A study by Nicolas Loris; Herbert and Joyce Morgan Fellow at the Thomas
A. Roe Institute for Economic Policy Studies
President Barack Obama consistently touts the fact that
domestic oil production is the highest it has been in eight years. While this
is a positive development for America, production has not increased as a result
of the President’s policies — but in spite of them.
Much of the increased activity is on private lands over
which the Administration has no control.
North Dakota, for instance, has been the poster child for
what can happen when the government unleashes free enterprise by reducing
harmful over-regulation and unnecessary delays, and allows states to develop
and commercialize their resources. The example of North Dakota also shows how
quickly domestic oil can reach the market. In December 2009, North Dakota had
an average of 75 drilling rigs. That month, the state had 4,600 wells producing
7.5 million barrels of crude oil. In January 2012, North Dakota had an average
rig count of 200 with 6,600 wells pumping out 16.9 million barrels of oil.
The opposite is occurring on federal lands where
production fell in fiscal year (FY) 2011 (the most current fiscal year for
which data are available).
In the near, intermediate, and long term, oil producers
can bring more domestic oil to the world market, increasing supply to offset
rising demand and increasing America’s percentage of the world’s total
production to help minimize supply shocks.
Increasing American energy production will create jobs,
increase economic growth and raise government revenue — without raising taxes.
* * * * *
Following are 10 actions that Congress can take to help
lower gas prices in both the short term and long term:
1) Lift offshore and onshore exploration and drilling
bans.
The United States is the only country in the world that
has placed a majority of its territorial waters off limits to oil exploration.
Congress should lift the ban on exploration in the eastern Gulf of Mexico and
the Atlantic and Pacific coasts, and should conduct more lease sales off
Alaska’s coasts.
Another obvious area in which to expand oil production is
in Alaska’s Arctic National Wildlife Refuge (ANWR), where an estimated 10.4
billion barrels of oil lie beneath a few thousand acres that can be accessed
with minimal environmental impact.
Congress should require the Secretary of the Interior to
conduct lease sales if a commercial interest exists to explore and drill.
Congress should also provide the funding, if necessary,
for the federal government to hire personnel to conduct new lease sales after
opening America’s territorial waters and currently blocked onshore areas.
2) Approve Keystone XL.
Had President Obama approved the permit for construction
of the Keystone XL Pipeline, up to 830,000 barrels of oil per day would have
come from Canada to the Gulf Coast refineries as early as 2013. But President
Obama rejected the permit...
Congress should recognize its authority to regulate
commerce with foreign nations to...approve construction of the pipeline.
3) Require timely environmental review.
The environmental review requirements for oil and gas
projects to commence on federal lands under the National Environmental Policy
Act (NEPA) take entirely too long.
The White House Council on Environmental Quality (CEQ)
estimates that an environmental impact statement (EIS) to approve a larger
drilling project should take one year to complete, while smaller environmental
assessments (EAs) should take no more than three months.
Since 2005, it has taken the government an average of
five years to complete an EIS, and EAs regularly take over four years.
Congress should place a 270-day time limit on NEPA
reviews, ensuring a quick, efficient review process for energy projects on
federal lands.
4) [Streamline the] permitting process.
Processing a permit to drill also takes far too long. The
processing time frames for Application for Permit to Drill (APD) extend well
beyond the 30-day time limit stipulated by the Energy Policy Act of 2005. This
delay is creating the perverse incentive for companies to submit more permit
applications than they need with the intention that some will make it through
the process.
Congress should require the Department of the Interior to
honor the law’s deadline unless the Interior finds fault with the application.
If Interior concludes that the permit application is not
complete, it should outline specific steps on how to complete it.
If Interior does not do so, the permit application should
be considered accepted.
Congress should ultimately transition the permitting
process to state regulators, who are best able to balance economic growth and
environmental well-being.
5) Issue leases on time.
Rather than implementing an efficient leasing process,
the Department of the Interior added three additional administrative
regulations to the leasing process in January 2010.
These are duplicative and unnecessary levels of
bureaucracy in addition to what is already an extensive and thorough leasing
process.
Moreover, after a company wins the bid for a lease and
purchases, Interior routinely fails to issue the lease, despite being
statutorily required to do so within 60 days.
