- The Washington Times - Monday, May 17, 2010

Democratic senators from landlocked states aren’t happy about a proposal to offer huge cash incentives to coastal states willing to drill for oil and natural gas off their shores.

And environmentalists are aghast it’s in the Senate’s new climate bill.

“There is no substitute for a moratorium on offshore drilling — which is the only way that we can ensure that the kind of disaster we are experiencing in the Gulf does not happen again,” Sierra Club Executive Director Michael Brune said while commenting on the bill.

But for Virginia and other coastal states, the measure could produce a cash windfall by allowing them to keep 37.5 percent of the federal revenue generated — up to $500 million annually through 2055 — a whopping increase from the status quo, 0 percent.

The potential revenue pot from leasing underwater drilling rights to oil companies is massive. The federal government in 2008 collected about $23 billion in offshore oil- and gas-drilling revenues.

“This could mean a huge amount of money, in addition to taxing authority and other things that states might have related to on-shore facilities, the jobs and the rest of it,” said Daniel Kish, senior vice president for policy with the Institute for Energy Research, an oil-industry-backed think tank.

As a massive oil spill continues to threaten the Gulf Coast, legislation introduced last week by Sen. John Kerry, Massachusetts Democrat, and Joe Lieberman, Connecticut independent, ultimately aims to reduce fossil-fuel use and curb carbon emissions, and gives coastal states the option to reject federal drilling up to 75 miles from their shores. But the incentive to drill is frustrating activists and some lawmakers who typically support environmental concerns and efforts to tackle climate change.

Sen. Jeff Bingaman, New Mexico Democrat and chairman of the Energy and Natural Resources Committee; Sen. John D. Rockefeller IV, West Virginia Democrat and chairman of the Commerce, Science and Transportation Committee; and Sen. Byron L. Dorgan, North Dakota Democrat and chairman of the Appropriations energy and water development subcommittee, sent a letter to colleagues last month saying that royalties generated from resources in federal waters should continue to flow to the Treasury Department.

“Such a giveaway [to the states] would increase the federal budget deficit, reduce future federal budget revenues, and send funds that should belong to the entire country to just a few of the coastal states,” the senators wrote.

“The fiscal consequences of such a [financial] loss would be devastating, particularly given the enormous demands on the federal Treasury and our need to reduce the deficit.”

The senators’ argument rings hollow, some say, because inland states typically get a significantly bigger cut of royalties for oil and gas produced on federal land than what is proposed for coastal states.

The states’ revenue-sharing provision in the bill also isn’t sitting well with environmental groups.

“In the midst of a disastrous oil spill, we have a bill that incentivizes offshore oil drilling,” said Greenpeace Executive Director Phil Radford. “It seems that after a year and a half of wrangling, the only people who can be happy with this bill are the fossil-fuel industry lobbyists.”

Oceans activist Regan Nelson, writing on her blog for the Natural Resources Defense Council, added that the bill provides no oversight or accountability, and no restrictions on how states could use the money.

“The bill actually encourages drilling without any new safeguards in previously protected areas like the East Coast,” she wrote.

The offshore-drilling provisions are seen as a compromise to Republicans who oppose the measure’s so-called “cap-and-trade” emissions regulations, which they say would lead to higher energy costs for consumers.

“The [bill’s] architects clearly have designed this to maximize the likelihood that they can bring a number of swing senators and swing constituents on board,” said Barry Rabe, a professor at the University of Michigan’s Gerald R. Ford School of Public Policy and senior fellow at the Brookings Institution, a liberal-leaning Washington think tank.

Virginia Gov. Robert F. McDonnell, a Republican, has pressed for a cut of drilling royalties, saying it would create jobs and help his state’s economy.

Sens. Jim Webb and Mark Warner, Virginia Democrats, penned a letter in January to Interior Secretary Ken Salazar urging a “fair distribution of revenues between the federal and state government.”

Yet despite the prospect of an additional $500 million annually, many states may not consider drilling worth the risk.

“The federal government ‘generously’ gives them a third of the revenue for taking all the risk? I’m not sure how much of an incentive that’s going to be for [state] politicians,” said Kenneth Green, an environmental scientist and scholar at the American Enterprise Institute, a conservative Washington think tank.

But results of a national poll released last week suggests that Americans still have an appetite for offshore drilling. The Associated Press/GfK Poll said that 50 percent of respondents “strongly or somewhat favored” increased coastal drilling for oil and gas, with 38 percent “strongly or somewhat opposed.”

While Republicans favor offshore drilling by a 3-1 margin, Democrats lean toward opposing it, 52 percent to 36 percent, the poll said.

The so-called American Power Act, introduced Wednesday after months of negotiations, aims to cut by 2020 carbon dioxide and other heat-trapping greenhouse gases by 17 percent below 2005 levels, and by more than 80 percent by 2050. It also would set a price on carbon emissions for large polluters, such as coal-fired power plants.

The bill also calls for a single set of rules for achieving reductions of greenhouse-gas emissions instead of a patchwork of state and federal regulations. States wouldn’t be allowed to operate their own cap-and-trade programs.

But the measure faces significant opposition in the Senate, where approval from 60 of the chamber’s 100 members most likely will be needed.

Senate Majority Leader Harry Reid, Nevada Democrat, has acknowledged that changes may be needed in order to woo enough support for passage. Many doubt the offshore-oil provisions will survive if the measure passes.

Merging the bill with a House version that passed last year also would be a massive challenge.

“I think that at this stage this entire legislative proposal is — if not a ‘Hail Mary’ — still a long shot,” Mr. Rabe said. “There are a lot of big questions about whether you can pull the kind of coalition that would be necessary” for it to pass.

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