-agency oil pollution research coordinating committee, and the position is a key step in the Coast Guardâs efforts to revitalize the program.
âDomestic energy policy cannot be based on crippling access, stifling permitting, and increasing taxes on production â as [US President Barack] Obama has recently proposed â while at the same time loaning billions to foreign government-owned entities to produce abroad,â Vitter said on Apr. 30. âThese loans may well create numerous jobs domestically for US businesses to sell product overseas. However, there is no doubt that domestic production creates domestic jobs that cannot be shipped overseas.â
Vitter first mentioned this to Ex-Im Bank President Fred Hochberg in a Mar. 17 letter when he referred to an August 2009 letter he wrote Obama about a $2 billion loan to Petrobras which produced a response from the Ex-Im Bank suggesting there would be a significant return on the investment from interest on the loan as well as an increase in the growth of US manufactured products used by Brazilâs offshore industry.
Noting in his Apr. 29 letter to Hochberg that the bank subsequently approved a $1 billion loan to Ecopetrol, Colombiaâs national oil company, Vitter said: âI was very specific about the information I requested from Ex-Im more than a month ago. I requested the particulars of the return on investment the American taxpayer can expect from these loans as well as the US businesses intended to benefit from the financing arrangements. Is it safe to assume that Ex-Im does preliminary analysis before issuing loans that evaluates the return on these loans to the US government and US businesses? Is it also safe to assume that Ex-Im should readily be able to provide that information to Congress upon request?â
The senator noted that while the Ex-Im Bank is an independent federal agency, it also is congressionally authorized and responsible to the US taxpayer. âI would appreciate a full accounting of the return on these âinvestmentsâ Ex-Im has been making as we develop domestic energy policy in a period when [gasoline] prices are above $4/gal and American families and businesses suffer,â he said. âThese loans may well create numerous jobs domestically for US businesses to sell product overseas. However, there is no doubt that domestic production creates domestic jobs that cannot be shipped overseas.â
Working with Cubaâs regime poses a challenge since the United States does not recognize it. Repsol YPF SA, which is leading a consortium planning to drill its first well off the island nationâs coast, is another matter. The Spanish multinational reached out to BOEMRE some months ago to discuss its plans to drill off Cuba, Bromwich said told reporters on Apr. 12. Talks are continuing, he added.
âThe places to be drilled are close to Floridaâs coast, and in the loop current, so we will be watching them closely,â noted US Interior Secretary Ken Salazar, who also participated in the briefing at the Interior Department's headquarters.
Petroleum ministers in Mexico and Brazil told him that the Apr. 20, 2010, Macondo well accident and crude oil spill shocked the world, and that they were very interested in implementing more effective regulations, he continued.
âMost companies operating in the US deepwater operate globally, so the new standards we are requiring can be implemented worldwide,â Salazar said. That apparently could be the case in Cuba.
âIf weâre serious about making the transition from gas-guzzlers to hybrids, then weâve got to show automakers and truck manufacturers that thereâs a real market,â he said. âThey're not going to build them if they don't think anybodyâs going to buy them. We need to show them that if they manufacture fuel-efficient cars and trucks, people will buy them. We need to put our money where our mouth is.â
UPS, FedEx, AT&T, Verizon, PepsiCo, and other large businesses already have developed large fleets that run on fuels besides diesel and gasoline, Obama noted. âThatâs why weâre launching a National Clean Fleets Partnership,â he said. âIf youâre a business that needs to transport goods, then Iâm challenging you to replace your old fleet with a clean energy fleet thatâs not only good for your bottom line, but good for our economy, good for our country, and good for our planet. And if you accept this challenge and you join our Clean Fleets Partnership, weâre going to make a number of tools available â from technical assistance to cutting-edge research and development â that will help you make the transition to a clean energy fleet.â
Obama said that he has heard repeatedly from owners of vehicles which run on petroleum alternatives that refueling infrastructure is critical. âWe donât have the distribution platforms right now. Thatâs something weâve really got to work on,â he observed.
