Republicans concerned about obstruction

Just 1 week before the November election, the staff of the House Committee on Oversight and Government Reform released a report explicitly designed to repudiate significant portions of President Obama’s “all- of-the-above” energy strategy.  As outlined by the president, the intent of that strategy is to ensure development of the nation’s conventional, non-conventional, and renewable sources of energy to promote economic development and diminish reliance on foreign oil to the maximum extent possible.  The all-of-the-above strategy initially did not mention coal, an omission the administration later reversed. 

However, according to the committee staff, the president’s strategy was a collection of hollow claims about promoting fossil-fuel development that the administration is in fact hampering to a significant extent with major regulations issued by the EPA and the Department of Interior (DOI).  The staff report, None of the Below:  The Truth about President Obama’s Actions Against Domestic Energy Production, summarizes 4 years of “regulatory barriers” taken by the agencies against fossil-fuel development, with a particular emphasis on the “war on coal” Republicans assert the administration has been waging.

Also in line with the Republican campaign strategy, the report includes many general estimates of the number of new jobs not being made available because of the administration’s energy and environmental policies, as well as the number of existing jobs being lost, particularly in states where coal mining is a dominant industry.  That information was probably effective in coal-rich West Virginia, Tennessee, and Kentucky, where mining projects are being terminated or curtailed and where Mitt Romney collected about 60 percent of the popular vote in each state.  But, based on the election results, the impact of the Republican attack nationwide seems weak, although additional analysis will be needed to determine how much the electorate was swayed by energy policy.  Does the administration view its victory as a mandate to continue its regulatory path?  Do Republicans believe their message remains valid and, with repackaging, still has the potential to sway public opinion?  The next 4 years will undoubtedly provide a range of answers to those and related questions.

Even with President Obama’s victory, Republicans will likely continue to emphasize the essence of the following arguments raised in the committee staff’s report.

Hydraulic fracturing

According to the report, President Obama has voiced “strong support” for fracking, particularly in conjunction with the extraction of natural gas from shale rock.  But the staff argues that this “support” is belied by three policies.

• Diesel fuels. According to Section 322 of the Energy Policy Act of 2005, “the term ‘underground injection’ excludes . . . the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.”   The report states that Section 322 is a plain and unambiguous statement that the EPA is not to regulate hydraulic fracturing under the underground injection control (UIC) program unless the operator uses “diesel fuels” in the fracturing fluid.  However, in May 2012, the EPA issued draft guidance that expands “diesel fuels” to include both diesel fuel and a panoply of substances, including kerosene, home heating oil, distillates, and crude oil.  By expanding the definition of “diesel fuels” far beyond reason, the EPA has unilaterally claimed the ability to regulate a far greater swath of hydraulic fracturing operations than allowed by law, states the report.
• Air emissions.  In April 2012, the EPA issued a new air rule to control methane emissions from fracking.  Facilities must install reduced emission completion (REC) technologies, also known as “green completions.”  But the staff charges that the methane emissions estimates the EPA used to justify the rule were “wildly inaccurate and based on junk science.”  As evidence, the staff cites a report by an energy consulting firm that criticized EPA’s reliance on only a handful of inappropriate data points, the use of uninformed assumptions about industry practices, and questionable math.  “Perhaps most importantly, EPA’s estimates fail a commonsense safety test–if the methane emissions were truly at those levels, an extremely hazardous condition would exist at the well site,“ states the committee staff.
• Federal lands.  On May 11, 2012, the DOI proposed regulations governing hydraulic fracturing on federal lands.  The regulations would require operators to publicly identify the fluids they use in fracking, improve assurances regarding well bore integrity, and confirm that a management plan is in place to handle fracturing fluids that flow back to the surface.  The staff report asserts that the proposal is based on “vague and unsubstantiated complaints” and adds that the Independent Petroleum Association called the action “a poorly conceived solution to a nonexistent problem.”  Furthermore, the proposal would undermine the authority of many states that regulate fracking based on their far-better understanding of their own geology, topography, and hydrology.

The staff says that these three fracking-related actions will unnecessarily subject operators to costly UIC permitting requirements, increase their compliance costs by billions of dollars, and create a quagmire of federal and state regulations.

Oil and gas

President Obama is trying to take credit for an increase in oil production that he has very little to do with, alleges the committee staff.  The president has proclaimed that during his tenure, the nation has produced more oil than at any other time in the last 8 years.  The staff counters that almost all those increases have occurred on private land that is not subject to the federal leasing requirements governing public land.  In fact, the staff points to figures reported by the U.S. Energy Information Administration that indicate that total crude oil sales from federal and Indian lands were stagnant between 2009 and 2011.  Moreover, leases issued by the Bureau of Land Management decreased by 43 percent  between 2007/8 and 2009/10 from an average 2,957 to 1690, according to the report.  The conclusion, says the staff, is that the administration has done nothing to create the increase in oil production.

