Growing and slicing the energy royalty pie

The province of Alberta gets 30 percent of its revenue from bitumen royalties, which has been their advantage over less energy-rich provinces. With the U.S. domestic energy supply on the upswing, and the government avoiding the need to revise budgets despite lower prices, it seems they’re coming to terms with the limitations of said advantage. Meanwhile, governors of coastal states want a greater share of revenue from offshore energy production. Let’s hope they’d manage it better than Alberta.

The Outer Continental Shelf Governors Association has come together in support of a large percentage of offshore energy royalties, most of which goes to the federal government. Sen. Lisa Murkowski (R-AK) is preparing legislation that would automatically direct 27.5 percent of royalties to states that house wind, oil, natural gas and wave power production off their coasts, with an extra 10 percent if appropriated for conservation and energy research. They’re all due to receive $500 billion in capped royalties by 2017; Murkowski’s bill would lift that cap.

The prospect of enhanced revenue sharing has been discussed as early as 2010. Sen. Jeff Bingaman (D-NM), who heads the Senate Committee on Energy and Natural Resources, wasn’t a fan:

The fiscal consequences of such a loss would be devastating, particularly given the enormous demands on the federal Treasury and our need to reduce the deficit. There is no justification for using these significant national resources to provide benefits only for a few coastal states and their citizens.

This snippet comes from a letter also signed by Sen. Jay Rockefeller (D-WV) and then-Sen. Byron Dorgan (D-ND). Landlocked energy-producing states get 50 percent of royalties from coal (i.e. West Virginia) and natural gas (i.e. North Dakota). The coastal states are a bit trickier; the Bingaman-Rockefeller-Dorgan letter goes on to point out that under current law, coastal states receive 100 percent of the royalties from energy produced within three miles of their coastlines. Beyond that, the Outer Continental Shelf is federal territory.

I personally believe these states could do a better job spending the money, especially if such a large portion of it would be earmarked for conservation. But getting past the legal restrictions on offshore territory that states can claim will require a much greater effort that a mere adjustment of percentages. In addition, except among lawmakers from coastal states, there won’t be an appetite to direct revenues away from the federal Treasury for a very long time.

I admire Murkowski’s success in uniting coastal states around a common goal. If she can include landlocked states in pursuit of national standards for energy royalties to states – which wouldn’t happen anyway – I’ll nominate her for premier of Alberta.

They are the 10 to 15 percent

Most of the time, I have a hard time sympathizing with an industry that can afford one 30-second ad (sometimes two, during election season) for every commercial break in every prime-time show on CNN. (Seriously, enough already. You’re investing in America. We get it.) That industry, oil and gas, has been spending a lot of time in court lately; they’ve been working hard to keep ethanol, cellulosic or grain-based, away from their action. So far that’s resulted in one hit and one miss, but they’re still trying, bless them. They’re just unstoppable.

The hit was last week’s ruling by the U.S. Court of Appeals for the District of Columbia that the Environmental Protection Agency’s (EPA) 2007-era mandate for ethanol usage was “unreasonable.” Just as an example, last year’s mandate called for 8.7 million gallons of cellulosic ethanol to be blended into gasoline, but only 20 thousand gallons were produced. The American Petroleum Institute (API), which sued the EPA over the mandate, would like to see it scrapped entirely; however, a more “reasonable” number is much more likely, not to mention permissible in light of this ruling.

That brings us to the miss: The same appellate court ruled to uphold the EPA’s decision earlier this month to allow E15 fuel into the marketplace. E15 has a 15 percent ethanol blend, while most blends only contain 10 percent ethanol. The EPA and biofuel lobbyists say E15 is safe for cars made after 2001. The API and automakers have funded research showing it’s harmful to car engines. You decide who to trust. At this point I trust neither. Anyone have an independent study to share? I’ll hear it from anyone neither side is paying.

Now that E15 can be sold, there’s a much greater chance that the biofuels industry will produce enough ethanol to meet some new target, whatever it happens to be. The API will still be able to accuse a government agency of unfairly propping up one industry at the expense of another, even though car fuel will still, presumably, be 85 percent fossil fuels. (GIF.) Unless definitively unbiased research supports their contentions about the dangers of E15, that’s all they’ll have.

Arguably, demand for ethanol exists with or without the mandate; America needs energy, period, preferably domestically produced and as harmless to the environment as they can make it. With the ruling putting E15 on the market, the supply can be taken care of. I would personally like to see gas stations use E15 voluntarily for those reasons. But that’s not going to happen, because most are owned by companies who produce oil. So, given the choice, I’d rather make up for this with a mandate than any subsidies.

