Obama throws down the gauntlet

US President Barack Obama wasted little time in his 2011 State of the Union address urging Congress to repeal federal tax incentives for the oil industry. The request came soon after he said that encouraging American innovation was the first step in winning the future, and he described clean energy technology research as “an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

“We need to get behind this innovation,” he said a few minutes later. “And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

Oil and gas lobbyists expected him to renew the request he’s made in the administration’s 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 they’re also not complacent. “It’s still going to be a fight,” one told me.

Here’s 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. “For example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,” he maintained. “Those 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.

“So tonight, I’m 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 – without adding to our deficit. It can be done,” 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. It’s 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, it’s still going to be a fight.

Responses to Obama’s regulatory review order

Most oil and gas, as well as environmental, organizations did not respond immediately to US President Barack Obama’s Jan. 18 executive order for federal agencies to review their regulations and improve them where necessary. The National Petrochemical & Refiners Association did.

NPRA President Charles T. Drevna said that the order calls for elimination of federal regulations which hinder economic growth and job creation. “At a time when unemployment tops 9% and our nation’s vital manufacturing base is shrinking, President Obama is acting in the nation’s best interests,” Drevna said in a Jan. 18 statement. “By 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.”

US Chamber of Commerce President Thomas J. Donohue also welcomed Obama’s order. “While a positive first step, a robust and globally competitive economy requires fundamental reform of our broken regulatory system,” he said on Jan. 18. “Congress 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.”

At the core of Obama’s 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, “taking into account, among other things and to the extent practicable, the costs of cumulative regulations.”

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 “identify 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.”

Other responses to Obama’s 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 regulations’ 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 University’s 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 school’s dean and the center’s faculty director, said that the president made several noteworthy changes to the federal regulatory review process which progressive groups should embrace.

“First, 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,” he said. “Second, he creates more opportunities for public participation. “Third, 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 don’t 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.

“The 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,” Revesz maintained.

Michael Livermore, the center’s 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. “By signing this document, Obama will reiterate his commitment to the pragmatic notion that data counts for more than demagoguery,” he said. “This move demonstrates the administration’s belief that when cost-benefit analysis is done right, the facts often support stronger protections.

“In the long term, this order is likely to displease those industry groups that want less regulation without regard to public benefits,” Livermore continued. “Balanced economics don’t work that way: Both the costs and the benefits of protecting Americans’ health and environment must be given equal weight. Obama’s move today will help those public interest groups seeking smarter stronger protections, and will help lead to a fairer fight in the regulatory arena.”

Congress weighs in on Obama spill commission’s final report

Members of Congress wasted no time in offering their assessments of the final report which US President Barack Obama’s independent oil spill investigation commission issued on Jan. 11. Others will come at two upcoming hearings by the Senate Energy and Natural Resources Committee the morning of Jan. 26 and the House Natural Resources Committee that afternoon.

Initial responses were generally predictable. Sen. Mary L. Landrieu (D-La.), a Natural Resources committee member, said that she agrees with the commission’s 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 Enforcement’s budget and workforce.

But she disagreed with the notion that BOEMRE should have 90, instead of 30, days to approve offshore drilling permit applications. “We have successfully drilled more than 58,000 wells using a 30-day approval window, and if we strengthen BOEMRE’s 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,” Landrieu maintained.

Sen. Bill Nelson (D-Fla.) said that the commission’s report confirmed many of his “longstanding concerns about a lack of industry safeguards, poor regulatory oversight and our limited response capabilities. So I’m 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. I’m also going to try to persuade enough of my colleagues in Congress to join with me. And I’m going to continue to fight any industry effort to place oil rigs off Florida’s coast.”

“The 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,” Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.) said. “Some 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 commission’s recommendations, ensures that oil companies are held accountable, and protects jobs, coastal communities and the environment.” 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 Committee’s 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. “Several of the recommendations put forward deserve real consideration and will be more closely examined during our committee hearings,” he said. “Reforms 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.”

Rep. Nick J. Rahall (D-W.Va.), the committee’s ranking minority member, noted that the commission’s 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 commission’s findings and said that “it’s 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.” 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 “changing 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.”

House Energy and Commerce Committee leaders also responded. Chairman Fred Upton (R-Mich.) said that he was disappointed that, “even 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 commission’s 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.”

Rep. Ed Whitfield (R-Ky.), who chairs the committee’s Energy and Power Subcommittee, said that he would continue to review the commission’s 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. “We must strike the appropriate balance between protecting our environment and not tying the hands of responsible development. A ‘one size fits all’ moratorium on off shore exploration is not that balance,” 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.