Relieved of those pesky elections, President Obama released his legacy budget this week. The tome landed like a proverbial ton of bricks on the desks of many legislators and was promptly declared “Dead on Arrival.” Even so, the message within the budget is very disconcerting and should be a red flag to all who are interested in keeping the United States a leader in energy.
For generations, the United States relied on foreign imports for over 50 percent of its oil needs. Thanks to domestic production of oil, that reliance is decreasing every year. Today the U.S. is able to produce enough natural gas to meet not only our own energy needs, but to also begin to supply other parts of the world. This is a great economic and political arrow in our quiver of diplomatic and economic relations. The nation is also increasing its ability to produce non-traditional forms of energy, such as wind, wave, current and solar. Combined with the traditional energy sources of coal, oil, natural gas and nuclear, this overall energy platform is a firm foundation for energy security, reliability and economic vitality, positively affecting U.S. consumers and workers.
Although currently hit by low oil prices, the oil and natural gas industry over the past few years has supported about 8 percent of the entire American economy: 9.8 million jobs and about 5.6 percent of total employment. Most of these jobs pay 50 percent above the national average wage.
The president’s budget message, however, seeks to reverse that progress by allowing the government to pick energy winners and losers rather than letting the market and consumers direct energy choices. The budget proposes the termination of long-held and widely-used business tax deductions for oil and natural gas producers, while allowing other industries to keep these same deductions. It is worth noting that oil and gas producers are already paying their fair share of taxes, and their allowed tax deductions are at a lower percentage than other industries. Clearly, there is no equal protection or equal treatment envisioned in the Obama legacy budget.
The treatment of offshore energy resources is a study in smoke and mirrors. On Jan. 27, the Obama administration announced it would continue the economic and environmental analysis for a potential oil and natural gas lease sale in the Atlantic. Should this sale occur, it will be the first outside the Gulf of Mexico and northern Alaska in over 30 years. This is long overdue. Over 85 percent of the U.S. outer continental shelf is off the table to oil and natural gas exploration. While other countries such as Canada, Mexico, Venezuela, Ghana and Brazil have increased their offshore portfolio, the U.S. has been treading water. However, this potential sale comes with a price. The same day the administration announced it would open the Southeast Atlantic, it also withdrew over a million acres offshore Alaska, and kept the door slammed shut on potential exploration of the Eastern Gulf of Mexico, North Atlantic and the Pacific.
Meanwhile, offshore wind leases continue to be offered in many areas closed to traditional energy exploration. While it is good news that offshore wind has these opportunities, it makes more energy sense to offer these opportunities to both traditional and renewable energy developers and let consumers decide the most economical and beneficial sources of energy.
As it is, the budget adds more uncertainty to an offshore energy world already challenged by regulatory delays, uncertainty and overreach. The budget also includes a huge bait and switch by proposing that future revenue sharing to Coastal States from bonus bids, rental payments and royalties paid by the energy industry be retained entirely by the Federal government and then doled out on pet projects around the country as deemed appropriate.
Coastal states that provide the infrastructure and support for offshore oil and natural gas operations help to provide the U.S. with about 20 percent of its domestically-produced energy. To advocate, as the administration does, that coastal states that provide energy to the rest of the country should not share in the revenues paid by industry to the government runs counter to decades of precedent in our country, including the fact that interior states receive 50 percent revenue sharing. The legacy message in this case is, “The federal government knows best what is important to states and local communities, and we will spend the money for you.”
Picking tax deduction winners will likely cause some companies to reevaluate their plans for robust energy development here at home. That means fewer jobs and less economic development. That means less revenue to coastal states. That means returning to increased imports from the Middle East. If the budget is approved in its current form and Atlantic offshore leases become a reality, coastal states will be held hostage by the federal government as it picks and chooses pet projects for revenues paid by the oil and natural gas industry rather than allowing state and local leaders to spend their revenues. This legacy budget is a budget of energy bondage. It should be soundly and clearly rejected.
Randall Luthi is the President of the National Ocean Industries Association in Washington, DC. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions for editorials, available at this link.
