The first few months of President Obama's second term have provided plenty of evidence of his disconnect from basic economics -- and his planned policies promise more of the same. Take, for example, his reference to a proposed Energy Security Trust in his 2013 State of the Union Address. This trust would encourage research and innovation in green technologies while moving the nation's energy resources away from fossil fuels. Who would you logically think should pay for this fund? Perhaps those who would benefit most from the transition to non-traditional fuels? Think again.
Under the proposal, the oil and natural-gas industry will shoulder the funding burden.
In addition to looking to oil and natural gas to fund the Energy Security Trust, the White House is proposing to eliminate long-held tax deductions for the industry. These deductions are similar to tax deductions provided for other industries, and are in no way "subsidies" as often misidentified. This is not part of a comprehensive tax overhaul, which the oil and natural-gas industry would welcome. Rather, it is a singling out of a particular industry -- one that has been a rare economic bright spot in the last few years and has, in large part, helped keep this country afloat. Yet the administration apparently thinks that now is the right time to discourage future investment in American jobs, drive companies to explore for energy overseas and, ultimately, hurt consumers by increasing taxes on the industry.
The oil and natural-gas industry generates billions in revenue to the federal Treasury annually through bonus bids and rents on leases and royalties on production. A portion of onshore revenues go to the state with the remainder going to the federal Treasury, while offshore revenue is slated for use by the federal government, with some shared by a few coastal states. There isn't any revenue left over to fund the proposed Energy Security Trust, unless you take it from someone or somewhere else. That sponge is already being wrung dry. The best way to generate more revenue to fund the Energy Security Trust is to open up new offshore areas to exploration and development.
However, as a result of current federal policies, 85 percent of the nation's Outer Continental Shelf is closed to even looking for oil and natural gas. These areas haven't been surveyed for more than a generation. Other federal efforts, such as coastal and marine spatial planning, threaten to lock up even more areas without even determining the size of the oil and natural-gas resources they may contain. Today, the very White House that proposes the Energy Security Trust to advance research and innovation has closed the door to the most obvious and viable option for supplying revenue to fund it -- access to more offshore oil and natural gas.
The federal government needs to end the bait-and-switch game when it comes to offshore oil and natural-gas development. There is far more potential revenue to be generated from increased offshore access than from increased industry taxes. A recent study authored by Joseph R. Mason of Louisiana State University indicated that opening up the Atlantic, eastern Gulf and Pacific offshore areas could provide more than $35 billion in added revenue annually to states, and $85 billion annually to the federal government. That is on top of the billions in revenues the industry already generates. The study also estimates the increased offshore access would generate more than $141 billion in increased economic activity and create approximately 625,000 additional jobs.
While we dawdle, other countries, such as Brazil, Angola, Norway and even Iceland are opening up more offshore areas to oil and natural-gas exploration. We are in danger of falling behind these other countries as a supplier of consistent, reliable and reasonably priced energy. Given the other potential benefits of generating billions in increased economic activity, more than a half-million new jobs and added energy supply and security for our nation, isn't increased access the best way to create homegrown jobs and fund the proposed Energy Security Trust?
Randall Luthi is president of the National Ocean Industries Association.