Oil and gas industry groups applauded the presidentâs remarks. âWe welcome the presidentâs focus on natural gas as an option for transportation fuels and hope to see administration policies and programs that will encourage, rather than discourage, the production and distribution of this important domestic resource,â said Bob Greco, the American Petroleum Instituteâs downstream operations director. âWe also need sensible policies that preserve a robust U.S. refining industry to supply fuels for the existing vehicle fleet for years to come. We hope that the president is signaling a true shift for clear, effective policies that make use of our domestic resources while preserving this important industry.â
âIn making his announcement at a UPS facility today, the president selected a company that has a fleet of more than 1,100 natural gas delivery trucks,â said Tom Amontee, executive vice president at Americaâs Natural Gas Alliance. â[NGVs] outperform conventional fuels with a significantly higher octane rating, better fuel efficiency and lower operating costs - all while offering dramatic reductions in emissions. With the price of natural gas nearing half that of traditional gasoline, greater use of [NGVs] is a smart business decision as well.â
When Christopher A. Smith, who heads the US Department of Energyâs Fossil Energy Office, addressed an American Gas Association Natural Gas Roundtable luncheon on Feb. 22, he noted that Colombia, where he spent three years, has 300,000 NGVs on the road. âThe technology is there,â he said, adding that itâs also much more advanced than the technology for electric vehicles.
The billsâ prospects of moving beyond the Republican-controlled House arenât particularly bright, but they will give members a chance to go on record again about the issue. Many congressional Democrats are saying that the US Department of the Interiorâs report on already issued federal leases which arenât producing or being actively explored, which DOI released as Hastings announced his legislation, justifies so-called âuse it or lose itâ requirements instead.
âIn contrast to the presidentâs drill nowhere new plan, this is a drill smart plan,â said Hastings. âThe majority of Americans support offshore energy production and these bills will allow it to move forward in a safe, responsible, and efficient manner. With thousands unemployed in the Gulf [of Mexico] region and gasoline prices nearing $4/gal, swift action must be taken to reverse course and increase US energy production.â
Two oil and gas industry groups applauded his move. âBold leadership during these challenging times is necessary to get folks back to work in the gulf and to provide the energy resources so critical to fueling this countryâs economic well-being,â said National Ocean Industries Association President Randall B. Luthi. âWhile much of our attention of late has been appropriately focused on the present day pace of permitting and its impact upon jobs, we are just as concerned with the lack of national policy direction for the future regarding access to the oil and gas resources of the US Outer Continental Shelf.â
Con Lass, senior director of federal relations at the American Petroleum Institute, also welcomed Hastingsâs bills. âThe energy markets are constantly looking for signals to guide todayâs investment strategies for producing tomorrowâs energy. Regrettably, the signals this administration has been sending encourage less investment in future domestic energy production,â he maintained. âOur economy will still need oil and natural gas for decades to come. America must pursue policies that encourage responsible development of our resources instead of relying on imported energy from unstable parts of the world.â
Although Mrs. Peller died in 1987, I couldnât help thinking of her on Mar. 18 when Offshore Marine Service Association President Jim Adams essentially asked the same question after the US Bureau of Ocean Energy Management, Regulation, and Enforcement announced that it had approved a third federal deepwater drilling permit since new regulations were imposed following the Macondo well accident and crude oil spill into the Gulf of Mexico last year.
Adams basically said that the new permits which have been issued were for operations already under way when US Interior Secretary Ken Salazar suspended drilling at 32 deepwater wells in the gulf late last spring. âSecretary Salazar is merely allowing existing permit holders to resume their operations,â Adams continued. âThis administration has yet to approve a new deepwater exploration proposal submitted in the last 11 months.â
BOEMRE issued the new permit to ATP Oil and Gas Corp.âs Well No. 4 in Mississippi Canyon Block 941 about 90 miles south of Venice, La., where a rig had been on-site in April 2010 to resume drilling which had been suspended the previous July when Salazar imposed his moratorium. The agency said that it approved the new permit after reviewing ATPâs containment capability for the well using the Helix Well Containment Groupâs capping stack.
âSecretary Salazar is treating gulf workers like peasants, tossing us work crumb by crumb and expecting us to be grateful,â Adams said. âWe're tired of fighting for scraps. We want to get back to work â all of us, not just a handful of crews.â
In a separate response to BOEMREâs announcement, US Sen. David Vitter (R-La.) said that ATPâs receiving the permit was welcome, âbut a mere drop in the bucket for where we need to be.â He said that he would continue his hold on US President Barack Obamaâs nomination of Dan Ashe to lead the US Fish and Wildlife Service until BOEMRE issues at least 15 deepwater drilling permits and complies with his other requests for answers about the permitting process.
