WASHINGTON – Congress is currently discussing proposals that critics say would rewrite longstanding rules governing revenue-sharing between the federal and state governments for natural resource extraction in federal waters.
Even at a time of ongoing budgetary constriction at the federal level, the changes could significantly decrease the percentage of revenues the federal government receives for offshore oil-and-gas drilling. According to new estimates released this week, legislative tweaks proposed in the most prominent of these bills would cost U.S. taxpayers some $49 billion through 2040.
“Taking more oil and gas revenues away from taxpayers is far from fair and hard to defend as fiscally responsible,” Matt Lee-Ashley, a senior fellow at the Center for American Progress, a liberal think tank here, said while releasing a new report on the issue. “Instead of adding $50 billion to the debt, Congress should be making fiscally sound reforms that invest energy revenues from public lands and oceans in ways that benefit every American.”
Federally managed lands and waters together earn around $11 billion every year for federal coffers. Not only is this money traditionally meant to be used for the general good of the country, but this funding stream constitutes one of the largest revenue sources for U.S. citizens, other than taxes.
The most significant proposal currently pending in Congress to alter this arrangement is called the Fixing America’s Inequities with Revenue (FAIR) Act, sponsored by senators from Louisiana and Alaska. It’s worth noting that these are two of the five states that would directly and significantly benefit from the proposal.
The bill would give coastal states a 27.5 percent cut of revenues from oil-and-gas drilling or other energy production on the Outer Continental Shelf, the 1.8-billion-acre offshore area that for decades has been legally seen as the federal government’s prerogative. That percentage would be increased by another 10 percent if states were to create a clean energy or conservation fund – an easy sweetener meant to attract Democratic support.
The act would also give states half of revenues from onshore renewable energy projects on federal lands, the same proportion as currently exists for fossil fuel production.
In terms of the offshore revenue, such legislative reshuffling would rework decades’ worth of legal understanding on public goods in the United States. The Supreme Court laid down guidelines more than a half-century ago on how the federal and state government should divvy up the offshore exploitation of natural resources.
Building on that precedent, coastal states since the 1950s have had exclusive rights to minerals within three miles of their shores. But farther out, mineral rights are considered a public resource belonging to the entire country.
Windfall for a few
In fact, Congress has already given some ground on the issue of offshore state-versus-federal revenue-sharing. As of 2017, four coastal states – Alabama, Louisiana, Mississippi and Texas – will start receiving up to $375 million per year from drilling in federal waters off their borders.
Yet the FAIR Act would not only move this date up to next year, but would remove this cap entirely.
“[F]ederal energy payments to Louisiana alone would rise to nearly $2 billion per year by 2025 – 33 times more than what the average energy-producing state is currently collecting and 12 times more than what either of two of the onshore energy-producing giants, Colorado and Utah, are receiving in federal oil, gas, and coal payments,” the Center for American Progress report notes. “This imbalance appears particularly indefensible in light of the fact that [Outer Continental Shelf] resources belong to all Americans.”
At a Senate committee hearing in July, the Obama administration and some budget hawks opposed the FAIR Act for similar reasons, particularly in the context of ongoing sequestration cuts.
“The revenue-sharing provisions of [the FAIR Act] would ultimately reduce the net return to taxpayers in every state from the development of offshore energy resources owned by all Americans, have significant and long-term costs to the Federal Treasury, and increase the federal deficit,” Pamela K. Haze, a deputy assistant secretary at the Interior Department, told the committee. “In addition, the bill does not appear to be targeted to achieve clear conservation or energy policy outcomes.”
At the same hearing, Ryan Alexander, the president of Taxpayers for Common Sense, a conservative watchdog group that otherwise does not oppose offshore drilling, noted: “As the rightful owners, taxpayers are entitled to fair market compensation for the resources extracted from our lands and waters, just like any private landowner … In today’s budget climate of across-the-bard budget cuts, we cannot afford to lose this valuable revenue.”
The act’s main sponsors, Sens. Lisa Murkowski (R-AK) and Mary Landrieu (D-LA), say this revenue-sharing proportion needs to be changed because states are required to shoulder much of the burden of fossil fuel production. Sen. Landrieu, for instance, has repeatedly cited the BP oil spill’s catastrophic effects on Louisiana’s shoreline and wetlands.
Yet environmentalists have offered pushback on this rationale.
“Sen. Landrieu is offering a funny position on this, in that she acknowledges that her coast has suffered from oil-and-gas drilling but says Louisiana now needs more drilling in order to pay for those problems,” Athan Manuel, the director of the Sierra Club’s Lands Protection Program, told Mint.
“Luckily, we also have people from, for instance, New Jersey and Florida who don’t want drilling off their coasts because they realize these areas are huge economic engines. Tourism and other industries bring in billions of dollars a year, and oil-and-gas drilling could damage that.”
Manuel also notes that the FAIR Act would almost certainly motivate states to engage in broader offshore oil-and-gas exploration.
“If we’re going to be serious about climate change, about protecting our environment, we shouldn’t be opening any new areas for drilling,” he said.
“So we’re worried this could act as an incentive for states like Virginia, North Carolina and others. President Obama says the U.S. is finally getting back in the game on climate change, and offshore drilling contradicts those goals.”
The other 85 percent
As the Obama administration pursues an energy policy it refers to as “all of the above” – meaning it wants to prioritize all options to feed U.S. energy needs – multiple issues surrounding drilling revenues will inevitably become increasingly contentious.
The federal government announced this week that the country passed a notable energy landmark in October, having produced more domestic oil and gas than it imported for the first time since the mid-1990s. According to the Energy Information Agency, U.S. oil production has grown by an astounding 17 percent over the past year alone, even while imports fell by 8 percent.
While much of this growth is being led by new advances in horizontal drilling and hydraulic fracturing (“fracking”) technologies, industry analysts say offshore drilling, even in the aftermath of the BP disaster, remains one of the country’s single strongest oil-production opportunities.
The new fight over revenues also inevitably touches on an ongoing debate over broader oil-and-gas exploration in U.S. public waters. Currently, the federal government oversees some 700 million acres of land and a billion acres of water, though 85 percent of offshore territory is currently off limits to minerals exploration.
Conservatives and the industry have long itched to lift this prohibition, and the FAIR Act could now force the issue. According to estimates offered by the Republican Party this summer, opening up offshore waters to energy production would offer the potential for some $2.2 trillion dollars in tax receipts and $8 trillion in additional gross domestic product.
“We are supportive of the Fair Act as long as it includes additional access to the 85 percent of the Outer Continental Shelf that has been off limits to oil and gas exploration for decades,” Robert Myers, director of public affairs for the National Ocean Industries Association (NOIA), a trade group, told Mint.
Opening the rest of federal waters to exploration and production, the NOIA estimates, could bring in an additional $1.3 trillion in revenues over the next three decades – money that, the group warns, would otherwise not be going to either the federal or state governments.
Yet the Sierra Club’s Manuel notes official estimates that some 80 percent of both offshore oil and gas in U.S. waters is found in areas that are already open to drilling.
“The Republican caucus today seems to think that they have to oppose any measure to fight climate change whatsoever, and support any fossil fuel,” he said. “But if the Republicans were to succeed in opening up, say, the coast of New Jersey to exploration, that doesn’t mean the oil will just suddenly move there.”
The FAIR Act is currently pending before the Senate Committee on Energy and Natural Resources.