I’ll also give the EPA credit for building the mandate around cellulosic ethanol, and not taking the easy way out by sticking to ethanol made from actual crops. That will go some way toward diminishing the food prices argument employed by opponents of biofuels. I bet the API was disappointed about that.

Big energy: The good, the bad and the TBD

Sen. Amy Klobuchar (D-MN) is pushing for the Senate to restart discussions on comprehensive energy legislation, as part of a bipartisan “gang” of 20 senators led by Sens. Kent Conrad (D-ND) and Saxby Chambliss (R-GA). To save time, let’s discuss each aspect of the proposed legislation, circa 2008, mentioned in the above link. I’ve divided them into three basic categories.

The good:

• It exists. Presidential candidates like to talk about “all of the above” plans for energy, but the tendency for most years has been to give one source the short shrift while proselytizing about the other. This one calls for boosting production of oil, natural gas, wind, solar, biofuels and even nuclear power.
• They’ve figured out how to sell it. Gen. Wesley Clark, who spoke about the need for a comprehensive energy plan at the same campaign event as Klobuchar, pointed out that wasted energy is an economic risk and dependence on foreign energy is a security risk.
• It calls for rolling back tax breaks for oil and gas companies, which, since those are proven industries, are not needed.

The bad:

• More incentives for electric car manufacturing. While we didn’t know then how poorly those would turn out, it’s clear we can’t expect an influx of any auto manufacturing jobs until the general economic outlook improves. I also question the constitutionality of low-emitting car quotas. (But at least these are manufacturer-side ideas, not consumer-side.)
• The money saved from repealing oil-and-gas tax breaks would create new ones for green energy. I might forgive this if it included an exit strategy – that is, a commitment to draw down these breaks once green energy reached market saturation. Still, I’m not sold on growing an industry this way.

The TBD:

• Energy efficiency standards for electric utilities. Again, skeptical of the constitutionality, but this has worked fairly well on the state level.
• The nuclear power measures. Will these include new rules for storing nuclear waste? I wouldn’t feel comfortable moving forward without them.
• The congressional reaction. For each member of this gang, there are five who will latch onto their preferred energy sources at the expense of all the others, making the bill’s chances far less optimistic than Klobuchar thinks.

Harry Reid and the Gauntlet of Coal Fire

It’s time once again for The Future American’s FAIL OF THE WEEK! Every Saturday, I name a person or group who has spent the past seven days behaving in a particularly idiotic way. Since it’s my belief that idiocy knows no politics, nobody is safe.

This week’s fail was brought to you by Senate Majority Leader Harry Reid (D-NV), who appears to have spent this past week trying to make himself Public Enemy #1 in the eyes of Republicans. (Diverting attention from President Obama, maybe?) We’re all familiar with his rumor about former Gov. Mitt Romney’s (R-MA) tax-paying record, with which only Reid’s trusty sidekick, House Minority Leader Nancy Pelosi (D-CA), is aligning herself. I thought his behavior couldn’t possibly get less haphazard after that. How wrong I was.

In a speech at the fifth annual National Clean Energy Summit in Vegas, Reid called for the closure of a coal-fired power plant outside the city, operated by NV Energy, the state’s top electric utility. According to Reid, this plant is responsible for respiratory and other illnesses among the 320 residents of the Moapa Band by polluting the surrounding air and letting coal ash into the nearby Muddy River. Health agencies have not verified a causal link between plant activities and the band’s health problems. NV Energy denies all charges, citing plant upgrades and its use of wind, solar and geothermal energy, which exceeds state requirements.

Reid said the company would use the threat of increased power rates to justify keeping the plant open, which they have. But they don’t need to. This plant, ironically named the Reid Gardner facility, employs 150 people. Nevada’s unemployment rate ranks 51st in the country, meaning last. (That’s when you count the District of Columbia, which ranks 45th.) That’s one of the only two attack lines anyone will ever need against this speech. The other one is “You haven’t proven this.”

We laughed when Reid called for a repeal of Nevada’s legalization of brothels out of embarrassment, despite how many tourism dollars that sector generates. That was another example of him disregarding economic considerations in favor of social ones. So far he hasn’t been able to prove that NV Energy hasn’t pulled out all the stops to make its operation as clean as possible without abandoning coal entirely. If that’s what he wants, he should just say it. The rest of us have accepted that getting coal out of the energy supply altogether will take at least one more generation.

