Senate ethanol vote: symbolic or something more?

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.

Demanding ‘Big Oil’ pay its fair share

Forget, for the time being, US Sen. Robert Menendez (D-NJ) suggesting, at a May 11 Senate Finance Committee hearing, that a ConocoPhillips May 11 press release headline (“ConocoPhillips Highlights Solid Results and Raises Concerns Over Un-American Tax Proposals at Annual Meeting of Shareholders”) questioned his patriotism and required an apology. Ignore for the moment Sen. Ron Wyden’s (D-Ore.) continued skepticism when executives from US oil companies operating overseas said their firms are truthfully separating royalties from taxes paid to foreign governments in their US Internal Revenue Service filings.

It was John D. Rockefeller IV (D-W.Va.) who got to the heart of the matter when he said the 5 witnesses “get caught up in your profits and can’t understand the concept of sharing. You seem out of touch not only with what we’re trying to do, but also with the American people. I don’t think you have any idea what the size of your profits does to their ability to accept what you say.”

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 industry’s taxes. None of this seemed to matter to the committee’s 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 Louisiana’s Mary L. Landrieu and Alaska’s Mark Begich, Senate Democrats overall believe that requiring the nation’s 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 2011’s first quarter. “We have a responsibility to review everything,” said Debbie Stabanow (Mich.). “Taxpayers expect us to ask tough questions. It’s very appropriate to look at whether a tax deduction which was enacted in 1916 is still appropriate. It’s not that we don’t want you to be successful. It just may not make sense to subsidize what you’re doing.”

Thomas R. Carper (Del.) said that congressional Democrats and Republicans have been conferring with the administration on ways to reduce the federal budget deficit. “We basically were told to look in every nook and cranny,” he said. “There’s a strong belief in this country that some of the tax deductions for your industry do not get us results we deserve. We’re going to vote on this bill sometime next week, but it should not be the end of the conversation. Later this year, we’re going to vote on reducing the deficit by some $4 trillion and everything will be on the table.”

ExxonMobil Corp. chief executive Rex W. Tillerson responded that the nation’s top multinational oil company supports comprehensive tax reform. “Everything should be on the table. If you’re going to repeal Section 199, repeal it for everyone,” he said. “The object is to create conditions for greater investment in this country. That’s 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 don’t harm US operations overseas.”

“I don’t think the American people want shared sacrifice,” observed Chevron Corp. chief executive John W. Watson. “They want shared prosperity. Oilfield workers who can’t work today because their companies can’t receive drilling permits or access to more leases feel the pain.”

That idea did not sit well with Rockefeller. “I think the main reason you’re 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,” he said. “The size of the amount of money you make is hard for average people in West Virginia to understand. They’ve always in the process of losing. Everything is an uphill battle. My view is that I’m 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.

“I have never seen any industry so successful that it gives you a sense of assurance I don’t see from the steel or automobile executives I’ve seen sitting there at the witness table,” he continued. “I don’t 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.”

The Menendez bill’s chances of passing the full Senate when it comes to a vote aren’t 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 isn’t paying its fair share now. It’s 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.

Improve federal oil spill research coordination, GAO urges

The federal Inter-Agency Coordinating Committee on Oil Pollution Research should establish a more systematic process to identify and consult with key non-federal stakeholders about oil pollution risks and research needs on an ongoing basis, the Government Accountability Office recommended.

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 committee’s 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 5¢/bbl when OPA became law, but expired in 1994. It was reinstated in 2005 and increased to 8¢/bbl.

GAO said that federal agencies have conducted at least 144 research oil pollution prevention and research projects since 2003, “but the inter-agency committee had a limited role in facilitating the coordination of agency efforts.” 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 agencies’ progress addressing gaps which the 1997 research plan identified. “Until recently, it also had not revisited the plan, as the National Research Council recommended,” GAO said. The committee’s efforts to foster communication and coordinate its members’ research, and to reach out to the oil and gas industry, states’ 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 DHS’s 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 Guard’s efforts to revitalize the program.

