01 Mar 2004 Continental Shelf’s Energy Riches a Potential Bonanza for Cash-Strapped States

Good ideas from Washington are about as common as World Series appearances by the Chicago Cubs or the Boston Red Sox. But while the hapless Cubs and Red Sox will have to wait another season (or more) for their day in the sun, the rest of us may soon benefit from a novel idea that will put an end to America’s long losing streak on energy policy.

Staffers from the House Resources Committee have circulated a proposal on Capitol Hill that would put revenues into the coffers of debt-ridden state governments, and affordable energy into homes and businesses across the country.

Their plan would end the federal ban on offshore drilling for oil and natural gas, while allowing coastal states to decide whether they want energy development off their shores. America has abundant reserves of oil and natural gas in the Outer Continental Shelf. But most of the mineral-rich area is off-limits to energy exploration thanks to bans imposed by the federal government. The bans were first imposed by Congress on an annual basis in 1982, and were extended for ten years by Presidents Bush in 1990 and Clinton in 1998. Currently, only the only areas open to oil and gas exploration are in the central and western Gulf of Mexico and in some waters off Alaska.1

Fed by a growing population and by the proliferation of electricity-hungry high-tech gadgetry, demand for energy has soared in recent years. Yet, at the start of this decade, the nation produces 14 percent less natural gas than it did in 1973.2 Natural gas is used to heat 60 percent of America’s homes and supplies electricity for 40 percent of U.S. businesses.3 Unless the widening gap between supply and demand is closed – and closed quickly – our nascent economic recovery is in jeopardy.

This is where the State Enhanced Authority for Coastal and Offshore Resources Act (SEACOR) comes in. Under the draft legislation, offshore state boundaries would be expanded seaward to nine nautical miles – from the current three. States would be able to control all resource development within those nine miles. Existing drilling leases would be exempted, but states would receive 27 percent of the royalties. The plan also gives states the right to veto all or part of oil and gas leasing up to 50 miles from shore proposed by the federal Department of Interior.

Beyond 50 miles (in 25-mile increments up to 100 miles), states could reject oil and gas leasing proposals.4 As an inducement not to exercise their veto rights, states would be offered revenues from the drilling they do allow. The more drilling allowed, the more money the states would receive. According to estimates by the House Resources Committee staffers, the proposal would generate $108 to $175 billion in revenues to states between 2004 and 2067, depending on the level of energy extracted. What’s more, all 50 states would share in some of the revenue, giving inland states such as Tennessee, Missouri, Iowa and Colorado a stake in the Outer Continental Shelf.5

Dramatic advances in drilling technology have made offshore exploration environmentally safe. Indeed, as Senator Mary Landrieu (D-LA) pointed out in a Houston Chronicle story, those concerned about the environmental impact of oil and gas drilling in the Gulf of Mexico should really be worried about the risk of spills from oil tankers. If drilling in restricted in the waters off of the United States, needs would naturally dictate the increased use of tankers to import oil from abroad.6 Canada has already taken advantage of new, safe drilling technologies in the waters off its maritime provinces and is considering exploration and development of energy resources off its Pacific coast.7

By denying itself resources which are readily available to it, the United States is undermining its own future. In a recent letter to Senator Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee and Representative Billy Tauzin (R-LA), then chairman of the House Energy and Commerce Committee, 25 trade associations, including the National Association of Manufacturers, American Farm Bureau Federation and the U.S. Chamber of Commerce, pointed to soaring natural gas prices and their economic implications. “If there is no substantial change in natural gas policy,” they wrote, “we will continue to see lost manufacturing jobs, and Americans will have an unlegislated tax of tens of billions of dollars imposed on them because of high prices caused by government restrictions on access to our nation’s natural gas resources.”8

The energy bill pending in Congress is long on subsidies and other goodies for favored constituents, but short on initiatives that will actually produce energy. More of the same won’t do.

Bonner R. Cohen is a senior fellow of The National Center for Public Policy Research. Comments may be sent to [email protected].

Footnotes:

1 H. Josef Herbert, “GOP Proposal May End Coastal Drilling Ban,” Associated Press Online, Oct. 15, 2003.

2 Representative W.J. “Billy” Tauzin (R-LA), Congressional Record, June 21, 2001, p. H3423.

3 Russell Gold, “Firms Drill Deeper for Natural Gas,” Wall Street Journal, October 14, 2003, p. A-1.

4 Summary of Draft Legislation, “State Enhanced Authority for Coastal and Offshore Resources Act of 2003 (SEACOR).”
5 Ibid.

6 David Ivanovich, “Senate OKs Drilling in Eastern Gulf,” Houston Chronicle, July 13, 2001, p. 1.

7 Letter from 25 U.S. trade associations to Senator Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resouces Committee, and Representative W.J. “Billy” Tauzin (R-LA), then-chairman of the House Energy and Commerce Committee, October 14, 2003.

8 Ibid.