Offshore drilling: Policy reform vs political grandstanding

By Dave Juday

 

Congress has – so far – convened or scheduled well more than a dozen oversight and investigative hearings on the Deepwater Horizon oil well disaster.   According to Senate Energy Committee Chairman Jeff Bingaman (D-NM), his committee’s goal was to “create a thorough factual record and an informed discussion of the very important questions presented by this disaster.”  By that standard the committee failed.

Several Senators attempted unsuccessfully to appropriate industry jargon to delve into the mechanical engineering of oil rig shear rams and the physics of pipeline pressure tests.  It was clear they did not have even the most rudimentary knowledge of those subjects.  But that did not slow them from scolding or second guessing.  Indeed, many of the Senatorial performances had the same entertainment qualities as the amateur talent show genre where the viewer isn’t sure whether to be amused or uncomfortable. 

To be sure, some were there for the cameras.  Sen. Robert Menendez (D-NJ), for example, in his statement offered a word play on the “too big to fail” theme that polled so well for the financial industry bailout debate.  He declared “there is no such thing as too safe to fail.”   That sound bite was dutifully picked up by virtually all the press.  So much for “informed discussion.”

Then there were the plain, old fashioned “out-of-one’s-depth” questions.   Sen. Ron Wyden (D-OR) posed this line of questioning to a panel of expert witnesses: the Mineral Management Service “allowed rigs like Deepwater Horizon to drill with near certainty that blowouts would occur without adequate back up devices.  Why?”  When told that his premise was incorrect, a nonplussed Wyden asked for clarification, saying backups “weren’t required were they?”  When the Senator was assured that backup systems were indeed required, he was stubborn enough to barely stray from his script and ask: “but they weren’t required to have a back up capacity that worked, were they?”  

Imagine, however, if the federal government actually could mandate that all back-up systems must work at all times!  Then the last unresolved policy question would be: why have backup systems at all?  To be sure, if a backup system could be mandated not to fail, why not just mandate that the original system not fail?  And if that worked for oil rigs, then Congress could extend such a mandate to everything from computer stock trading programs to Japanese automobile brake systems to AIG’s and GM’s bookkeeping, and even to campaign finance reform – and everything else that has been on the fritz at some point in the last few years

But the saddest development of all is that the first “reform” with regard to offshore drilling will be to increase the Oil Spill Liability Trust Fund excise tax by one cent per barrel.  Indeed, Americans have been paying a per-barrel tax on crude oil – domestic and imported – for 20 years to supplement the expenditures for clean ups.   This accumulated cash in the fund is used to advance what will ultimately be charged to the responsible party – in this case BP.  

The sad irony of this is that the real reason the excise tax is being raised is NOT to prevent future spills, but rather to raise revenues needed to offset the cost of a tax extender bill Congress is trying to pass.  The revenue raised by increasing the oil spill excise tax will help offset the cost of that legislation, which includes all kinds of pork, earmarks, and questionable tax schemes. 

Increasing the oil spill liability fund tax is not a novel idea; that excise tax had already been increased to offset the costs of the “bailout” bill in 2008, and currently stands at eight cents per barrel.  It likely will increase to nine cents immediately – a rate that the 2008 legislation targeted to become effective in 2017.  

In short, despite Chairman Bingaman’s well-intentioned efforts, this hearing created more of a political circus than “a factual record.”  Senior committee member Sen. Frank Lautenberg (D-NJ) claimed categorically that “offshore drilling cannot be done safely.” Thank goodness, however, for Sen. Mary Landrieu (D-LA) who put this particular spill into perspective by noting, “the record will show from 1947 to 2009, 175,813 barrels have been spilled out of 16.5 billion produced. That is one one-thousandth percent of the total production.”

Obviously, there is a lot with off-shore drilling that has gone right.  Just as obviously, the Deepwater Horizon spill is catastrophic and there are vital safety lessons to be learned.  But those lessons will take some serious review, detailed analysis, and targeted investigation.  Moreover, they must be viewed in the context of the overall record of off-shore drilling and America’s current and future energy needs.   Chairman Bingaman has the right idea.  He’s just not getting a lot of cooperation from most of his colleagues.

 

Dave Juday, a CFACT policy advisor, is a commodity market analyst and principal of The Juday Group.

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