You think the congressional earmark ban hurts Reid more than anyone else? At least earmarks could help him look like he cares about his state’s economy.

Lee Terry’s pipeline politics

It should have been a very simple proposition. The U.S. needs energy. Canada has oil. There is a way to transport oil from Canada through the U.S. for refining. Create a few thousand construction jobs, generate a few million or more in tax revenue, everybody goes home happy. Rep. Lee Terry (R-NE) learned the hard way that it really wasn’t a simple proposition. But the man is tireless; his attempt to build as much of the Keystone XL pipeline as possible is one of “several” related bills he’s failed to pass.

This bill comes on the heels of the announcement that Canadian oil company Nexen would be sold to the China National Offshore Oil Corporation, which, as you can guess from the name, is operated by the state. Terry’s bill would approve the construction of all of the pipeline except for the portion running through Nebraska. Past attempts to build Keystone XL have stalled because of the Obama administration’s demands for further environmental review of that part of the route.

A reliable source informs me that residents of the province of Alberta, where most of Canada’s oil can be found, are thrilled at the prospect of that sale (over $15 billion!). Other Canadians are wary of cozying up to China any more than is necessary; they don’t want a Canadian resource to pay for any regime activities. Terry is using this to make the point that the U.S. should be a reliable customer for Canada, lest an unreliable customer appear. Kind of late for that.

I still have a few doubts about Keystone XL, seeing as nobody has produced completely credible projections for job creation, oil prices and environmental impact; existing numbers have primarily come from people with their own stake in it, positive or negative. The only remotely neutral source I found was on PolitiFact, which says claims of a jobs revolution are greatly exaggerated. Jobs in America, anyway; Canada, India and Italy would each rack up a few.

But this try by Terry could still be more effective than his others. The portion he wants to build would start at the Canadian border and stop at Nebraska; there’s not much room for presidential objections that way. Of course, he’s going to attach this to a routine spending bill, which may be crafty lawmaking for him but is still plenty annoying for congressional inefficiency hawks like myself. If he wanted to be craftier, though, he would introduce legislation requiring an exhaustive study of every possible contingency of Keystone XL.

In other pipeline news, two Canadian premiers are fighting over who deserves to get rich off another one. First U.S. states to complain about this stuff, if Keystone XL is built, go on my shit list.

The right way to fix fixing

You know how members of the Washington brass have been blaming federal policy for high gas prices, seemingly forgetting completely about the role of massive changes to global supply like, say, an embargo against Iranian oil by the greater part of a continent? On the flipside, people who couldn’t be farther outside the Washington brass have a tendency to default to blaming the oil companies for their woes. Turns out, they might actually have something there, and President Obama doesn’t like that.

Hoping to stave off any new Republican attacks on his approach to energy, Obama has called for expanded powers to target and punish oil market manipulation, which would cost $52 million. Oil speculators, who bet on fluctuations in oil prices and thus thrive on risk more than traditional investors, are particular targets of his plan; he wants them to pay more for making their transactions. Republicans, most notably Speaker John Boehner (R-OH), have been quick to criticize him for not doing this sooner through the agencies at his hand.

It’s worth noting that Obama and his proxies have not quite blamed speculation or manipulation for high gas prices, but are targeting both actions anyway because they think market manipulation is bad. Which, of course, it is. I’m glad that someone in the White House is finally acknowledging that, although it would have been preferable if he were targeting manipulative and anti-competitive practices in a certain sector that caused an international meltdown just a few years ago. (cough)

But nobody should expect this to have an appreciable effect on gas prices right away. It’s more of a fundamental fix, which is great if you’re the kind of person who looks out for those, and I would speculate that most American drivers are not. The only way for Obama to score a political victory on gas prices is to drop them now, but in a market-friendly way. It’s rare for an alternative to come from Canada, but this time it does.

In the towns of Kingston and Brockville, both in Ontario, in 2007, gas retailers from different companies phoned each other and agreed to charge a common price for which customers have yet to be reimbursed, although that may change if a class-action lawsuit goes well. I suspect that this kind of local collusion may be easier to detect at first. After that, if anyone wanted to keep blaming “the oil companies,” they would have to tie the collusion back to orders from head offices. This, in the U.S., might be a good use for that $52 million.

