Regulatory changes for oil and gas remain under consideration in Congress
By Steve Everley, American Solutions
On April 20th, 2010, an explosion occurred aboard the Deepwater Horizon, a British Petroleum-leased oil rig in the Gulf of Mexico, killing or injuring 28 people and causing a massive spill that threatens local economies and ecosystems. While those in the Gulf wrestle with this tragedy, lawmakers inside the Beltway see it as an opportunity to impose new taxes and regulations. Many of these changes target the oil and gas sector, though their impacts will touch all fossil fuels, of which coal is no exception.
One such change is President Obama’s six-month moratorium on deepwater oil and gas drilling. The ban was intended to cover only those wells in water deeper than 500 feet, although industry has seen a total cessation of leasing with the moratorium in place. The ban has been met with near unanimous opposition from Gulf coast residents and lawmakers, while drilling experts and even the courts have issued their own arguments against it.
The administration tried to tweak the ban to quell the political uproar, but the fluctuating regulatory environment has already had an impact. Two rigs owned by Diamond Offshore recently left the Gulf and signed contracts with Egypt and Congo, taking with them hundreds of jobs and millions of dollars in revenue. Diamond’s CEO said that “uncertainties surrounding the offshore drilling moratorium” were the reason for the exodus, and more rigs are expected to abandon the Gulf as the moratorium continues. The ban threatens to kill up to 150,000 jobs, in addition to massively reducing domestic fuel production.
Tragically, the fact that many of these restrictions are designed to increase the cost of coal suggests that this legislative and regulatory push is more about attacking the fossil fuel industry than cleaning up the Gulf.
Other regulatory changes for oil and gas remain under consideration in Congress, including raising the liability cap for future spills. Some lawmakers have proposed removing the cap altogether, a plan met with serious pushback from Republicans and moderate Democrats. Although removing the cap would be regulatory redundancy (under the Oil Pollution Act of 1990 oil companies are already liable for all spill-related cleanup costs), the production impact could be significant. Independent companies, which account for two-thirds of domestic oil production and nearly 80 percent of natural gas, will pay more to get insured and bonded under an unlimited-liability mandate. These costs would be on top of the already-rising price of insurance for offshore operations, which could rise as much as 30 percent according to Lloyd’s of London.
Currently these liability changes are attached to a broader drilling reform and energy efficiency package that passed the House but remains stalled in the Senate. Final passage is uncertain, and the leadership’s unwillingness thus far to consider amendments demonstrates a dangerous political motive guiding the whole process.
Another major regulatory change worth noting is the Environmental Protection Agency’s proposal on July 6th to replace the 2005 Clean Air Interstate Rule (CAIR) with a new “Transport Rule” to reduce sulfur dioxide and nitrogen oxide emissions. The proposal, which targets coal-fired power plants primarily in the Midwest, aims to lower SO2 by 71 percent and NOx by 52 percent below 2005 levels through a new, limited cap-and-trade system.
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