As exemplified by the 2013 State of the Union Address, the White House sometimes has a disconnect with basic economics. A prime example is President Barack Obama’s proposed Energy Security Trust, which would encourage research and innovation in green technologies while moving US energy resources away from fossil fuels.

Who should logically shoulder payment for this fund? Perhaps those who would benefit most from the transition to nontraditional fuels? Think again. Under the proposal, the oil and natural gas industry will shoulder the funding burden. Of course, that is a policy call, but there are better ways to fuel the trust fund.

In addition to looking to oil and natural gas to fund the Energy Security Trust, the White House is proposing the elimination of long-held tax deductions for the industry. These deductions are similar to tax deductions provided for other industries and are in no way “subsidies,” as they often are misidentified as being. This is not part of a comprehensive tax overhaul, which the oil and natural gas industry would welcome. Rather, it is a singling out of a particular industry – one that has been a rare economic bright spot in the last few years and has in large part helped keep the US afloat.

Yet the administration apparently believes that now is the right time to discourage future investment in American jobs, drive companies to explore for energy overseas, and ultimately hurt consumers by increasing taxes on the industry.

The oil and natural gas industry generates billions of dollars in revenue to the federal treasury annually through bonus bids, rents on leases, and royalties on production. A portion of onshore revenue goes to the state with the remainder going to the federal treasury. Offshore revenue is slated for use by the federal government, with some revenue shared by a few coastal states.

There is not any revenue left over to fund the proposed Energy Security Trust unless it is taken from someone or somewhere else. That sponge already is being wrung dry. The best way to generate more revenue to fund the Energy Security Trust is to open up new offshore areas to exploration and development.

However, due to current federal policies, 85% of the nation’s outer continental shelf is closed to even looking for oil and natural gas. These areas have not been surveyed for more than a generation. Other federal efforts such as coastal and marine spatial planning threaten to lock up even more areas without even determining the size of the oil and natural gas resources these areas may contain. Today the very White House that proposes the Energy Security Trust to advance research and innovation has closed the door to the most obvious and viable option for supplying revenue to fund it: access to more offshore oil and natural gas.

The federal government needs to end the bait-and-switch game when it comes to offshore oil and gas development. There is far more potential revenue to be generated from increased offshore access than from increased industry taxes.

A recent study authored by Joseph R. Mason of Louisiana State University indicated that opening up the Atlantic, Eastern Gulf, and Pacific offshore areas could provide more than US $35 million to states and $85 million to the federal government in added revenue annually. And that is on top of the billions of dollars in revenue that the industry already generates. The study also estimated the added offshore access would generate more than $141 billion in increased economic activity and create about 625,000 new jobs. While the US dawdles, other countries such as Brazil, Angola, Norway, and even Iceland are opening up more offshore areas to oil and natural gas exploration. The country is in danger of falling behind these other countries as a supplier of consistent, reliable, and reasonably priced energy. Given the other potential benefits, isn’t increased access the best way to create homegrown jobs and fund the proposed Energy Security Trust?

Comments