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The President's Oil Spill Speech

Posted By Nicolas Loris On June 15, 2010 @ 9:09 pm In Energy | Comments Disabled

President Barack Obama delivered his first Oval Office speech on the heels of his latest visit to the Gulf region – the fourth since the Deepwater Horizon rig explosion in April.   With such an environmental and economic crisis present, the president needs to exert leadership to protect our precious coastal resources and clean up the spill.

His message was the wrong one.  Instead, he continued to politicize the crisis by pushing for cap and trade legislation and to establish a separate claims fund – financed by BP – that will do very little to address the issue at hand.  President Obama is right in saying that the Gulf region will bounce back, but not with the policies of cap and trade and banning offshore drilling that he’s suggesting.

Never Waste a Crisis – Pushing for Cap and Trade, Green Mandates:

The President has been using the oil spill to push cap and trade and “clean” energy investments forward, but global warming legislation—placing caps on carbon dioxide emissions—would do nothing to improve clean-up or to prevent future spills. It would distract from the very efforts to clean up and stop the oil that must be the top priority now. Nor would emissions caps magically create new problem-free sources of alternative energy. Instead, global warming legislation would raise energy costs for all Americans and kill much needed jobs.

Under a regime like the President proposed, higher energy costs would spread throughout the economy [1] as producers everywhere try to cover their higher production costs by raising their product prices, further impacting Americans. The result will be a much slower economy and lost jobs at a time when the top priority for Americans is economic growth.  This is hardly the bounce back for the Gulf’s economy.  Implementing the House-passed Waxman-Markey cap and trade bill would put a chokehold on Louisiana’s economic potential, reducing the state’s economy by $8.33 billion in 2035. Beginning in 2012, job losses will be 21,832 higher than without a cap-and-trade bill in place. And the number of jobs lost will only go up, increasing to 31,468 by 2035.

Furthermore, President Obama should not romanticize other countries’ renewable energy investments: 1.) Because countries aren’t simply shifting away from fossil fuels as he says they are and 2.) Because those countries that have made “real” investments in renewable energy are regretting their decision.

China, for instance, uses much more oil and according to monthly oil report from the Energy Information Agency (EIA), “China may account for 40 per cent of this year’s expected rebound in oil consumption and nearly 45 per cent of oil demand growth in the next five years.”  To say that China is moving away from fossil fuels and towards a green energy economy is misleading, especially when coal provides 70 percent of the nation’s energy and 80 percent of its electricity.  It is projected that China’s coal capacity will nearly triple by 2030.

The reason renewables provide a very small fraction of our nation’s electricity demand is that they’re too expensive without the crutch of the government. The other economic problem is that the government crutch pulls resources away from more productive use. Government spending will create some jobs to build windmills and solar panels and work at biomass plants but this diverts labor, capital and materials from the private sector that could be used more efficiently to create even more jobs. In effect, government subsidized green jobs destroy jobs elsewhere.  Moreover, government picking of winners and losers stifles the very innovation needed to bring efficiency and new fuel sources to the mix. If the United States should learn any lesson, it should be not to go down this road China is starting down and instead follow European countries lead and peel back support

Creating an Independent Escrow Account:

President Obama says BP and the government reached a voluntary agreement to create an escrow account – a separate fund to pay the economic damages of the spill.  How voluntary? We’ll likely never know.  The fund gives the public the impression that the President is really doing something and will likely stoke the flame of anger towards BP if the oil company raised any objection. However, the need for such a fund it is highly questionable.  BP is already hook for the cleanup costs and has pledged to pay for all legitimate liability claims.  Granted it is still early to measure how efficient the claims process is working. (BP has 600 claims personnel and paid [2] over 20,000 of the 40,000 claims filed.) Claims that typically take 45 days to process and pay out are being accomplished in 48 hours [3].

If anything, the government should ensure that the claims process is open and transparent to ensure expeditious, justified payments to those who suffered economically from the spill.  It will also ensure that overzealous lawyers aren’t able to take BP to the cleaners for illegitimate claims.  University of Maryland Professor asserts that the President’s demand for an escrow account could have such an effect [4]: “By feeding public distemper, the President risks encouraging boycotts of BP by consumers and bond investors, outsized tort claims and the specter of excessive punitive awards. Together, those could destroy BP’s ability to raise cash and leave small businesses and ordinary citizens without the compensation they are due.”   And as the Wall Street Journal points out, politicizing the payment process could result in the independent party being a government-picked escrow administrator and payments could be granted to those affected by the president’s offshore moratorium.

