Weighing Obama’s SOTUS Proposal: More Oil Drilling to Fund Clean Energy?

President Barack Obama’s proposal to fund clean-energy research with fees paid by oil and gas producers is renewing a debate over whether the promise of innovation tomorrow is worth expanding drilling today.

Obama’s “Energy Security Trust” — which he announced this week in the State of the Union address — would redirect about $200 million in royalties for drilling on federal lands to pay for the development of biofuels, electric batteries and cars and trucks powered by natural gas, the White House said yesterday. The trust would operate for 10 years and spend a total of $2 billion.

While Obama’s plan doesn’t open new areas to producers, clean-energy advocates say the idea of an oil-backed fund could ensure further support for fossil fuel alternatives even in an era of austerity and federal budget cuts.

“There is a lot of logic to it,” said Mark Muro, a clean-energy expert at the Brookings Institution in Washington. “It resonates to a broad segment of the population that we should make the best of fossil fuels while accelerating the effort to transform our energy system.”

Drillers have lobbied to open areas off the Atlantic Coast and put more acreage in the Gulf of Mexico up for leasing, as well as in the Arctic National Wildlife Refuge on land. Companies including Anadarko Petroleum Corp. in The Woodlands, Texas, and Continental Resources Inc., which is based in Oklahoma City, are already active on U.S. lands and could benefit from efforts to expand drilling. Companies like Exxon Mobil Corp. and Royal Dutch Shell Plc may benefit if more offshore territory is made available to drillers.

Past Versions

Similar proposals have floated in Congress for years. In 2009, Republicans led by now House Speaker John Boehner of Ohio introduced an energy bill that would have directed money from oil and gas lease sales to pay for clean-energy programs as a counter to a climate-change legislation Democrats were pushing.

A White House spokesman who asked not to be identified said Obama’s proposal, which requires Congressional approval, wouldn’t add to the debt because money would be shifted from other programs. Oil and gas production, and therefore revenue, is expected to increase over the next decade, the spokesman said.

The proposal is similar to an idea offered by Alaska Senator Lisa Murkowski, the top Republican on the Energy Committee, with one key difference: hers requires the revenue come from projects on lands where drilling is now off-limits, such as the Arctic National Wildlife Refuge in Alaska. Nevertheless she said the president’s proposal is a potential area for compromise in Congress, which hasn’t passed a major energy bill since 2007.

‘Same Thing’

The “contours” of Obama’s proposal sound similar to her own, Murkowski said in an interview. “I think we’re all talking about the same thing.”

Energy development and mineral mining on U.S. lands and offshore raised about $12 billion for state and federal governments in fiscal year 2012, according to the Office of Natural Resources Revenue, a division of the Interior Department. That was about $1 billion more than the previous year as advances such as hydraulic fracturing are giving oil and gas producers more access to reserves trapped in shale-rock formations.

The idea of an energy security trust funded by royalties is backed by Securing America’s Future Energy, a Washington-based group that included the proposal in a report released late last year on U.S. energy security.

‘Unique Opportunity’

“The oil boom has created a unique opportunity to have our cake and eat it too,” Robbie Diamond, the chief executive officer of the group, said in a statement. The group, known as SAFE, includes business executives led by FedEx Corp. Chief Executive Officer Frederick Smith and retired military officials who want to reduce U.S. dependence on oil.

“If a non-partisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we,” Obama said in his address. “Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long.”

Obama said his administration would work to accelerate permits to oil and gas producers to increase production, which would raise more revenue for the government in the royalties, lease sales and bonus bids.

One obstacle will be whether taking money from oil and gas revenue to pay for clean energy projects will leave budget holes elsewhere, said Robert Dillon, a spokesman for Murkowski. “We don’t go for deficit spending,” he said.

Production Growth

In his first term, Obama promoted clean energy as a source of millions of new jobs. The 2009 economic stimulus provided about $90 billion for clean energy loans, grants and tax breaks to improve the electric grid, develop wind and solar power, and promote energy efficiency.

About $16 billion of the money went to an Energy Department loan-guarantee program under which Solyndra LLC won a $535 million award in 2009. The Fremont, California-based solar panel maker went bankrupt two years later, prompting complaints from Republicans that Obama was trying to pick winners and losers among energy companies.

The approach Obama endorsed this week is a more modest plan that focuses on research and emphasizes energy security more than green jobs.

Tight Budgets

Clean-energy advocates who fear tight budgets could dry up support for wind, solar and other programs said oil and gas revenue may offer a solution.

“Conceptually, there should be broad support for it,” said Joshua Freed, vice president for the Clean Energy Program at The Third Way, a Washington-based group that says it promotes public policies that can attract bipartisan support. “The desire for America to be less dependent on oil and less susceptible to wild swings of global oil prices is a non-partisan issue.”

The plan would face resistance from environmental groups if they perceive it to be a promotion of oil and gas development.

“We don’t want to see any incentive to open up new areas for drilling at all,” Athan Manuel, director of land protection for the San Francisco-based Sierra Club, said in an interview.

Copyright 2013 Bloomberg

Lead image: Alternative oil exploration, via Shutterstock

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