A bitter consequence of an offshore tragedy is the political excuse it supplies for a process capable of ravaging the oil and gas industry, taxpayers, and energy consumers. The process is the federalization of energy. It was well under way when the Transocean Deepwater Horizon semisubmersible exploded, burned, and sank in April, killing 11 workers and creating a spill of historic size. And it hasn't confined itself to deepwater work—or even to upstream operations in general.
When Interior Sec. Ken Lazar promises to "keep our boot on their neck" as BP tries to control its runaway Macondo well and spill, he's simply giving voice to a signature urge of the Obama administration. This group likes to regulate. It likes to regulate heavily.
Slowing activity
Before the Apr. 20 blowout, Salazar was well along with a program for slowing oil and gas activity on federal land and reforming his departments Minerals Management Service. Yet now, amid a political uproar, the secretary faces criticism for having been too lenient before the accident and too passive in response. And the criticism escalates despite the Obama administration's 6-month moratorium on the issuance of deepwater drilling permits, cancellation of lease sales, and suspension of work on 33 deepwater wells and planned exploration on leases off Alaska.
To a public enraged by the spill, Salazar's prespill clampdown will seem to have been vindicated, and the administration's freeze of offshore activity will be deemed appropriate. Salazar's rhetorical boot therefore will stay in place awhile.
When it comes to footgear on private-sector throats, meanwhile, the Environmental Protection Agency isn't wearing house slippers. While attention has focused on the spill response and consequent political fuss, EPA has been on a regulatory rampage elsewhere in the energy world.
On May 13, the agency published a rule extending Clean Air Act permitting requirements to greenhouse gases. The Clean Air Act says nothing about greenhouse gases. EPA acted on authority of a Supreme Court ruling that provided for a synthetic definition of "pollutant." EPA now has stretched this tenuous prerogative further by confining, for reasons of practicality, the permitting requirement to large emitters, such as refineries and power plants. The law makes no such distinction.
EPA's ambition doesn't end there. On May 25 the agency's Region 6, based in Dallas, forced the Flint Hills Resources refinery in Corpus Christi, Tex., to reapply for an air-quality permit it has held since 1995. Objecting to flexibility provided by Texas permits, the EPA branch said it might take over permitting of 39 other facilities. Texas authorities are protesting, saying air-quality improvements in their state disprove claims that permit flexibility degrades air quality.
With its climate-change initiative, the EPA seizes authority over a large measure of energy choice in the US. If it wrests control over air-quality permitting away from Texas, it will gain control of much output of petroleum products and electricity. In combination with the regulatory surge looming over offshore oil and gas operations, this would represent the transfer of huge influence over energy markets, and therefore of the national economy, to the executive branch of government. On this potentially historic power shift, there has been no vote.
Industry responses
Two responses by the oil and gas industry are in order.
One is to resist suggestions that the gulf spill represents failure of regulation as it relates to the entire oil and gas industry. The accident occurred in an operating realm on the outer edge of knowledge and technology, where peril is highest. Because of political pressure on Obama, the imposition of martial law on deepwater drilling probably was inevitable. But when the president says, as he did on June 1, that "for years, there's been a far too cozy relationship between oil companies and the agencies that regulate them," the industry should start calling attention to what should be clear distinctions.
The other response must be to oppose any regulation that enlarges the government's role in economic decisions. Governmental choices inevitably subordinate economics to politics. With energy, political choices always cost too much.
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