The Ban on Offshore Drilling

The President also defended his ban on offshore drilling, but it is premature and will have significant adverse economic impacts. Offshore drilling provides about one third [5] of the United States’ domestic oil. These much needed sources off our coastal waters have the potential to provide energy to every aspect of the United States economy at a time when fuel shortages that lead to increased energy prices can mean death to struggling industries. According to Burt Adams of the National Ocean Industries Association, in the Gulf Coast, more than 200,000 jobs are tied [5] to the offshore drilling industry and 35,000 workers are directly involved each day when the rigs are in use. The American Petroleum Institute forecasts [6] that if the drilling ban continues, more than 120,000 jobs could be lost in the Gulf Coast and key resources abandoned or moved elsewhere.  European nations including the United Kingdom and Norway do not intend to likewise cripple their domestic oil industries, but have decided not only to allow offshore oil drilling to continue, but also to sell leases to new drilling locations.  The President is also wrong to say we are headed towards peak oil and that we’re soon going to run out.  For more, see Heritage research fellow David Kreutzer’s response, “Not All the ‘Easy’ Oil is Gone Mr. President [7].”

Separating Big Government from Big Business

The President is at best premature, and likely wrong, when he says that we need new regulations to prevent such a catastrophe from happening again.  Rather, we need to end the inadequate and flawed deployment of those regulations through cozy relationships between the regulated and the regulator.  So, President Obama was right in that we need to revamp the Mineral Management Service.  However, it must be done in such a way that separates big government from big business. Reports of federal regulatory exemptions and passed safety inspections merely weeks before the explosion should raise harsh questions [8] about the federal government’s responsibility and the role of regulation – despite the overhaul of the agency by Secretary Salazar. With its financial interests in energy production (royalty collection and taxes), the Mineral Management Service is seeing its interests and those of its corporate partners becoming closely aligned. This is perhaps part of the problem of offshore drilling regulations. Instead of blurring the line between public and private activities—and thus responsibilities—regulatory policy should focus on providing a limited amount of strong, fair, and efficient regulatory guidance. At a minimum, those elements of the federal regulator responsible for promoting specific energy sources should not also be responsible for enforcing regulatory standards.  This will require an overhaul of the Mineral Management Service that should be done prudently and lead to smarter regulation, not more regulation.

Making rash policy decisions based on fears or other agendas will cause immeasurable damage to the United States economy, an economy that is still struggling to break free of a recession. Our capacity to shape our destiny has come from our system and very spirit of free enterprise; not from government as the President’s proposals would have us do. For a comprehensive plan of what the president should do, check out The Heritage Foundation’s Special Report: Stopping the Slick, Saving the Environment: A Framework for Response, Recovery, and Resiliency [9].


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/06/15/the-presidents-oil-spill-speech/

URLs in this post:

[1] higher energy costs would spread throughout the economy: http://www.heritage.org/Research/Testimony/The-Economic-Impact-of-the-Waxman-Markey-Cap-and-Trade-Bill

[2] has 600 claims personnel and paid: http://online.wsj.com/article/SB10001424052748704324304575307111725173500.html

[3] 45 days to process and pay out are being accomplished in 48 hours: http://abcnews.go.com/Business/wirestory?id=10863243&page=2

[4] could have such an effect: http://www.foxbusiness.com/story/markets/industries/government/president-obama-water-head/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxbusiness%2Fenergy+%28Text+-+Industries+-+Energy%29

[5] provides about one third: http://blog.energytomorrow.org/2010/06/energy-tomorrow-radio-episode-109---burt-adams-discusses-economic-effects-of-moratorium.html.

[6] forecasts: http://blog.energytomorrow.org/2010/06/pressure-mounts-against-deepwater-drilling-ban.html

[7] Not All the ‘Easy’ Oil is Gone Mr. President: http://blog.heritage.org../2010/05/27/not-all-the-easy-oil-is-gone-mr-president/

[8] merely weeks before the explosion should raise harsh questions: http://www.eurasiareview.com/201006133142/gulf-coast-oil-spill-does-us-government-share-responsibility.html

[9] Stopping the Slick, Saving the Environment: A Framework for Response, Recovery, and Resiliency: http://heritage.org/Research/Reports/2010/06/Stopping-the-Slick-Saving-the-Environment-A-Framework-for-Response-Recovery-and-Resiliency

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