Offshore Drilling: Obama's Burden or Opportunity?

"This is not a decision that I've made lightly. But the bottom line is this: given our energy needs, in order to sustain economic growth, produce jobs, and keep our businesses competitive, we're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, homegrown energy," (President Barack Obama on his decision to allow oil and gas exploration off U.S. coasts, April 2, 2010).

The Obama administration's latest proposal to re-open 500,000 square miles of the United States' Outer Continental Shelf (OCS) for oil and natural gas exploitation has livened up the debate on national energy security. The President said on April 2 that the eastern Gulf of Mexico, north coast of Alaska, and a swath of the Atlantic Ocean from northern Delaware to central Florida would be opened for drilling after geological and environmental impact assessment studies are completed.

National polls conducted by the Pew Research Center last February showed that 63% of Americans favored more oil and gas development in U.S. waters.

Gary Luquette, Chevron’s President for North America Exploration and Production, told Huffington Post that “OCS could add 1 million more barrels of oil and natural gas equivalent a day – potentially representing a fifth of the current total U.S. oil production…[…], potentially create 160,000 new jobs and provide up to $1.7 trillion additional government revenue” through royalties and leasing fees.

The White House's embrace of domestic crude production demonstrates its endorsement of the "all-of-the-above" approach to national energy security professed by Democrats and Republicans alike. The advocates of "all-of-the-above" say the U.S. must cultivate the full range of energy-producing resources at its disposal, including fossil fuels, nuclear power, biomass, as well as solar, wind and hydropower.

President Obama's initiative, publicized as part of the 2011 federal budget proposal, is a more environmentally-conscious version of his predecessor’s policy. In July 2008, President George W. Bush lifted an executive ban imposed by his father in 1990 on leasing in the OCS. Two months later, the Congress allowed a 26 year-old congressional moratorium on drilling in U.S. waters to expire. George W. Bush opened the entire OCS for energy production under pressure from lawmakers and activists concerned by skyrocketing gasoline prices and the United States' growing dependence on foreign oil.

Conservation groups challenged President Bush’s proposal in court as detrimental to the environment. In response, the Obama administration banned marine drilling along U.S. Pacific shores, the Atlantic coastline from New Jersey northward, and in Alaska's Bristol Bay (home to a vast salmon habitat).

The offshore drilling proposal resurfaced in the midst of the current administration's rigorous efforts to assemble a legislative coalition to pass a climate bill sponsored by senators Lindsay Graham (R-SC), John Kerry (D-MA), and Joseph Lieberman (I-CT). Legislation generated in the Senate needs 60 votes in order to get to the debate stage, and the Republicans' support is believed to be crucial for that reason. The administration now hopes to leverage its proposal on oil and gas exploration in the OCS—long pushed for by Republicans—to garner support for the climate bill.

Yet it remains unclear if the G.O.P will, in fact, deliver the votes, as the party has vocally criticized the details of Mr. Obama's offshore drilling initiative. 

Republicans are pressing for the reopening of the entire OCS. "[The President] locked up areas that hold a resources potential of up to 77 billion barrels of oil - more than the entire Russian reserve and three times as much as the current U.S. recoverable reserves," wrote Thomas J. Pyle, President of the Institute for Energy Research and American Energy Alliance, in an April 5 editorial in the Washington Times.

Furthermore, Republican lawmakers and senior oil executives expressed concern with President Obama's plan to eliminate tax deductions for drilling costs and remove credits for low-volume gas and oil wells, while reviving taxes that will raise revenue for cleaning the hazardous waste. The oil industry estimates that new taxes and fees will increase its costs by close to $80 billion.

This fiscal burden, oil companies believe, will hurt consumers as well. "Raising taxes and increasing regulations will increase dependence on imported oil and will result in reduced production, investments, jobs and revenues to federal, state and local treasuries," Chevron's spokesperson for North America told Look Who's Talking. She added that higher taxes imposed on the oil and gas industry "could affect every individual shareholder in these companies or anyone with mutual fund investments, a retirement plan such as 401K or Individual Retirement Account."

However, free enterprise scholars argue that subsidies to fossil fuel industry in the form of tax credits and benefits tend to distort the energy market and may skew investments in various forms of energy. "Either everyone gets subsidies, or nobody gets subsidies," summed up the view Kenneth Green, energy policy analyst with American Enterprise Institute, in a recent interview to Environment and Energy Publishing.

While both Democrats and Republicans applauded President Obama's decision, some also criticized him for pushing back the exploration of crude in the OCS by a couple of years. “I see no good economic reasons for the delay [in leasing certain OCS sections]. Maybe [the president] is using bad economic reasoning or maybe he is using good political reasoning,” David Kreutzer, a research fellow in energy economics and climate change with the conservative Heritage Foundation, told Look Who’s Talking.

Janet Ritz offered a pragmatic view in her analysis in The Huffington Post, recognizing the administration's attempts to reconcile the conflicting corporate and environmental interests and partisan agendas: "So what's a president of all the people, by the people, for the people, supposed to do while he is working to get legislation through a broken system.  Does he stand on the side of the right and get nothing done? Or does he function like a politician who has weighed his options and has taken the road that can lead to some progress [...]."

Allowing oil and gas production in limited sections of OCS and commissioning geo-environmental studies prior to drilling may help blunt the opposition from environmental groups. At the same time, it may gain time for the administration to advance the development of renewable energy – an outcome the green movement is eager to see.

But if the President hoped that his marine drilling proposal would help enlist support for the emission allocations policy suggested in the climate bill, he may be disappointed. As the quotes above show, some of the ardent supporters of “all-of-the-above” believe that the fiscal and environmental strings the White House attached to offshore oil and gas exploration will hurt the U.S. economy. And, as such, the pundits and constituents close to the oil industry may be less likely to throw their weight behind a climate bill they never felt strongly about, to begin with.

Barack Obama, Climate Change, Energy