BP Spill Moves Congress to Restrict Drilling Without Imposing Carbon Price
Transocean Ltd. Deepwater Horizon, a semi-submersible drill
Transocean Ltd. via Bloomberg
Offshore oil drilling platform in the Gulf of Mexico.
Offshore oil drilling platform in the Gulf of Mexico. Source: Transocean Ltd. via Bloomberg
Congressional Democrats proposed tougher rules for offshore drilling in response to the worst oil spill in U.S. history, while spurning calls to place a price on carbon emissions.
House and Senate leaders presented legislation yesterday rewriting oil and natural-gas drilling rules more than three months after a rig leased by BP Plc exploded in the Gulf of Mexico. The bills would strengthen safety and environmental standards for exploration in federal waters, give Congress direct oversight of offshore energy production, and require companies that cause spills to pay all damages.
Pleas from environmental groups and some companies that the Senate bill include limits on emissions that contribute to global warming were rejected after Majority Leader Harry Reid, a Nevada Democrat, said there weren’t enough votes for the climate provisions. The House passed a cap-and-trade bill last year that would set limits on carbon dioxide linked to global warming and create a market in pollution allowances.
“We’re extremely disappointed that Big Oil and their allies in the Senate have for now blocked comprehensive clean- energy legislation,” Gene Karpinski, president of the League of Conservation Voters, said in an interview. “Our job is to make sure that voters understand which candidates stood with big oil and which candidates stood for clean-energy jobs, reducing our dependence on oil and cutting pollution.”
Obama’s Response
President Barack Obama, who has endorsed cap-and-trade legislation while not insisting that senators act on it, said yesterday that the Senate measure is “an important step in the right direction.”
“But I want to emphasize it’s only the first step, and I intend to keep pushing for broader reform, including climate legislation,” Obama said after meeting congressional leaders.
White House press secretary Robert Gibbs told reporters he doesn’t think climate-change provisions are “essentially dead for the year” because they could be restored later in House- Senate negotiations.
Senator Mike Johanns, a Nebraska Republican, has introduced a measure that would require legislation emerging from those talks to get 67 out of 100 votes to pass the Senate if it includes cap-and-trade, instead of the usual 60. Johanns will press for a vote on the measure as soon as today, spokesman Jim Landry said in a telephone interview.
The House and Senate may take up their oil-spill measures before members leave for their August recess, lawmakers said.
Petroleum Institute
The American Petroleum Institute, an oil industry group, objected to what made it into the legislation, saying lawmakers were acting before the cause of the Gulf disaster is known and imposing penalties that would raise energy prices and kill jobs.
Congressional Democrats called the bill a necessary response to the spill that began April 20 after an explosion on the Deepwater Horizon drilling rig leased by BP.
“We address safety provisions for offshore drilling by including independent certifications of critical equipment,” Representative Nick Rahall, a Democrat from West Virginia who heads the House Natural Resources Committee, said on a conference call with reporters. “We provide stiffer penalties for safety violations.”
The Senate measure was stripped of disputed energy provisions aimed at curbing climate change and setting standards for the use of renewable energy in a bid to draw support from moderate Democrats and Republicans, according to Kevin Book, a managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm.
Timing Questioned
A late addition under which regulators could force companies to post cash up front to cover legal liabilities from a spill, as well as the release of a Republican alternative, make it unlikely that the Senate will pass the measure before the August break, Book said.
The Republican alternative released last week would allow states to share in drilling-royalty fees. Senator Mary Landrieu, a Louisiana Democrat, said she may not support the Democratic bill unless Gulf Coast states are given a share of offshore drilling revenue.
“It’s very unlikely that I can vote for anything related to the oil spill without making sure the Gulf Coast is adequately compensated,” Landrieu told reporters in Washington yesterday.
The House bill isn’t yet scheduled for debate on the floor, according to a spokeswoman for Majority Leader Steny Hoyer, a Maryland Democrat. The House breaks for its August recess on July 30.
Spill Trust Fee
The Senate bill would boost the fee for the federal oil- spill trust to 45 cents a barrel of oil, from 8 cents. The increase would cover costs for the bill, estimated at $15 billion. The measure provides rebates for cars and trucks that run on natural gas and for renovations that make houses more energy-efficient.
Jack Gerard, president of the Washington-based American Petroleum Institute, said Congress and Obama are overreaching. Obama has ordered a suspension of deepwater drilling during inquiries into the BP disaster. Democrats have also proposed rescinding tax breaks for oil and gas producers.
“There are some proposals that can push the limits or greatly discourage our ability to produce the energy we need,” Gerard said on a conference call with reporters.
The House and Senate versions would eliminate the $75 million cap on liability for companies that cause oil spills and toughen drilling safety standards. When seeking new offshore leases, companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. would have to prove they can bring leaking wells under control and clean up any spills.
BP Barred
The House bill would bar BP from operating new drilling leases in U.S. waters, based on its prior safety record. In a departure from Senate proposals, it would also bar companies with leases signed in the late 1990s that don’t require royalty payments to the government from bidding on new tracts if they decline to renegotiate and pay fees on the earlier contracts.
Both the House and Senate versions would place into law the Obama administration’s decision to scrap the Minerals Management Service, the Interior Department agency responsible for energy production on federal leases, and replace it with new agencies to ensure that revenue collection is kept separate from oil and gas leasing, environmental protection and safety decisions.
Company executives would have to certify that equipment such as blowout preventers, devices meant to stop a gusher, are working. The blowout preventer failed on BP’s Macondo well, 5,000 feet below the surface.
The House measure was offered as an amendment to H.R. 3534. The Senate version hadn’t yet been formally introduced.
To contact the reporters on this story: Jim Efstathiou Jr. in Washington at jefstathiou@bloomberg.net; Simon Lomax in Washington at slomax@bloomberg.net.
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