The oil and gas industry representatives are Charlie Williams, chief scientist for well engineering and production technology at Shell Oil Co.; Paul Siegele, president of Chevron Energy Technology Co.; Joseph Gebara, senior manager and structural engineer at Technip USA Inc.; and Don Jacobsen, senior vice president for operations at Noble Drilling Services Inc.
Members representing academia are Nancy Leveson, a system safety and process safety professor at the Massachusetts Institute of Technology; Richard Sears, a senior science and engineering advisor who was chief scientist at the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling; and Tad Patzek, a professor and chairman of the University of Texas at Austinâs Petroleum and Geosystems Engineering Department.
The group also includes a single member from an environmental organization: Lois Epstein, the Arctic Program director at the Wilderness Society.
Members from the federal government include two experienced, high-level officials: Walter D. Cruickshank, deputy director of the US Bureau of Ocean Energy Management, Regulation and Enforcement (who held a similar post when it was the US Minerals Management Service), and Christopher A. Smith, the deputy assistant US energy secretary for oil and gas who leads the Department of Energyâs fossil energy office.
Others may not be as well known, but seem very well qualified: Capt. Patrick Little, commanding officer at the US Coast Guardâs Marine Safety Center; Mathy Stanislaus, the US Environmental Protection Agencyâs assistant administrator for solid waste and emergency response; David Westerholm, director of the National Oceanic and Atmospheric Administrationâs response and restoration office; and Steve Hickman, a geologist at the US Geological Survey.
Perhaps itâs because Iâve just finished reading the latest daily reports from the Washington Nationalsâ spring training, but I canât resist saying that Salazar put some very heavy hitters in this teamâs lineup. It will be interesting to see what happens as they take the field and begin to work out.
Mark Begich (D-Alas.), Thad Cochran (R-Miss.), John Cornyn (R-Texas), Lisa Murkowski (R-Alas.), Jeff Sessions (R-Ala.), Richard C. Shelby (R-Ala.), and Roger F. Wicker (R-Miss.) co-sponsored the Feb. 16 resolution, which also asked that Salazar provide both groups of offshore drilling contractors with a sample application to be used as a template.
Salazar imposed an overall offshore drilling moratorium on May 6 following the Apr. 20 Macondo well blew out, causing the Deepwater Horizon semisubmersible rig to explode and kill 11 workers before sinking and releasing a massive amount of crude oil into the Gulf of Mexico. The US Department of the Interior has issued fewer than 35 shallow water permits since that moratorium was lifted on May 28 and no new deepwater permits since that ban was lifted on Oct. 12, the resolution said.
It charged that DOI has not clearly outlined requirements for either shallow water or deepwater drilling contractors to get new permits, resulting in 12 rigs leaving the gulf. "In spite of the offshore drilling moratoriums being lifted, permit delays are causing rigs to sit idle and threatening to send American jobs and tax revenue overseas,â Hutchison said in a statement. âEnergy producers must have adequate guidance on new safety and environmental regulations so they can put Americans back to work and continue to strengthen our domestic energy supply to keep fuel costs low.â
"It has been nearly 10 months since the Deepwater Horizon disaster and the Interior Department still has not streamlined the shallow water permitting process," added Landrieu. "This de facto shallow water drilling moratorium is having a painful impact on the Gulf Coast's economy. Just last week, Seahawk Drilling announced that it will file for bankruptcy primarily because of a lack of permits being issued. I don't know how much more it will take before this administration understands the harsh consequences of its intransigence.â
A DOI spokeswoman responded that production and exploration in the gulf are ongoing, and that offshore producers, drilling contractors, and service and supply companies continue to make progress toward developing the capability to contain blowouts in deep water, which the Macondo blowout made clear is critical to safe deepwater exploration.
âPermits to drill are issued solely based on whether a companyâs application meets rigorous safety and environmental standards, including demonstrating containment capabilities,â she told OGJ by e-mail. The US Bureau of Ocean Energy Management, Regulation, and Enforcement continues to issue permits, and is working as expeditiously as is safely possible to review drilling applications as they are submitted and ensure they meet safety standards put in place in the wake of the accident and spill, she continued.
A 10th US senator, David Vitter (R-La.), met with BOEMRE Director Michael R. Bromwich after the lawmaker placed holds on the nominations of Scott Dooney to become chief scientist at the National Oceanic and Atmospheric Administration and Dan Ashe to lead the US Fish and Wildlife Service.