That in itself wouldn’t solve gas prices unless it came with strings attached. But cities are the first place anyone should be looking for manipulating prices at the pump.

All of the above vs. oil of the above

Oh, great, this fight again. “The gas is too damn high! Whatever shall we do?” “I say we blame President Obama for being anti-oil!” “Well, I say we blame the Republicans for being anti-everything else!” “It’s better than subsidizing industries that haven’t created any jobs!” “Why does oil still need subsidies? Look at how profitable it is!” “You’re wrong!” “No, you’re wrong!” OK, that’s it. Both of you, sit in your corners and shut up. And no cookies for anyone.

That’s really the only explanation I need to offer for today’s story, so we’ll just clear some misconceptions out of the way right now. First, Obama has not been uniformly anti-oil. He has repeatedly called for more domestic drilling, albeit only in areas of the country that have grown accustomed to it. By opposing the Keystone XL pipeline and opening up the Arctic National Wildlife Refuge to drilling, plus holding off on drilling in the Gulf after the Deepwater Horizon spill, he has only been fighting new development on fronts he is capable of winning in terms of national political support. We’re not talking prohibition here. Get a grip.

Second, clean energy has not presented a job yield of 0. The keys are a) looking at small-scale projects in b) geographic areas with very specific energy capabilities. Why do you suppose solar energy is doing so well on the West Coast compared to elsewhere? As a resident of a province with two large rivers, where the vast majority of our energy comes from hydroelectricity, I know it can work with the right amount of planning.

Third, does nobody remember why the global price of a barrel of crude has shot up so suddenly? You’d think so given the fact that neither the White House nor Republicans are talking about it. Give yourself a moment to make a logical deduction: Does U.S. domestic energy policy have a bigger effect on worldwide commodity prices than an entire trading bloc’s embargo on lots and lots of another country’s oil?

So the debate in Congress is over who loses when energy subsidies are rolled back. Here’s something neither side appears willing to consider: Roll back all of them. No more federal subsidies for energy of any kind. Hell, no more state subsidies, either. Let what works for each individual community just work. Ultimately, they know better than either party in Washington. Just because the Commerce Clause often means they can get away with subsidies, doesn’t mean they should. It’s manipulation, plain and simple.

If you want to “let the market decide” on clean energy, you can’t say otherwise about oil. If you want an “all of the above” strategy for energy, you have to level the playing field. Until then, you can all be hypocrites together, for all anyone else cares.

Obama and Harper’s pipeline dreams

Regular readers know that I would like nothing more than for the entire world to wean itself off fossil fuels. I have repeatedly encouraged the research, development, production and usage of green technology and net-zero supply chain management. In some parts of North America, it’s happening. On a national or international scale, it hasn’t happened yet. Until it does, the U.S. may be shooting itself in the foot by holding off on the Keystone XL pipeline.

President Obama announced last week that the administration would study a new route for the pipeline; the original one looked like this, leading from oil sands in Hardisty, Alberta, to refineries in Texas. Estimates for oil yields, new jobs and environmental damage have varied, with proponents and opponents accusing one another of messing with the real numbers (though the ones for jobs tend to amount in the tens of thousands). To this day I don’t know what the real numbers are and will not link to any. In any event, the decision, says Obama, will come in the first three months of 2013.

How convenient. He’s buying himself some time so one of two things can happen: 1. Opponents of the pipeline will have an extra year to come up with a better idea that he can sell when the general election kicks off. 2. It becomes the new president’s problem. The only other reason he’s offered for the delay is the need to avoid passing through “environmentally sensitive” areas like Nebraska’s Sand Hills. Sadly, only a minority of Americans seem to concern themselves with such matters.

OK, fine. Let’s say they really do need time to determine the real numbers. Canadian Prime Minister Stephen Harper isn’t prepared to wait that long; in a discussion with Obama at this weekend’s Asia-Pacific Economic Corporation (APEC) summit, he warned that he’s prepared to reroute the pipeline through Western Canada, so it can supply oil to Far East countries. That’s what’s really at stake: a transaction. But a massive one.

Am I disgusted that the pride of Canada is a fossil fuel that comes from an ecologically suspect source? Absolutely. But that’s what happens to countries that don’t favor innovation. Even a few thousand jobs would be welcome to Americans. And if you’re going to keep needing oil, even for a while, you might as well get it from Canada instead of Saudi Arabia. Ignoring the possibilities in favor of less-proven green ones isn’t something an American president should try.