Since Obama has been in office, the administration has not approved a single new major oil and gas (O&G) pipeline, the report states.  The prime example is the current veto of the Keystone XL pipeline project.  As planned, the pipeline would primarily move Canadian product, but there are also provisions to transport oil from shale rock in the Bakken region of North Dakota.  The report notes that the House committee has received testimony about the “extraordinary economic benefits” from shale oil development in the region, leading to North Dakota having the lowest unemployment in the nation and moving the state into second place (ahead of Alaska and behind Texas) among the most prolific oil-producing states in the country.  But further growth is being blocked by the inability to transport product to other parts of the country except by rail, highway, and small-scale pipeline, methods that are more costly than transport by large pipelines.  Large pipelines are also needed in other areas of the country rich in oil and gas that can now be accessed with advanced fracking and horizontal drilling techniques.  The report includes a discussion of the oil storage hub in Cushing, Oklahoma.  In October 2012, this facility had a massive traffic jam of 44 million barrels of oil–more than four times the total oil stocks of the entire East Coast and valued at $4 billion.  The hub desperately needs more pipeline infrastructure to transport crude to refineries and regional markets, the staff says.

The staff also repeats the charge that the administration’s inaction on Keystone XL is delaying creation of 13,000 construction jobs and 7,000 manufacturing jobs, as projected by TransCanada Corporation, the project manufacturer.  

Coal

In amending its initial exclusion of coal from the all-of-the-above energy strategy, the administration claimed that it has always supported clean coal projects.  But this so-called support has not seen expression in policy, states the committee staff.  The report returns to Obama’s statement during his 2008 campaign, in which he advocated for a carbon cap-and-trade regime wherein fossil-fuel-powered plants would be forced to either retrofit their facilities at high cost or cease operation. 

Since Congress refused to write the needed cap-and-trade legislation, the administration has taken multiple steps to wage its “war on coal” through administrative fiat, charges the staff.  Mainly, federal agencies have issued a slate of regulations “attacking coal at is production, such as making it increasingly difficult to receive permits for mining, and at its use, such as enacting regulations to make it more expensive to convert it into electricity at power plants.”

Prime examples include EPA’s alleged intrusion into CWA Section 404 dredge-and-fill mining permits issued by the Army Corps of Engineers.  The committee staff argues that the EPA has the statutory authority to disapprove a Corps Section 404 before it is issued.  But in a January 2011 guidance document, the EPA declared that it was retroactively vetoing a permit that had already been issued by the Corps for the Spruce No. 1 Mine in West Virginia.  The courts nullified EPA’s veto, but the administration is appealing.  The paper also regards EPA’s new conductivity standard for National Pollutant Discharge Elimination System (NPDES) permits, which are also needed for mining projects and generally issued by the delegated states, as another means to intrude on state authority and slow the permitting process.  These and related actions have contributed to the phrase “permitorium,” wherein the administration places applications for coal mining permits “indefinitely in limbo,” according to the staff paper.  The result is a freeze on about 17,000 existing and new jobs supporting over 81 small businesses, says the staff.

At the generation end, the EPA has issued its utility maximum achievable control technology (MACT) rule to control the release of hazardous air pollutants from fossil-fuel-fired power plants.  The staff charges that the Agency considerably underestimated the total cost industry will need to shoulder as a result of this action, which an economic consulting firm referenced in the report puts at $95 billion.  The firm also projected that the rule would cause the loss of 215,000 jobs.  Other major EPA regulations the staff claims are strangling coal-based electrical power are the Cross-State Air Pollution Rule (CSAPR), which the EPA is trying to push through the courts; proposed CO2 limits on new fossil-fuel power plants, which, if made final, will probably mark the end of new construction for traditional coal-fired facilities; a requirement that power plants install cooling water intakes that meet the costly best available control technology standard; and the potential hazardous waste designation of residual ash generated by power plants, a standard that would carry an annual $7 billion compliance cost for industry, according to some estimates.

The staff concludes that an all-of-the-above energy policy should promote all domestically available resources, including oil, natural gas, coal, and renewables.  “The Obama administration, despite the rhetoric, has simply not done this,” states the committee staff.  With 4 more years under a Democratic executive, the intensity of this debate is not likely to diminish.

Click here to read the committee staff report.

William C. Schillaci
BSchillaci@blr.com