âI wish my meeting with Director Bromwich was more fruitful,â Vitter said following the Feb. 16 meeting. âUnfortunately, pretty much all he did was repeat the administrationâs talking point that there is no de facto drilling moratorium in the gulf.â
Majority Whip Richard J. Durbin (Ill.), Policy Committee Chairman Charles E. Schumer (NY), Democratic Conference Secretary Patty Murray (Wash.) and Sens. Bill Nelson (Fla.), Robert Menendez (NJ), Benjamin L. Cardin (Md.), Sherrod Brown (Ohio), Sheldon Whitehouse (RI), and Kirsten Gillibrand joined Reid in making the suggestion to House Speaker John A. Boehner (R-Ohio) in a Feb. 8 letter. President Barack Obama is expected to call for elimination of the percentage depletion allowance, drilling cost expensing, and other oil and gas production incentives, along with the manufacturersâ tax exemption for the oil and gas industry, when he submits his fiscal 2012 budget request to Congress on Feb. 14.
âThere is broad, bipartisan agreement on the need to rein in spending, make government more efficient and bring down the deficit,â the senators wrote. âWe believe that the question before us is not whether we should do any cutting, but what exactly should be cut. So, as you consider spending-cut ideas for the remainder of this fiscal year, we ask that you focus on cutting programs that are wasteful and inefficient, as opposed to those that help create jobs and spur economic growth.
âWe are concerned that some of the cuts you may propose could undermine future growth just as our economy is beginning to recover. Instead, we urge you to consider ending a number of tax loopholes and other subsidies that benefit big oil and gas companies,â they told Boehner. âClosing these loopholes would save the federal government more than $20 billion over 10 years. This is just one example of a wasteful item in the budget that could be cut in order to make a down payment toward reducing the nationâs deficit. If the House chooses to adopt this suggestion, it would represent a good first step towards cutting spending in a bipartisan way.â
The 10 Senate Democrats, who did not include Energy and Natural Resources Committee Chairman Jeff Bingaman (NM), said that ExxonMobil Corp.âs 53% higher fourth quarter earnings and Chevron Corp.âs 72% year-to-year improvement for the period show that âoil and gas companies are doing just fine while many Americans are still struggling to find work and support their families.
âThe days of big oil companies making billions in record breaking profits while receiving billions in taxpayer-financed subsidies must end. It defies common sense to cut programs that are creating jobs, helping jumpstart our manufacturing sector and strengthening the middle class while protecting taxpayer-funded handouts to big oil companies that add little to our economic or energy security,â they maintained. âDuring these tough economic times, closing more than $20 billion in loopholes for big oil and gas companies would send a clear message that we can cut spending while protecting the middle class.â
Boehner did not formally respond, but he apparently does not plan to take the suggestion seriously. Independent producers, stripper well owners, refiners and others do because they would suffer significantly if the repeals find their way into the final fiscal 2012 federal budget.
âWe need to get behind this innovation,â he said a few minutes later. âAnd to help pay for it, Iâm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I donât know if youâve noticed, but theyâre doing just fine on their own. So instead of subsidizing yesterdayâs energy, letâs invest in tomorrowâs.â
Oil and gas lobbyists expected him to renew the request heâs made in the administrationâs last two federal budget requests. They recognize that Republicans taking control of the House and increasing their numbers in the Senate present an obstacle to its being enacted, but theyâre also not complacent. âItâs still going to be a fight,â one told me.
Hereâs one reason why: The only other industry he singled out for criticism was health insurance, when he said he was not willing to go back to the days when companies could deny someone coverage because of a pre-existing condition.
More broadly, Obama said that the federal government needs to remove barriers which he said stand in the way of investing heavily in innovation, education, and infrastructure. âFor example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,â he maintained. âThose with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.
âSo tonight, Iâm asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years â without adding to our deficit. It can be done,â the president said.
He tried often to strike a conciliatory tone by saying that both sides of the congressional aisle need to work together to meet many significant challenges. Itâs very possible that his request to end oil and gas industry the White House believes are outmoded will be the first big test of his call to simplify the federal tax code. And yes, itâs still going to be a fight.