With those points made, let’s shut up and get the Congressional Budget Office (CBO) or some other completely non-partisan, non-ideological, non-connected authority to give us the real numbers, just so we can decide something for a change.

Blinded by the light (bulbs)

Having yet to get past their status as an almost purely confrontational political faction, the Tea Party has gone to war with supporters of a certain government regulation. Not much of a shock there, until you consider that one of those supporters is a large private company, Philips Electronics. I imagine a few Tea Partiers’ heads exploded trying to make sense of that one. “A pro-regulation company? In our America? Oh, wait, they’re Dutch. Damn those Dutch!”

The federal regulation in question, co-sponsored by two Republicans and signed into law in 2007 – yes, by then-President George W. Bush – would require manufacturers to upgrade light bulbs to generate the same amount of light as usual, but with less electricity needed. They are more expensive to buy, but last longer and lower energy bills. Also, it’s assumed that they won’t pollute you mercury if they break, which has been Sean Hannity’s rallying point against compact fluorescent bulbs.

Note that nothing in the related legislation mandated the use of these bulbs, only the manufacture. Philips has invested a fair bit of money in researching and developing these bulbs since, and fears that rolling back the regulation would “would undermine their investments in developing energy-efficient bulbs.” I just thought I’d throw it out there that Philips’s operating income in 2010 was $2.065 billion, and there’s no evidence that the government is funding this mandate.

Sen. John Warner (R-VA) brings a slightly different perspective: “If I were a financier trying to help the small business community, I would say, ‘Wait a minute—if Congress is going to start stripping out provisions of this landmark legislation, then there’s no regulatory certainty—and I’m not going to lend you the money.’” It evokes more sympathy than one would have for a large foreign-owned corporation, but not enough for me to endorse the regulation.

The Tea Partiers may be wasting their time on something that stirs up the troops but is, ultimately, unimportant. But it sounds to me like both Philips and the financiers of whom Warner speaks, if he knows any real ones, have more faith in mandates than wise consumer decisions. They should not invest in the newer bulbs because the federal government demands so. They should invest in those bulbs because they’re a good idea.

As for the Tea Party, they should save their energy for a much sexier campaign against regulations. Just imagine how successful they’ll be when “Save the Light Bulb” is replaced with “Save the Pick-Up Truck.”

Green Arrow vs. Red Dart

It’s time once again for The Future American’s FAIL OF THE WEEK! Every Saturday, I name a person or group who has spent the past seven days behaving in a particularly idiotic way. Since it’s my belief that idiocy knows no politics, nobody is safe.

This week’s fail was brought to you by Rep. Darrell Issa (R-CA), chair of the House Oversight Committee and a frequent agoniste of President Obama. I’ve called him out before for using his chairmanship to grind an axe. Now I’m calling him out for using that axe to take a stab at Obama’s pick for Commerce Secretary, which would have been fine if not for one little word.

I would vote to confirm this John Bryson, whose experience focuses on public utilities, for two reasons: a) He sees the economic potential of clean energy, which Issa clearly does not. b) The last guy, Gary Locke, was a career politician (former governor of Washington) and lawyer. I don’t even know what he was doing there. Republicans have already promised to block Bryson’s nomination, calling him a “green evangelist” (Issa) and referring to his Natural Resources Defense Council (NRDC) as “radical” (Sen. Jim Inhofe [R-OK]).

Huh? A “radical” environmental organization would see no connection whatsoever between the environment and the economy, which the NRDC does not. It speaks volumes that they are better at this than Issa and Inhofe. This is far from your average band of hippies that do little more than poster buildings and throw pies. The NRDC has proven worthy of our attention in more than one way.

But that’s not all. Issa is accusing the Obamans of deliberately trying to run up oil prices in an effort to push their clean energy agenda. As far as agendas go, it’s better than any that involves forcing people to live on less energy in one fell swoop. And if this was their plan all along, I’d say turmoil in oil-producing countries did a far better job of it. Nonetheless, I would rather that they confined their agenda to improving general market conditions for new energy sources.

So Issa makes a good point on that prong out of the two that make up his opposition to Obama’s energy agenda. About Bryson, though, Issa and Co. are going way too far in using his support of cap-and-trade as a jumping-off point to call him “radical.” Cap-and-trade speaks for itself; nobody wins when you pull these unnecessary qualifiers out of your ass, not to mention allegations that Obama opposes kicking up domestic oil production. It’s so easy to knock that one down that it’s not even fun.