Responding to concern in the US about $4/gal gasoline, President Barack Obama on Mar. 30 voiced new support for an old program certain to raise the price of energy. The incoherence was typical of Obama's proposals for energy. In his speech at Georgetown University, however, Obama fell into new realms of the incredible.
The president used most of his speech to promote his agenda for replacing commercial energy, such as oil, with supposedly clean energy, most forms of which are too costly to compete without taxpayer subsidies. Fluctuation in the price of oil, he suggested at Georgetown, justifies the initiative. He didn't identify the economic benefit to be derived from displacing energy that's sometimes costly with energy that's always even costlier.
But that omission is standard foolishness. The president broke new ground at Georgetown by first professing to support domestic oil and gas production then proposing to do quite the opposite. "To keep reducing that reliance on imports," he said, "my administration is encouraging offshore oil exploration and production—as long as it's safe and responsible."
In evidence, Obama offered two examples. The administration is issuing permits again in the Gulf of Mexico under toughened safety standards after last year's Macondo tragedy, he pointed out. That's great. But it represents permission, not encouragement, the product of a government just doing its job.
The other way the administration is encouraging production is by "pushing the oil industry to take advantage of the opportunities that they've already got," Obama said. "Right now the industry holds tens of millions of acres of leases where they're not producing a single drop. They're just sitting on supplies of American energy that are ready to be tapped." The administration thus will "provide new and better incentives that promote rapid, responsible development of these resources."
This is preposterous. Of course leases exist on which no production occurs. Leases are explored and developed in steps and in relation to nearby results. Many leases never receive activity because they appear, based on available evidence, to hold nothing "ready to be tapped." Furthermore, companies do not withhold production from leases in which they've invested heavily and know to be commercially productive. To insist they do is laughable. The government would not encourage production by squeezing leaseholders; it would discourage leasing.
Obama's statement reflects ignorance or guile. No other possibility exists. Neither explanation affirms competence in the making of energy policy. In this area of supreme national importance, the administration has lost credibility.
To repair the damage, Obama should take drastic steps. Some suggestions:
• Replace Interior Sec. Ken Salazar. Cabinet-level officials must know their subjects and steer the president away from outlandish utterance. Salazar instead pushed Obama further off course in an Interior Department news release about leases on which operators are supposedly languid. "These are resources that belong to the American people, and they expect those supplies to be developed in a timely and responsible manner and with a fair return to taxpayers," Salazar said. Any interior secretary knows the difference between resources and supplies and the activities that must intervene. It's fundamental to the job. Salazar should have dissuaded Obama. Now he looks like a stooge.
• Show real commitment to expeditious leasing and permitting by restoring the categorical exclusion for site-specific environmental reviews under the National Environmental Protection Act. The exclusion, suspended after the Macondo blowout pending a government review, should be updated to account for deepwater conditions.
• Withdraw proposals to repeal current-year expensing of intangible drilling costs, accelerated expensing of geologic and geophysical costs, use by oil and gas companies of the manufacturer's deduction, and other incentives for important work. Tax increases would cut investment in exploration and development. An administration genuinely committed to oil and gas production wouldn't discuss them.
These steps are very unlikely to occur. They would, however, turn the Obama administration in a welcome new direction on energy. Too much about the current direction is, in too many ways, unbelievable.
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