NPRA President Charles T. Drevna said that the order calls for elimination of federal regulations which hinder economic growth and job creation. âAt a time when unemployment tops 9% and our nationâs vital manufacturing base is shrinking, President Obama is acting in the nationâs best interests,â Drevna said in a Jan. 18 statement. âBy removing unnecessary regulatory burdens, the president can free up the mighty engine of our free enterprise system to create jobs and bring a return to prosperity for families across our nation.â
US Chamber of Commerce President Thomas J. Donohue also welcomed Obamaâs order. âWhile a positive first step, a robust and globally competitive economy requires fundamental reform of our broken regulatory system,â he said on Jan. 18. âCongress should reclaim some of the authority it has delegated to the agencies and implement effective checks and balances on agency power. It also means repealing or replacing outdated or ineffective regulations, ensuring realistic cost-benefit analyses using quality data. No major rule or regulation should be exempted from the review, including the recently enacted health care and financial reform laws.â
At the core of Obamaâs order is the idea that each federal agency should propose or adopt a regulation only after reasonably determining that its benefits justify its costs (recognizing that measuring such costs and benefits can be difficult). An agency should structure its regulations to impose the least burden on society while reaching regulatory objectives, âtaking into account, among other things and to the extent practicable, the costs of cumulative regulations.â
It should select approaches which maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity. It should, to the extent feasible, specify performance objectives instead of specifying the behavior or compliance methods for regulated entities to adopt. And it should âidentify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.â
Other responses to Obamaâs order undoubtedly will appear after oil and gas and other groups study it more fully. But it initially looks as if the president has accepted the idea advanced by Republicans, the US Chamber, and other business organizations that new regulationsâ potential costs should be honestly and objectively determined and considered before rules are finally adopted.
Two officials at the Center for Public Integrity at New York Universityâs School of Law said that the order is significant because it will give groups seeking stronger environmental, public health, and safety protections more tools. Richard Revesz, the law schoolâs dean and the centerâs faculty director, said that the president made several noteworthy changes to the federal regulatory review process which progressive groups should embrace.
âFirst, he underscores the importance of considering the equitable distributional impacts of regulation, to protect the well-being of the most vulnerable groups in our society,â he said. âSecond, he creates more opportunities for public participation. âThird, he expresses a strong commitment to scientific integrity, to prevent risk assessments from being skewed to promote political ends. Fourth, he incorporates under-regulation into retrospective review of rules, recognizing that too little regulation can be as pernicious as too much. Fifth, he asks for better coordination among federal agencies so that they donât work at cross purposes. Sixth, he enhances the transparency of the regulatory process, so that the public can better evaluate the actions of the government.
âThe cumulative effect of these changes is to balance the scales of cost-benefit analysis in the direction of strong and effective government protections for the American people,â Revesz maintained.
Michael Livermore, the centerâs executive director, said that Obama opened new channels for public interest groups to make the case that stronger health and safety policies often make good economic sense. âBy signing this document, Obama will reiterate his commitment to the pragmatic notion that data counts for more than demagoguery,â he said. âThis move demonstrates the administrationâs belief that when cost-benefit analysis is done right, the facts often support stronger protections.
âIn the long term, this order is likely to displease those industry groups that want less regulation without regard to public benefits,â Livermore continued. âBalanced economics donât work that way: Both the costs and the benefits of protecting Americansâ health and environment must be given equal weight. Obamaâs move today will help those public interest groups seeking smarter stronger protections, and will help lead to a fairer fight in the regulatory arena.â
Initial responses were generally predictable. Sen. Mary L. Landrieu (D-La.), a Natural Resources committee member, said that she agrees with the commissionâs recommendation to raise the $75 million liability cap, but warned that it should not go so high that small independent companies go out of business. She also applauded the idea of increasing the US Bureau of Offshore Energy Management, Regulation, and Enforcementâs budget and workforce.
But she disagreed with the notion that BOEMRE should have 90, instead of 30, days to approve offshore drilling permit applications. âWe have successfully drilled more than 58,000 wells using a 30-day approval window, and if we strengthen BOEMREâs ability to oversee drilling, it should not be necessary to add another 60 days to the approval process. It is not a matter of how long the review period is, it is about the effectiveness of the review,â Landrieu maintained.
Sen. Bill Nelson (D-Fla.) said that the commissionâs report confirmed many of his âlongstanding concerns about a lack of industry safeguards, poor regulatory oversight and our limited response capabilities. So Iâm going to keep pushing for raising the liability limits to make sure polluters, not the taxpayers, foot the bill; and, to fix the ways we prevent and respond to spills. Iâm also going to try to persuade enough of my colleagues in Congress to join with me. And Iâm going to continue to fight any industry effort to place oil rigs off Floridaâs coast.â
âThe report and recommendations released today underscore the significant safety and environmental risks associated with offshore drilling, and spotlight the systemic lapses that led to the tragic Deepwater Horizon spill,â Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.) said. âSome steps have already been taken to improve safety, but this report makes clear that more needs to be done to prevent a disaster like this from ever happening again. I am committed to working with my colleagues in the Senate to move forward on legislation that addresses the commissionâs recommendations, ensures that oil companies are held accountable, and protects jobs, coastal communities and the environment.â She said that the committee also will hold a hearing with commission members in the coming weeks.