Vitter questions Ex-Im Bank loans to Petrobras, Ecopetrol

US Sen. David Vitter (R-La.) has raised questions about the Export-Import Bank of the United States making loans totaling billions of dollars to Brazil and Colombia’s national oil companies while the Obama administration seemingly discourages access to and development of domestic resources.

“Domestic energy policy cannot be based on crippling access, stifling permitting, and increasing taxes on production – as [US President Barack] Obama has recently proposed – while at the same time loaning billions to foreign government-owned entities to produce abroad,” Vitter said on Apr. 30. “These 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.”

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 Brazil’s offshore industry.

Noting in his Apr. 29 letter to Hochberg that the bank subsequently approved a $1 billion loan to Ecopetrol, Colombia’s national oil company, Vitter said: “I 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?”

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. “I would appreciate a full accounting of the return on these ‘investments’ 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,” he said. “These 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.”

BOEMRE monitors Cuban offshore

US Bureau of Ocean Energy Management, Regulation, and Enforcement Director Michael R. Bromwich quietly included Cuba as he emphasized working with other countries in developing better offshore oil and gas regulations.

Working with Cuba’s 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 nation’s 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.

“The places to be drilled are close to Florida’s coast, and in the loop current, so we will be watching them closely,” 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.

“Most companies operating in the US deepwater operate globally, so the new standards we are requiring can be implemented worldwide,” Salazar said. That apparently could be the case in Cuba.

Obama’s Clean Fuels Partnership gives NGVs a boost

Natural gas vehicle proponents were elated when US President Barack Obama announced formation of a National Clean Fuels Partnership Apr. 1 in Landover, Md. The president may have spoken more about hybrids and electric vehicles, but NGVs still made it into his remarks.

“If we’re serious about making the transition from gas-guzzlers to hybrids, then we’ve got to show automakers and truck manufacturers that there’s a real market,” he said. “They're not going to build them if they don't think anybody’s 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.”

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. “That’s why we’re launching a National Clean Fleets Partnership,” he said. “If you’re a business that needs to transport goods, then I’m challenging you to replace your old fleet with a clean energy fleet that’s 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, we’re going to make a number of tools available – from technical assistance to cutting-edge research and development – that will help you make the transition to a clean energy fleet.”

Obama said that he has heard repeatedly from owners of vehicles which run on petroleum alternatives that refueling infrastructure is critical. “We don’t have the distribution platforms right now. That’s something we’ve really got to work on,” he observed.

Oil and gas industry groups applauded the president’s remarks. “We welcome the president’s 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,” said Bob Greco, the American Petroleum Institute’s downstream operations director. “We 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.”

“In 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,” said Tom Amontee, executive vice president at America’s Natural Gas Alliance. “[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.”

When Christopher A. Smith, who heads the US Department of Energy’s 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. “The technology is there,” he said, adding that it’s also much more advanced than the technology for electric vehicles.

Hastings bills target administration’s offshore policies

US House Natural Resources Committee Chairman Doc Hastings (R-Wash.) said on Mar. 29 that he will introduce three bills aimed at reversing Obama administration offshore oil and gas decisions and policies. “The bills will end the de facto moratorium in the Gulf of Mexico and allow people to return to work, require lease sales to be held that were canceled or delayed by the Obama administration, and lift the administration’s ban on new offshore drilling by directing production to occur in areas with the most oil and natural gas resources,” he told reporters at a press conference.

The bills’ prospects of moving beyond the Republican-controlled House aren’t 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 Interior’s report on already issued federal leases which aren’t producing or being actively explored, which DOI released as Hastings announced his legislation, justifies so-called “use it or lose it” requirements instead.

“In contrast to the president’s drill nowhere new plan, this is a drill smart plan,” said Hastings. “The 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.”

Two oil and gas industry groups applauded his move. “Bold 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 country’s economic well-being,” said National Ocean Industries Association President Randall B. Luthi. “While 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.”

Con Lass, senior director of federal relations at the American Petroleum Institute, also welcomed Hastings’s bills. “The energy markets are constantly looking for signals to guide today’s investment strategies for producing tomorrow’s energy. Regrettably, the signals this administration has been sending encourage less investment in future domestic energy production,” he maintained. “Our 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.”