U.S. INDUSTRY TRIES TO FATHOM ROUTES TO CLINTON ENERGY GOALS

Feb. 2, 1993
PATRICK CROW Washington Editor Now that Bill Clinton has taken office as U.S. president, he must cross the chasm between his promises for change and fulfillment of those promises. There's not much doubt about what direction the Clinton administration will take on energy issues (OGJ, Oct. 12, 1992, p. 21), particularly on use of natural gas, increased conservation, and environmental policy. But it's risky for outsiders to predict what precise routes the new administration might choose to

PATRICK CROW
Washington Editor

Now that Bill Clinton has taken office as U.S. president, he must cross the chasm between his promises for change and fulfillment of those promises.

There's not much doubt about what direction the Clinton administration will take on energy issues (OGJ, Oct. 12, 1992, p. 21), particularly on use of natural gas, increased conservation, and environmental policy.

But it's risky for outsiders to predict what precise routes the new administration might choose to achieve its goals.

One Washington lobbyist thinks the personnel in the Clinton administration may be puzzled as to how to achieve the promised goals.

He said, "Even though we've heard a lot of Clinton people say a lot of things, the real policies have yet to be set."

A case in point is the issue of new energy taxes, generally expected to be a part of any economic relief package.

In the past few weeks Clinton has raised the possibility of an oil import fee or new gasoline taxes. And Vice President Albert Gore (D-Tenn.) says a broad based carbon tax has the upper hand.

Assuming it's not politically feasible to get more than one of the three, it also is fair to assume Clinton hasn't decided on any of them vet.

SLOW START-UP

Relief for the long suffering U.S. economy was the keystone of the Clinton campaign, and his administration will propose and press for an economic relief package early this year.

Additional energy taxes are likely to be among the funding sources for the legislation. That could be the biggest single issue facing the U.S. petroleum industry this year, but only because it will be too soon for other issues to surface.

It will take the Clinton administration most of the year to get major subcabinet and independent agency positions staffed - it has about 3,000 appointments to make - and only after that can it make real progress in mapping new policy directions.

Clinton was expected to name the first 100 or so subcabinet officials late last week.

One oil lobbyist said, "It will be interesting to watch these second tier appointments. There's a rumor around that Clinton may name people to those jobs who have philosophies divergent from their bosses, the cabinet secretaries.

"Clinton likes to have different viewpoints represented in policy discussions, but I don't know how that would work in cabinet departments."

Congress will be busy with its own issues in 1993, picking up the pieces of legislation left over from the previous session.

The Democratic Congress will be cooperative in pressing Clinton's programs into legislative language, especially after 12 years of Republican control of the executive department.

But it will not blindly follow the lead of the Clinton administration either.

The last Democratic president, Jimmy Carter, soon found that Congress had ideas of its own when it came to major issues, and they did not always dovetail with his.

TAX QUESTION

When discussion turns to Clinton's economic relief program, higher energy taxes appear to be practically a fait accompli.

But what form they will take has everyone guessing and has the oil industry already split.

Most cited is a higher federal tax on gasoline, with estimates ranging to 50 cts/gal phased in during 5 years.

But Clinton has said, "I don't think you ought to raise the heck out of gas taxes unless you're going to give the middle class some kind of break somewhere else."

The Big Three automakers advocate higher gasoline taxes because that would help persuade consumers to buy smaller, high mileage cars and reduce any need to increase the Corporate Average Fuel Efficiency (CAFE) standards for new auto fleets.

But Cleveland law firm Jones, Day, Reavis & Pogue notes, "As the former governor of a rural state, Clinton can be expected to be very sensitive to the impact of gasoline taxes on lower and middle income people for whom driving long distances is a necessity.

"Higher gasoline taxes contributed to Clinton's only election defeat in 1980. While such increases may not be entirely out of the question, Clinton will first look for major revenues elsewhere."

A second option would be a carbon tax on all fuels.

Gore recently said that sort of tax h;s been discussed most within the administration. Or at least Gore has discussed a carbon tax most within the administration. He has long favored it and advocated it last year in his book on global warming.

If the administration chose a carbon tax, it would be a strong indication of Gore's standing within the administration.

But during the campaign, Clinton said he would not favor a carbon tax in today's economic environment.

OIL IMPORT FEE

A third possible energy tax, an oil import fee, appears to be gaining momentum.

Clinton just might go for it, too. It meets his goal of reducing - or at least limiting - the volume of oil imports.

The Jones Day law firm said, "The Clinton attack on foreign oil dependence could mean problems for foreign and multinational oil companies, related industries such as terminal operators, and certain regions such as the Northeast that rely heavily on imported oil.

"The Clinton campaign may be inclined to employ an oil import fee or other price stabilization mechanism despite the lack of express support for such a fee until now.

"Such a measure has these attractions: it would raise sorely needed revenues, sustain domestic prices and perhaps help the domestic producing industry, and may cut oil imports."

Jones Day noted Lloyd Bentsen, formerly a Texas senator and now confirmed as Treasury secretary, would support such an approach. So would Senate energy committee Chairman Bennett Johnston (D-La.).

Sensing an opportunity, the Independent Petroleum Association of America is urging the administration to press for an import fee, which would have the effect of raising the price of domestic oil.

IPAA said an import fee is a better alternative than a gasoline tax because it would promote domestic oil production and thus enhance energy security, create jobs in the U.S., help lower the trade deficit, and reduce tanker shipments of imported oil to the U.S. and thereby the risk of oil spills.

Another lobbyist said, "An oil import fee will be a very tough sell. There would have to be many exemptions, and it would conflict with the North American Free Trade agreement and other trade pacts. Yes, my company wants stable prices, but it's very difficult to see how an oil import fee would get you from here to there."