On the House side of the Capitol, Rep. Doc Hastings (R-Wash.), the Natural Resources Committeeâs new chairman, said that he has emphasized, from the outset, the importance of having all the facts surrounding the Apr. 20 Macondo well accident, which killed 11 people, and subsequent massive crude oil spill so that Congress, the federal government, and the oil and gas industry could make smart, educated, and effective reforms. âSeveral of the recommendations put forward deserve real consideration and will be more closely examined during our committee hearings,â he said. âReforms should accomplish our shared goals of improving safety, allowing drilling to move forward in a timely manner, and putting people back to work. Proposals that prolong the de facto moratorium in the Gulf, cost American jobs, or delay future energy production will be viewed skeptically in both the House and Senate.â
Rep. Nick J. Rahall (D-W.Va.), the committeeâs ranking minority member, noted that the commissionâs report contained several recommendations identical to many in legislation he sponsored last summer when he was chairman. He said that H.R. 3535, the Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act, would have increased oil rig safety to prevent the next oil spill and protect workers, cracked down on ethical lapses, required businesses to be responsible for their actions, and reduced the federal deficit by $5.3 billion over the next five years. The House passed the bill by 209 to 193 votes in July, but Senate Republicans blocked the bill in the last Congress, Rahall said.
Rep. Lois Capps (D-Calif.), another Natural Resources committee member, endorsed the commissionâs findings and said that âitâs imperative we all work together to implement [its] recommendations, especially ensuring federal agencies have the proper training, personnel and funding needed to do their critical oversight and enforcement jobs properly.â She said that the recommendations include a number of other key reforms, some of which were included in legislation the House passed last year, including âchanging the law so that polluters, and not taxpayers nor victims, are responsible for the economic and environmental damages from an oil spill; giving [the National Oceanic and Atmospheric Administration] an enhanced role in offshore oil and gas leasing decisions; and separating scientists responsible for environmental review of projects from the leasing process to ensure the integrity of these reviews.â
House Energy and Commerce Committee leaders also responded. Chairman Fred Upton (R-Mich.) said that he was disappointed that, âeven after completing its final report, the commission has left unanswered the fundamental question of what went wrong. Rather than clearly identifying the root cause of this unprecedented disaster, the commissionâs report is limited to general assertions about the enforcement agencies and industry as a whole. Neither this nor any investigation should be used as political justification for a pre-determined agenda to limit affordable energy options for America. Without clear and specific evidence of what went wrong with this isolated well, unlike the tens of thousands that have never experienced similar failures, we will not learn the lessons needed to ensure a disaster like this will never happen again.â
Rep. Ed Whitfield (R-Ky.), who chairs the committeeâs Energy and Power Subcommittee, said that he would continue to review the commissionâs report, and monitor cleanup and recovery efforts to make sure that its recommendations and current regulations are protecting the environment without shutting down responsible exploration in the gulf. âWe must strike the appropriate balance between protecting our environment and not tying the hands of responsible development. A âone size fits allâ moratorium on off shore exploration is not that balance,â he declared.
As the commission issued its final report, the US Energy Information Administration said in its latest short-term energy outlook that global crude oil markets will tighten over the next two years as consumption grows by an average 1.5 million bbl/day annually and growth in supplies outside the Organization of Petroleum Exporting Countries increases less than 100,000 b/d yearly. It said that it expects domestic crude oil production, which grew by 150,000 b/d in 2010 to 5.51 million b/d, to decline by 20,000 b/d in 2011 and 130,000 b/d in 2012. The 2011 forecast includes declines of 50,000 b/d in Alaska and 220,000 b/d in federal Gulf of Mexico production, which are almost offset by a projected 250,000 b/d increase in non-gulf production in the Lower 48 states, it said. In 2012, EIA said that it expects Lower 48 non-gulf output to grow by 70,000 b/d, Alaskan production to fall by 20,000 b/d, and output in the gulf to decrease by 180,000 b/d.