Oil and gas companies have successfully sued the federal
government, but have nevertheless been prevented from moving forward with
exploration and drilling in a timely fashion.
Congress should remove these additional levels of red
tape and stipulate that if Interior fails to issue the lease to the winning
bidder within 60 days, the lease should be considered issued by default.
6) Allow development of oil shale.
Oil shale production in the United States could be a
global game changer for oil production.
The U.S holds the largest known reserves of oil shale in
the world.
According to the Bureau of Land Management, the U.S. has
more than five times the proven reserves of oil in Saudi Arabia.
Seventy percent of American oil shale reserves lie
beneath federal lands.
The Obama Administration has back-peddled on oil shale
development by applying new regulations, unworkable time frames, and
significantly reducing the land available for research and development leases.
The new rules also unnecessarily crowd out the opportunity for smaller
companies to invest in research leases.
While the technology is still developing and
environmental considerations need to be taken into account, Congress should
make permanent the 2008 Department of Interior guidelines for oil shale
development in order to provide regulatory certainty for companies to pursue an
extremely valuable resource.
7) Stop the land grab.
The Department of the Interior’s land grab (Secretarial
Order No. 3310) to unilaterally and arbitrarily classify federal land areas as
“Wilderness” or “Wild Lands” will not only restrict access to new drilling
areas but also prevent production on existing leases.
Once again, the Administration is ignoring the needs of
regional and local economies and their ability to balance economic growth and
environmental priorities.
Congress should permanently block Secretarial Order No.
3310 and any Interior-proposed designation should require congressional
approval.
8) Implement 50/50 revenue sharing.
States receive 50% of the revenues generated by onshore
oil and natural gas production on federal lands and Congress should apply this
allocation offshore as well.
Drilling off states’ coasts and allowing them a larger
share of the royalty revenue would encourage more state involvement in drilling
decisions.
Offshore drilling would promote state and local
government participation in allocating funds as well, whether closing a state’s
deficit or coastal restoration and conservation.
9) Prohibit greenhouse gas and Tier 3 gas regulations.
In 2010, the Department of the Interior suspended 61 oil
and natural gas leases in Montana alone because environmental groups charged
that the energy production would contribute to climate change.
Reducing greenhouse gas emissions, and simply reporting
on emission outputs, is extremely costly, especially for small, family-owned
wells. As the Environmental Protection Agency’s administrator, Lisa Jackson, has
admitted, reducing greenhouse gas emissions in America will have an
insignificant impact on overall global emissions and thus no noticeable effect
on global temperatures. The most effective and comprehensive approach to
stopping the federal government’s power grab would be to permanently prohibit
any federal agency from regulating greenhouse gas emissions.
Additionally, the proposed Tier 3 gas regulations
(designed to replace the Tier 2 regulations issued in 2000) to lower the amount
of sulfur in gasoline could add 6 cents to 9 cents per gallon to the cost of
manufacturing gasoline — and the Environmental Protection Agency has declared
no measurable air quality benefits.
Congress should prohibit the implementation of these
regulations because such changes have broad consequences on the economy and
society and are not to be undertaken by unelected government officials.
10) Repeal the renewable fuel standard.
Another egregious problem is the statutorily mandated
Renewable Fuel Standard (RFS), more commonly known as the ethanol mandate.
On the one hand, in the very near future refiners will be
fined when the amount of ethanol mandated exceeds the amount that can be
refined for use.
On the other hand, the mandate requires production of
cellulosic ethanol (made primarily from non-food sources, such as wood chips,
switch grass, or corn stover) and yet no companies have been able to produce
commercially viable cellulosic ethanol.
As a result, in 2011 refiners had to pay more than $6
million in waiver credits or surcharges to comply with the Environmental
Protection Agency’s minimum volume requirements.
The ethanol mandate has been both an economic and
environmental disaster. Congress should repeal the RFS.
* * * * *
The most effective response to oil price spikes is simply
to allow markets to work. Government restrictions and regulations impede the
market’s effectiveness in responding to changes in oil prices. Producers and
consumers respond to changes in prices because these changes communicate
information.
As the price of oil goes up, producers explore and drill
for more.
The federal government should create the framework for
companies to extract and develop America’s untapped resources if a commercial
interest exists.
Increasing supply will help lower prices and generate
much-needed economic activity in the United States.
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