As part of any tax package, oil industry lobbyists argue for inclusion of tax incentives and other measures to encourage drilling, enhanced recovery techniques, and production from shale, tight sands, and coalbeds.

CONSERVATION TILT

Clinton's energy policy will stress increased energy efficiency and conservation, increased use of natural gas, and development and expended use of renewable and unconventional energy sources.

The president favored increasing CAFE standards from the current 27/2 mpg to 40-45 mpg but might be deterred from that goal because it could cost autoworkers as many as 30,000 jobs.

As the former governor of a gas producing state, Clinton favors efforts to expand markets for gas, especially because use of that fuel averts other environmental problems.

Jones Day said, "The Clinton platform, notably the emphasis on fuel efficiency and alternative fuels, may lead to some erosion of the market for gasoline and crude oil. Such trends may become evident years only after Clinton's initiatives in this area take effect.

"Because the U.S. economy is oil based in so many respects, as both a fuel and a feedstock, the Clinton policy probably will effect only a modest change in policy direction and in the relative economics of the industry."

The Clinton administration, with its emphasis on greater environmental protection, could be bad news for the U.S. refining industry.

Stricter emissions and hazardous wastes rules could hurt an industry already struggling to meet tougher environmental standards.

LEASING ISSUES

Clinton's thrust on the issue of leasing of federal land for oil and gas operations is much less clear.

He has consistently opposed oil and gas development of the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) strictly on environmental grounds.

The new administration's attitude toward offshore drilling is not clear either.

It has said there will be no new leasing in areas not previously leased. But does that include areas off southern California and Southwest Florida, where drilling or leasing already has occurred but now faces stiff opposition from environmentalists?

Those leasing decisions probably will be made case by case, but Clinton is unlikely to offer any more areas for lease than does the Bush administration's 5 year offshore leasing plan.

A lobbyist said, "The biggest, most interesting issue I see is what they're going to do about their conflicting policies on natural gas development and offshore leasing. Much of the gas remaining to be found is offshore."

A representative of a major oil company also is concerned about the possibility Clinton may push for tighter collection of onshore royalties.

He noted the General Accounting Office still is critical of the royalty collection process (OGJ, Jan. 4, p. 26) and said, "This administration is going to prowl throughout the government to find places it can increase revenues the slightest bit."

AGENCY DIRECTIONS

With his emphasis on natural gas development, Clinton's appointments to the Federal Energy Regulatory Commission likely will continue the policy of opening the interstate natural gas pipeline system to more competition.

The Clinton administration is not expected to change Order 636, the latest FERC rulemaking aimed at unbundling pipeline rates, but that's not certain. It has not revealed its intent.

The new FERC will face the problem of how to revise Order 555, a rule designed to expedite permitting and construction of major gas lines which has come under fire from both sides.

At the Department of Energy it has been speculated that Clinton might try to spin off DOE's nuclear activities the bulk of its duties-to another agency. The theory is that those activities are defense related and do not concern domestic energy supply. But the "demilitarization" of DOE appears unlikely because no other agency wants the problem ridden programs.

The General Accounting Office recently said DOE faces more challenges and problems than any other cabinet agency.

It noted DOE must adjust its primary role of making nuclear weapons, manage the growing stockpile of surplus plutonium from dismantled weapons, develop a permanent method of disposing of waste from nuclear power plants, and meet the 30 year task of cleaning up toxic and radioactive contamination at bomb factories.

DOE in 1993 will begin to implement rules required by the National Energy Strategy law of last year. Most of those relate to energy efficiency and alternative fuels.

At the Environmental Protection Agency, the key issue for the oil industry is overdue rules on the content of reformulated gasoline, required by the 1990 Clean Air Act amendments.

Refiners insist they soon must know what EPA's mandate will be for reformulated gasoline so they can begin revising their processing streams.

ISSUES IN CONGRESS

While the Clinton administration is getting set for a running start, Congress will face a full plate of issues.

The 103rd Congress will be asked to accept or reject the North American Free Trade Agreement (Nafta).

Clinton supports Nafta if it is accompanied by a parallel agreement to ensure greater environmental protection along the U.S.-Mexican boarder and training for displaced American workers.

Congressional energy committees will be busy with overseeing DOE's implementation of last year's Energy Policy Act.

Environment committees will con- sider reauthorization of the Resource Conservation and Recovery Act, which governs disposal of hazardous wastes.

Industry continually worries that Congress might revoke the provision currently in RCRA that exempts oil and gas wastes from regulation as hazardous substances.

The American Petroleum Institute said, "Analysis indicates tighter controls on exploration and production wastes could shut down 70% of existing U.S. wells and 20% of production."

The Clean Water Act also is up for reauthorization, but Clinton and Congress appear to agree not to allow any net loss of wetlands protected by that legislation.

Independent service station dealers will continue their quest for legislation to ensure that refiners cannot discriminate against them in allocation or pricing of fuels.

NEGATIVE MOVES

Oil lobbyists in Washington are concerned that congressmen in the House natural resources committee, formerly the interior committee, may attempt to place the 1.5 million ANWR Coastal Plain permanently off limits to drilling.

They also are concerned that Clinton might declare, through presidential order, that the Coastal Plain be permanently withdrawn from consideration for leasing.

The oil industry says the Coastal Plain east of giant Prudhoe Bay field is the most promising unexplored region on federal land.

Also of concern to lobbyists is that some antileasing congressmen, encouraged by the Clinton's administration stance against offshore drilling, might press for legislation that would make it more difficult for the Interior Department to issue offshore leases.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.